Molson slips on hedge after earnings; Chiquita flat to lower; Alpha Natural paper on tap

By Rebecca Melvin

New York, May 7 - Earnings news was still a main driver of convertible bond trade on Tuesday. Molson Coors Brewing Co. edged lower outright and on a dollar-neutral, or hedged, basis after the Denver-based brewing company reported quarterly results that missed estimates.

Chiquita Brands International Inc.'s 4.25% convertibles due 2016 traded little changed to lower in quiet trade as shares of the Charlotte, N.C.-based produce company dropped after its earnings report.

Mortgage insurer Radian Group Corp. was trading actively and the sister convertible issues of the Philadelphia-based company gained on an outright and hedged basis Tuesday.

In the primary market, Alpha Natural Resources Inc. launched an offering of $300 million of 4.5-year convertible senior notes after the market close that were seen pricing ahead of the open on Wednesday.

Stocks gained. The S&P 500 stock index notched its third straight gain and another record high, closing up 8.46 points, or 0.5%, at 1.625.96. The Dow Jones industrial average closed above 15,000 for the first time, after gaining 87.41 points, or 0.6%, to 15,056.20. The Nasdaq stock market was the laggard, but still higher on the day, up 3.7 points, or 0.1%, at 3,396.63.

Molson contracts slightly

Molson Coors' 2.5% convertible senior notes due 2013 were seen at 103.5 bid, 104 offered versus a share price of $50.72 at the market close.

The convertibles had traded at 103.4 during the session, which was down 0.8 point outright, according to Trace data. The drop on a dollar-neutral basis was 0.25 point, a New York-based convertibles analyst, using a theoretical delta of 35%.

The short-dated convertibles, which mature in July, lost a little value given that Tuesday's earnings report is viewed as the last significant vol. event for the issue before maturity, and it precipitated a 0.5% decline in the underlying shares.

"It lost a little," the analyst said. The stock is still trading below its strike price, and market players saw this report as the last catalyst that could push it up, the analyst said.

"Basically, you've got two months left, and with the bonds trading 103.5 to 104, you're going to be losing the points above par unless the bond rallies and comes into the money before maturity."

It's been a high-gamma name that has been trading fairly actively recently. Technically, there was a pickup in volatility, which generally helps valuation; but given that the maturity is looming, that dynamic wasn't in play, he said.

The stock ended down 25 cents to $50.72 on Tuesday.

The brewing company's first-quarter earnings fell to $35.6 million, or 20 cents per share, from $79.5 million, or 44 cents per share, a year earlier. Excluding items, the company earned 30 cents per share.

Revenue jumped 20% to $828.5 million on higher sales of beer. But analysts had been expecting the company to earn 34 cents per share on $854.2 million in revenue.

Chiquita edges lower

Chiquita's 4.25% convertibles due 2016 were seen at the end of the session at 93 bid, 93.5 offered. The bonds traded during the session at 93.125, which was in line to lower, compared with Monday's trades.

The bond, which trades on an outright basis, was not very active, a New York-based trader said.

The bond is "a yield name with a tiny bit of optionality." It is non-callable until February 2014, when it is provisionally callable if shares are 130% of the conversion price. The issue matures Aug. 15, 2016.

Shares of the Charlotte, N.C.-based banana and fresh produce distributor fell 34 cents, or 4%, to $8.46. Selling accelerated at the end of the day. In early trading, shares were down about 1%.

Chiquita reported earnings of $2 million, or 5 cents per share, for the quarter, compared with a loss of $11 million, or 24 cents per share, in the year-earlier period.

Revenue fell 2.4% to $774 million from $794 million. Revenue in its typically profitable banana business slipped 3% in the quarter, and its salad and healthy snacks division saw higher revenue by nearly 1%.

Profitability was boosted lower expenses. The company remains focused on improving productivity and controlling spending.

Last year in May, the Chiquita stock and bonds plunged on an unexpected quarterly loss. They recovered through the past 12 months helped by refinancing and new straight bond debt, which is non-callable for three years.

Radian adds on hedge

Radian's 2.25% convertibles due 2019 were seen at the end of the session at 141.25 bid, 141.75 offered versus the underlying share price of $13.03, according to a New York-based trader.

During the session, the Radian bonds traded at 141.249, which was up 5 points outright on the day with the stock at $12.98, which was up nearly 4%.

On a dollar-neutral basis, the bonds were up about 0.5 point, a trader said.

"Nothing crazy," he said.

The Radian 2.25% convertible is a $400 million issue that priced in February.

Radian's 3% convertibles due 2017 were seen at 138 bid, 138.5 offered at the close.

There were also trades of MGIC Investment Corp.'s various convertible issues, which were also better in a like amount of about 0.5 point dollar neutral, the trader said.

Alpha Natural to price

Alpha Natural, the Abingdon, Va.-based coal producer, planned to price a $300 million issue of convertible senior notes that was talked to yield 3.25% with an initial conversion premium of 50%.

The overnight deal was expected to price ahead of the market open Wednesday, a syndicate source said.

Barclays was the left lead bookrunner with passive joint bookrunners J.P. Morgan Securities LLC, BofA Merrill Lynch, Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, BMO Capital Markets Corp. and Deutsche Bank Securities Inc.

The overnight deal is registered and has an over-allotment option for up to $45 million of additional notes.

The notes are non-callable.

Alpha Natural plans to use the proceeds to fund purchases or repayments of a portion of outstanding debt, with remaining proceeds earmarked for general corporate purposes.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Chiquita Brands International Inc. NYSE: CQB

Molson Coors Brewing Co. NYSE: TAP

Eastman Kodak Co. Pink Sheets: EKDKQ

Radian Group Corp. NYSE: RDN

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.