James River, Alpha Natural little moved as shares fall; SandRidge flat to slightly higher

By Rebecca Melvin

New York, Nov. 9 - Convertibles moved mostly in line with their underlying equities this past week and finished Friday on a quiet note as equities bounced from a post-election slide, but pared early gains to end just barely in positive territory. The credit markets were generally quiet.

The U.S. bond markets will be closed on Monday in observance of Veterans Day.

Among convertibles in focus were those in the coal sector. These names were quiet although were expected to take a leg lower with increased liquidity as their underlying equities took a hit this past week.

"[President Barack] Obama was not as friendly to the coal industry, but I think stocks overreacted to the election," a New York-based analyst said, suggesting that certain coal convertibles will likely dive when liquidity returns in moves similar to those seen in the companies' straight bonds.

James River Coal Co. saw its stock fall 43% this past week in the aftermath of president Obama's re-election.

The third-largest producer of metallurgical coal in the United States, Alpha Natural Resources Inc. saw its shares shed 16% since Election Day.

SandRidge Energy Inc. was in focus Friday after the Oklahoma City- based natural gas and oil company reported a better-than-expected quarterly loss, but fended off an attack from shareholder TPG-Axon Capital, which in a letter to the company that was made public called for a reorganization of the company's directors' board and exploration of a possible sale of the company.

Gilead Sciences Inc. was a top volume trader in the convertibles market Friday. And while that is not so unusual for this quasi investment-grade issuer with three liquid convertible bonds, there was particular focus on the Foster City, Calif.-based biopharmaceutical company in light of an upcoming presentation of HIV drug data, according to a Connecticut-based convertibles analyst.

The in-the-money Gilead convertibles looked to have expanded marginally on Friday against a slight gain in the underlying shares.

Priceline.com Inc. was quiet after news that the online travel services company is acquiring rival Kayak Software Corp. for $1.8 billion in a cash and stock deal, representing a 28% premium to Kayak's closing share price on Thursday and a 57% premium to where the Kayak shares went public four months ago.

In economic data, consumer sentiment as gauged by the Thomson Reuters/University of Michigan survey handily beat expectations, rising to 84.9, up from 82.6 in the previous month.

It was the highest level in more than five years, Reuters reported.

The survey's barometer of current economic conditions rose to 91.3 from 88.1 and was above the forecast of 88.8, while the survey's gauge of consumer expectations rose to 80.8 from 79.0 and was above an expected 79.6.

Coal names in focus

James River's 4.5% convertibles due 2015 were seen in the upper 50s, although there was a print on Trace data at 47 Friday.

James River's 3.125% convertibles due 2018 were quoted in the mid 30s.

Shares of the Richmond, Va.-based coal producer fell 66 cents, or nearly 20%, to $2.70 on Friday, on top of a 30% slide Wednesday and no bounce back in between.

Alpha Natural's 3.25% convertible due 2015 stands at about 94.5, while the Alpha Natural 2.375% convertibles due 2015 are at 90.125, according to a New York-based analyst.

Listening to the coal executives in their recent conference calls revealed that they were more concerned about the economy and the fiscal cliff than they were about the U.S. Environmental Protection Agency and the U.S. elections, the analyst said.

Although fines and other issues have ramped up costs for the coal producers, at this point "I don't think it's going to get any worse," the analyst said. "With Romney, they would have gotten some relief."

James River reported earnings that slightly missed estimates.

"They were not that bad; they maybe missed on earnings and spent less on cap ex. They also bought back bonds, and that put some support in the bonds. Also said they are considering lining up another term loan," an analyst said, suggesting that the stock slide for a company that is reducing debt and lining up some more financing could be overdone.

On the other hand, the stock could be correcting from a sharp run up since late summer that didn't look like it was completely warranted.

The shares more than doubled in the last few months, and the move didn't seem justified in light of the fundamentals, the analyst said. "It might have been short covering. It's partly getting back to where it should have been."

James River's convertibles hadn't really traded Thursday or Friday, while the straight bonds traded down 10 points from earnings, changing hands Friday at 60.

Alpha Natural is a larger company than James River, with a longer runway and more staying power, but it is in the same boat, and it operates in the same region.

Nevertheless they have the advantages of scale, and they are less levered on a net basis, the analyst said.

SandRidge little changed

SandRidge's 8.5% convertible preferred shares stood little changed at about 100 to 101.5.

The SandRidge 7% convertible preferreds were in the mid to upper 90s.

The SandRidge convertibles were little changed to up 0.25 point dollar neutral on the day, but they were seen as pretty illiquid.

SandRidge shares fell 59 cents, or 10%, to $5.51 in extremely heavy volume.

A letter from TPG, a hedge fund and large shareholder, said the company needed to undertake a number of actions in order to realize value. It suggested the ouster of the company's chief executive and hiring bankers to explore a sale.

The letter said that the management doesn't have any credibility but that the assets have value and should be sold.

Gilead gains

Gilead's 1% convertibles due 2014, or the C series of convertibles, were seen up at about 148.875 on Friday. Trace data showed them changing hands a little higher at 149.164. The C bonds traded in heavy volume.

This deep in-the-money convertible trades on about a 90% delta. They are also pretty short dated and trading only a few points over parity.

"They are up small like 0.125 point to 0.25 point dollar neutral versus a $65.63 share price," a New York-based analyst said.

The Gilead's 1.625% convertibles due 2016, or the D series, weren't heard in trade, but it too is deep in the money. They are a little bit longer dated and trade about 10 points over parity.

Its profile is similar to the Gilead 1% convertibles. It has just a slightly higher coupon, slightly longer dated and therefore has a little more optionality, the analyst said.

"The Ds have a little more optionality on the downside put, versus the Cs," he said.

The company's promising HIV pill Stribild has been touted to grow into a market leader in three to five years.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Gilead Sciences Inc. Nasdaq: GILD

James River Coal Co. Nasdaq: JRCC

Priceline.com Inc. Nasdaq: PCLN

SandRidge Energy Inc. NYSE: SD

© 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.