Lower-quality names succumb to selling; Savient drops; Cheniere up on secondary offering

By Rebecca Melvin

New York, Dec. 14 - Investment-grade names traded with the highest volume in the convertibles market on Wednesday and were for the most part steady. But sellers of lower-quality names stepped in more forcefully as the broader markets sank under euro crisis pressures.

Investors were rattled by higher yields on Italian five-year debt and a plunge in the euro currency, while the European Central Bank appeared resolute in its position not to bail out sovereigns by buying large amounts of their debt.

Of lower-quality credits, Savient Pharmaceuticals Inc.'s convertibles fell sharply to 43.5 from about 51 amid no particular news and as its underlying shares were steady despite the overall downdraft in equities.

Exceptions to the more or less steady investment-grade names were Intel Corp.'s convertibles, which were down outright for a third consecutive day in continuation of a move lower in the underlying shares when the Santa Clara, Calif.-based chip company warned on fourth-quarter revenue on Monday.

It wasn't clear how the Intel bonds were holding up on a hedged basis, as traders queried said they weren't active in that name.

Another solid credit that was lower was Archer-Daniels-Midland Co. The move may have been related to the agricultural-commodity company as a commodity play.

While macroeconomics was a main driver of trade, there were a few company-specific headlines. For example, Transocean Ltd. was one of the few investment-grade names to trade lower, and it did so because of fallout related to an oil leak off the coast of Brazil.

On the upside, however, was Cheniere Energy Inc., which saw its 2.25% convertibles jump higher by about 3 points following the Houston-based liquefied natural gas terminal company's secondary offering, which left shares lower by 10%.

"Guys are looking for higher-quality names, and the lower-quality names are trading lower," a trader said of the overall convertibles market.

Volume improved slightly again on the third day of the last full week of trading for 2011, the trader said.

News headlines on Wednesday focused on Italy paying a record high amount for its five-year debt. Meanwhile, the German government continued to bang its drum that the debt crisis could not be solved by a single blow - in other words, central bank intervention, but said, instead, that it will take years to resolve Europe's financial problems.

Savient gaps lower

Savient Pharmaceuticals' 4.75% convertibles due 2018 traded down to 43.5 from 51, while shares slipped a penny to $2.08.

There was no news on the company that traders could see, sources said.

"Those bonds have been for sale for over a month now," a Connecticut-based trader said, by way of explanation why the convertibles gapped lower by 7 to 8 points.

"It is low credit quality; in fact, it has no credit support, whatsoever," a second trader said.

When the Savient bonds were higher, the stock was higher at about $2.41, the trader said.

The Savient convertibles priced less than a year ago on Jan. 31, 2011. Shares of the East Brunswick, N.J.-based biopharmaceutical company have dropped amid lower expectations of sales of its Krystexxa gout drug.

ADM convertibles drop

ADM's 0.875% convertibles due 2014 traded down to 99.75 from about 100.25.

The 0.25 point to 0.5 point lowering relative to its credit quality was deemed significant.

The convertibles trade on a light delta, which means the outright drop was the best way to measure the move.

The Decatur, Ill.-based agricultural company saw its shares slip 41 cents, or 1.5%, to $27.43 on Wednesday.

Transocean slips

Transocean's 1.5% convertibles due 2037, which have a one-year put, traded down about 0.25 point on Wednesday, while shares of the Swiss-based oilfield services company fell as much as 5% intraday, before recovering some into the close, a trader said.

The shares and bonds were lower after word that the Brazilian authorities are suing both Transocean and Chevron Corp. for damages related to last month's offshore oil leak and are seeking an order that the companies suspend activities in that country.

"RIG was off on news that Brazil told them to stop their operations in the area," a trader said.

"A quarter point [drop] for investment-grade names is a decent move," the trader said.

Another series of the Transocean 1.5% convertibles due 2037 were expected to be called by the company this month.

Cheniere jumps

Cheniere's 2.25% convertibles due 2012 traded up 3 points to 94, while the underlying shares of the liquefied natural gas terminal company fell 95 cents, or 10%, to $8.39.

The company's secondary offering of 36.3 million shares of its common stock at $8.35 a share was said to boost the convertibles.

The offering opened on Tuesday. Proceeds are to be used to repay debt and for other general corporate purposes.

Mentioned in this article:

Archer-Daniels-Midland Co. NYSE: ADM

Cheniere Energy Inc. NYSE: LNG

Intel Corp. Nasdaq: INTC

Savient Pharmaceuticals Inc. Nasdaq: SVNT

Transocean Ltd. NYSE: RIG

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