Alpha Natural, Peabody higher on coal merger news; Intel, AMD, Micron firmer

By Rebecca Melvin

New York, April 3 - The convertibles market saw a broad array of names in trade on Thursday compared to a narrow focus on financials Wednesday, but volume was generally light, market players said.

A jump in coal sector shares spurred gains in the convertibles of Alpha Natural Resources Inc. and Peabody Energy Corp., while a positive move in semiconductors led to firming in the convertibles of Intel Corp., Advanced Micro Devices Inc. and Micron Technology Inc., among others, market participants said.

The convertible preferred shares of Schering-Plough Corp. also traded as its common stock regained ground lost Monday, and National City Corp. continued to waver amid speculation of a potential sale and what that may mean for holders of the convertibles of the regional bank.

"Liquidity has not been terribly great in the last couple of weeks," a West Coast-based sellside convertibles trader said of the market.

People are possibly "trading CDS and high-yield rather than convert products," he offered. "But to the extent that they [convertibles] have traded, they are better."

"People are warm and happy," he said. As for the reason behind that, he offered: "it's been two weeks since Bear Stearns; the Fed has made strong moves to strengthen financial markets; and Lehman issued a huge preferred convertible."

In the primary arena, no new deals were launched, but the new 5.75% convertibles of Alaska Communications Systems Inc., which priced late Wednesday, climbed to close at 102.825 bid, 103.125 offered versus a 1% gain in their underlying shares, according to a syndicate source.

The Anchorage-based communications company was viewed as a company with favorable fundamentals, although with a small market cap.

Alpha Natural, Peabody gain on merger news

The new 2.375% convertible senior notes of Alpha Natural extended gains on their second day of trading, with an early sale at 107 versus a stock price $44.50, according to a market source.

The new convertibles closed Thursday at 106.625 bid, 107.125 offered versus a 7.2% jump in their underlying shares, according to a syndicate source, who said the greenshoe of the convertibles and common share offerings were both exercised. The convertibles greenshoe was $37.5 million.

The Abingdon, Va., coal company priced $250 million of seven-year convertible senior notes, with a 2.375% coupon and an initial conversion premium of 32.5% late Tuesday, along with $150 million of common stock, which priced at $41.25 a share.

UBS and Citigroup were bookrunners of both offerings.

Also higher in the coal sector was Peabody Energy's 4.75% convertible junior subordinated debentures. There was a trade at 114.9 versus a stock price of $52, according to one sellside trader, and later in the day the asking price was 117.5 versus a stock price of $53.50, according to a Connecticut-based sellside analyst. Another source put the close at 119.4.

In addition, the 9% convertibles of the International Coal Group Inc. were indicated Wednesday at 129 versus a stock price of $6.06, a sellside analyst said.

St. Louis-based Peabody sold its Patriot Coal subsidiary some months ago, and the sector's jump Thursday was attributed to news that Patriot Coal Co. is buying Magnum Coal Co. for about $559 million, which will create the seventh-largest U.S. coal producer.

Peabody's stock (NYSE: BTU) jumped $2.72, or 5%, to $55.19. Shares of Alpha Natural popped $2.99, or 7.2%, to $4.72. And shares of Scott Depot, W.Va., International Coal (NYSE: ICO) added 46 cents, or nearly 8%, to $6.47.

Intel, Micron, AMD, ON Semi firmer

Micron Technology's 1.875% convertibles due 2014 didn't keep pace Thursday with its underlying shares, which jumped 6.3%, following an analyst's upgrade and reported earnings, which were in line with expectations.

The convertibles closed at 76.8 versus a stock price of $6.79, compared to a bond close of 74.8 on Wednesday versus a stock price of $6.39.

"The convertibles have been stuck in the mid-70s given questions regarding whether the company will make a stupid acquisition," a sellsider said.

"I can see why some people like it and why some people don't," he said.

Micron reported a wider second-quarter loss of $1.01 per share, compared to a 7-cent loss a year ago, and sales that were down 4.8%. The results include a non-cash charge of $463 million.

The Boise, Idaho, company said sales declined 11% in the second quarter compared to the first quarter due to lower selling prices that were partially offset by increased production of memory products.

But a Goldman Sachs analyst upgraded Micron to "neutral" from "sell" on Thursday after Asian competitors moved to raise global memory chip prices.

Micron stock (NYSE: MU) added 40 cents to $6.79.

Other semiconductor stocks also gained Thursday, including Sunnyvale, Calif.-based AMD, which saw its 5.75% convertible senior notes due Aug. 15, 2012 trade at 72 versus a stock price of $6.25, according to a New York-based sellside desk analyst.

Its sister convertible with a 6% handle traded at 65.5 versus the same $6.25 stock price. Its shares (NYSE: AMD) closed at that level, representing a gain on the day of 1.1%.

"AMD is one of these questionable credit type names with people weighing in evenly on either side as to whether they will make it or not," a sellsider said. "Intel needs it for competitive reasons, but it's a weak credit and there are questions whether it will bail."

Meanwhile Intel's 2.95% convertibles due 2035 traded at 101.5 versus a share price of $22.00 on Thursday. Later the bonds were seen at 100.625 versus a closing share price of $21.93.

The shares of the Santa Clara, Calif.-based chip giant (Nasdaq: INTC) ended little changed in light volume at $21.93, up eight cents on the day.'

Schering-Plough in trade

The convertible preferred shares of Schering-Plough edged higher as its common shares jumped 11% after the Kenilworth, N.J.-based drug maker launched a major cost-cutting and productivity program that aims to generate $1.5 billion in targeted annual savings and synergies.

Savings of that magnitude represent about 10% of the combined company's full-year 2007 estimated cost base, the company said in a release. The program is a response to intensifying pressure on the pharmaceutical company, especially in light of confusion of the U.S. market around its joint venture cholesterol drugs Zetia and Vytorin. Schering-Plough is in a joint venture with Merck.

Schering-Plough's 6% mandatory convertible preferred stock traded at 158 versus a stock price of $15.10. That compared with a close on Monday of 53.25 versus a closing stock price of $14.40.

The common shares (NYSE: SGP) jumped $1.52, or 11%, to $15.38 after plunging 26% on Monday.

National City closes at 85.2

National City's 4% convertibles due 2011 traded in line with its shares, closing at 85.2 versus a share price of $9.79 on Thursday. That compared to a close at 83.323 versus a stock price of $9.22 on Wednesday.

Shares of the Cleveland-based regional financial services company (NYSE: NCC) powered up 6.2%. The convertibles hovered mostly in the 84 to 85 range in quieter trading on Thursday.

Traders are weighing the potential of whether the bonds, which have takeover protection, will reap a windfall in the event of a sale.

One sellsider said that people are leery about what may not yet have been disclosed given that it's for sale now, a particularly dismal time to try to sell.

A Connecticut-based buysider said there is concern about how realistic a change-of-control put may be.

"The likely acquirer is a domestic bank of similar size, in which case you would see an all-stock deal that would negate the change-of-control put. The same speculation went on around Countrywide Financial," he said.

"If a strong buyer steps in like Bank of America did for Countrywide, then you get the advantage of a much stronger credit helping push valuation. But you're not going to get an instant 15 points in that case," he said.

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