Convertibles put in quiet week; Alpha Natural drops; SBA slips outright, above parity

By Rebecca Melvin

New York, Aug. 2 - Convertibles traded quietly in thin volume Friday, concluding a quiet week in which many market players were out of pocket on vacation or about to go on vacation.

The primary market was quiet with no U.S. deals launched or priced.

Earnings news was the main driver of trade in the secondary market throughout the week, including Friday when Alpha Natural Resources Inc.'s convertibles, which priced in May, traded down sharply after the coal company reported a wider loss and lower revenue on weak pricing.

SBA Communications Corp.'s convertibles traded down 3 or 4 points on an outright basis, but remained above parity by 1.75 points to 1.80 points, after the Boca Raton, Fla.-based wireless infrastructure company reported earnings that missed estimates but beat revenue estimates. The company also guided higher for the full year.

Elsewhere, some of the week's top-trading names continued to be features of Friday's session, and they were all higher.

International Game Technology added again in decent volume, capping nearly a week of steady gains.

Tesla Motors Inc.'s convertibles continued to ride higher on an outright basis, as the underlying shares moved up again.

SanDisk Corp.'s convertibles, which stumbled during the week after a Goldman Sachs downgraded, pulled back up in decent trade Thursday and Friday.

Overall, it was very quiet, market sources said. One trader noted only that "a few names traded off earnings."

In economic news, U.S. payrolls grew by 162,000 last month, the Labor Department reported Friday, which was lower than expected. The unemployment rate fell to 7.4%.

U.S. equities were weak after the July jobs report, but they were able to pare losses and turn positive into the close. The S&P 500 stock index closed up at another high, adding just 2.80 points to 1,709.67; the Nasdaq stock market added 13.84 points after a 1.4% jump Thursday to end at 3,689.59, and the Dow Jones industrial average added 30.34 points, or 0.2%, to 15,658.38.

Alpha Natural trades down

Alpha Natural's 3.75% convertibles due 2017 traded down to 85.25 during the session, which was sharply lower from about 89 bid, 90 offered earlier in the week and down from 92 bid, 93 offered a week ago. But it wasn't the first time that the three-month-old convertible had seen the mid-80s, having slid to that level through much of June.

Shares of the Abingdon, Va.-based coal producer tumbled 49 cents, or 9%, to $4.95 in heavy volume.

The company reported a wider adjusted loss from the year-ago period on lower revenue.

Alpha Natural's net loss narrowed to $185.7 million, or 84 cents per share, from $2.23 billion, or $10.14 per share in the year-earlier period. The year-ago period included impairment and restructuring charges of about $2.5 billion.

Excluding one-time items, the company lost 59 cents a share in the latest quarter, which was in line with estimates.

Revenue was $1.34 billion in the second quarter, which was down from $1.85 billion in the year-earlier period.

The company cited a drop in steam coal shipment volumes and a decline in average realizations for metallurgical and steam coals.

There is a global oversupply of seaborne metallurgical coal that prevents much export of steam coal in the Atlantic basin, the company said.

The average price per ton realization on metallurgical coal decreased 21% to $100.95.

Looking ahead, the company said that a shutdown of its Cumberland coal mine in Pennsylvania for roof repairs, which caused the company to invoke force majeure, could weigh on shipments and raise costs for the year.

Alpha Natural expects to ship 83 million to 91 million tons of coal in 2013. That will include 19 million to 21 million tons of Eastern metallurgical coal, 27 million to 30 million tons of Eastern steam coal and 37 million to 40 million tons of Western steam coal.

The company ended the quarter with $3.4 billion of long-term debt.

SBA remains above parity

SBA's 4% convertibles due 2014 traded at 243.5 on Friday, which was down 3 points to 4 points from 247 to 248.5 previously.

They were still trading at 1.75 points parity to 1.80 points parity, however, a New York-based trader said.

SBA shares ended the session down 93 cents, or 1.3%, at $73.38.

Total revenues in the second quarter of 2013 were $324.3 million compared to $229.1 million in the year-earlier period, an increase of 41.6%. Site leasing revenue of $279.5 million (including $9.9 million of pass through reimbursable expenses) was up 37.4% over the year-earlier period.

Site leasing segment operating profit of $211.7 million was up 33.3% over the year-earlier period. Site leasing contributed 96.0% of the company's total segment operating profit in the second quarter of 2013. Site development revenues were $44.8 million in the second quarter of 2013 compared to $25.6 million in the year-earlier period, a 75.2% increase. Site development segment operating profit margin was 19.8% in the second quarter of 2013 compared to 16.1% in the year-earlier period.

The short-dated, in-the-money convertibles are sensitive to moves in the underlyer.

Tesla, SanDisk higher

Tesla's 1.5% convertibles due 2018, which priced on May 16, traded up another 0.7 point during the session to 131.5 versus underlying shares that were closing in on $138.00.

Shares of the Palo Alto, Calif.-based electric car maker closed up $2.50, or 1.8%, to $137.95, in fact.

The bonds trade on a delta of about 70%.

SanDisk's 1.5% convertibles due 2017 edged higher to 131.115 on Friday, which was up 0.27 point, according to Trace data. The bond has traded actively since Tuesday when it traded down to 126.5 after Goldman Sachs' downgrade spurred selling.

The bond of the Milpitas, Calif.-based data storage company has a good risk-reward profile in this price context, a source said.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

International Game Technology NYSE: IGT

Tesla Motors Inc. Nasdaq: TSLA

SanDisk Corp. Nasdaq: SNDK

SBA Communications Corp. Nasdaq: SBAC

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