Global Industries lower on loss; Advanced Medical gains; Nabors, Chesapeake down, JetBlue up on oil

By Kenneth Lim

Boston, Aug. 5 - Earnings and oil prices were the main themes on Tuesday as the convertible market got an outright boost from stocks but hurt hedge funds.

Global Industries, Ltd. took a hit after the company reported a surprise second-quarter loss.

Advanced Medical Optics, Inc. continued to improve as its stock stayed on an upward path despite releasing disappointing guidance a day earlier.

Another day of declines in oil prices took its toll on oil and gas names. Nabors Industries Ltd. and Chesapeake Energy Corp. were all lower, while airline JetBlue Airways Corp. ended better.

After the close, Massey Energy Co. announced plans to offer $600 million of seven-year convertible senior notes.

Overall market quiet

The convertible market in general had a subdued session on Tuesday, as investors stayed mostly on the sidelines ahead of the Federal Reserve's interest rate decision. The usual summer lull was also a factor.

"It's slow in the three days before the Fed decision, it's slow three days before a holiday, now it's summer, why not be slow for three months?" a convertible trader said. "I'm having a difficult time actually finding offers. I'm ducking some of the stuff that's easier to buy, but I don't really want them. I'm not seeing a lot of anything."

The Fed announced Tuesday afternoon that it was leaving its key interest rate unchanged at 2%.

A rally in the equity markets also took some wind out of the hedge players.

"I hear the overall convertible market is under a little pressure," a New York-based buysider said. "If convertibles didn't move a lot with the common stock, that would have hurt the hedge guys. The outright guys don't have the stocks short, so they don't lose anything when the stocks go up."

Global Industries slips on loss

Global Industries' 2.75% convertible due 2027 fell about 7 points outright after the company posted an unexpected loss.

The convertible was seen at 58.75 bid, 59.25 offered against a stock price of $8.40 on Tuesday. Global Industries common stock (Nasdaq: GLBL) fell 26.71% or $3.05 to close at $8.37.

"It kind of blew up with earnings," a sellside desk analyst said. "GLBL reported earnings last night, the stock took a beating, the bonds were weak, got weaker. It kind of firmed up later in the day."

Global Industries, a Carlyss, La.-based offshore oil and gas drilling contractor, reported a net loss of $13.5 million, or 12 cents per share, in the second quarter. The company made $41.1 million, or 35 cents per share, in the year-ago period.

Advanced Medical improves

Advanced Medical's 3.25% convertible due 2026 continued to improve on Tuesday coming off a lackluster session the day before.

The convertible gained 3 points outright to trade at 65.75 versus a stock price of $18.50. Advanced Medical common stock (NYSE: EYE) rose 9.24% or $1.67 to close at $19.74 on Tuesday.

"EYE continued to hold up," a sellsider said. "Those bounced back yesterday, they were up again today."

Advanced Medical on Monday posted lower-than-expected net earnings of $22 million, or 35 cents per share. The Santa Ana, Calif.-based maker of medical devices for the eye also cut its full-year earnings forecast to between $1 and $1.15 per share. It had previously guided for a profit of $1.25 to $1.45.

Oil names lower

The oil and gas names remained under pressure on Tuesday as oil prices continued to sink.

Nabors' 0.94% convertible due 2011 was seen at 101.5 against a stock price of $33.40, an outright loss of 2 points. Nabors common stock (NYSE: NBR) closed at $33.26, lower by 3.03% or $1.04.

Nabors is a Hamilton, Bermuda-based land drilling contractor.

Chesapeake Energy's 2.25% convertible due 2038 was lower by about ½ point outright, trading at 89.25 versus a $45 stock price. Chesapeake common stock (NYSE: CHK) eased 0.73% or $0.33 to close at $44.92.

Chesapeake is an Oklahoma City-based natural gas producer.

"The Chesapeakes were active, kind of good two-way flow," a sellside desk analyst said.

A buysider said the weakening in oil prices is taking a toll on outrights who are in the sector.

"Nothing's really holding up there," the buysider said. "It's been painful. We have an overweight in that area, not dramatically overweight, but we're still overweight...mainly because the fundamentals have been good, and still are good."

The buysider said the sector could hopefully still find some support later in the year.

"The prices implied by the commodities are lower than the commodity prices...at some point things will stabilize, and people will generally look at the sector again," the buysider said. "Commodities have done well this year, the stocks have been winners, and I don't expect to dump a winner and buy a loser. But I think it might be until September, October time when there will maybe be evidence of stronger demand."

JetBlue climbs as oil lightens

The drop in oil prices has helped to take some of the pressure of JetBlue's convertibles.

The JetBlue 3.75% convertible due 2035 was ½ point better outright on Tuesday, quoted at 72.5 versus a stock price of $5.60. JetBlue common stock (Nasdaq: JBLU) closed at $5.77, up by 5.87% or $0.32.

"They've traded up to 72.5, moved up to 73 towards the end of the day," a convertible analyst said. "Those have had a good run as oil's cracked."

JetBlue is a Forest Hills, N.Y.-based airline.

Massey plans deal

Massey Energy plans to price $600 million of seven-year convertible senior notes on Wednesday after the market closes, talked to yield 3% to 3.5% with an initial conversion premium of 40% to 45%, according to market sources.

The convertibles will be offered at par.

There is an over-allotment option for an additional $90 million.

UBS Investment Bank and JP Morgan Securities Inc. are the bookrunners of the registered off-the-shelf offering.

There will be a concurrent $250 million placement of common stock with a greenshoe for a further $37.5 million. The bookrunners will be the same for the stock and convertible offerings.

Massey Energy, a Richmond, Va.-based coal producer, said it will use the proceeds of both deals to fund the repurchase of its 6.625% senior notes due 2010 and for general corporate purposes.

Massey Energy on Tuesday made a cash tender offer for its outstanding $335 million worth of 6.625% senior notes due 2010. The company is offering $1,016.56 plus interest for each of the $1,000 par notes to holders who tender by Aug. 18, and the same amount less $25 for those who tender after that. The tender offer expires at midnight ET on Sept. 2.

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