A&P bonds recoup some losses; Gilead flat; Virgin Media slips; issuance tracks 2009 pace

By Rebecca Melvin

New York, July 30 - Great Atlantic and Pacific Tea Co. Inc. continued to see decent trading action in an otherwise quiet market after the company's convertibles recouped a large chuck of losses from a week ago.

A&P's two convertible bonds bounced back by about half from a steep plunge a week ago amid speculation that the ailing grocery store chain will be able to raise capital and/or sell assets and lower lease expenses.

Gilead Sciences Inc., another name of the week, saw its paper and underlying shares little changed Friday after the company priced $2.2 billion of new convertible notes late Monday.

The two Amgen Inc. convertibles were little changed despite a 2% rise in their underlying shares Friday after the biotechnology giant posted an earnings beat after the close of markets Thursday.

Meanwhile Virgin Media Inc.'s 6.5% convertibles contracted about 2 points this week as the underlying shares gained on strong quarterly results from the New York-based provider of communication services in the United Kingdom.

July issuance outpaces July 2009

For July, U.S. convertibles issuance totaled $4.5 billion in five deals, which was higher compared to July 2009, when $3.92 billion of new paper in eight deals was priced.

The July 2010 deals included Gilead's $2.2 billion issuance; Apache Corp.'s $1.1 billion of mandatories; Sino-Ocean Land Holdings Ltd.'s $900 million of 5% convertibles, and Genco Shipping & Trading Ltd.'s $110 million of 5% convertibles, according to data compiled by Prospect News.

Sino-Ocean's deal was included because it was a Rule 144A offering, but at least one convertibles analyst excluded the deal from his total because of its international character. Excluding the Sino-Ocean convertibles, the month's total would have been $3.5 billion.

For 2010 so far, total new issuance is nearly the same as for the same period last year. There has been $22.45 billion in new issuance for the year to date, compared to $22.79 billion for the same period of 2009.

GDP slows

The Commerce Department said gross domestic product expanded at a 2.4% annual rate for the second quarter, which was lower than the upwardly revised 3.7% growth pace in the first quarter.

Analysts had predicted GDP growth to slow to a 2.5% rate in the second quarter. GDP is a measure of total goods and services output within the United States.

Growth was held back by a 28.8% surge in imports, which significantly outpaced a 10.3% rise in exports.

On a positive note, business investment rose 17%, the largest increase since the first quarter of 2006. But consumer spending was weak, growing at 1.6% in the second quarter after increasing 1.9% in the first quarter. In addition, inventories increased, which could dampen future production.

A&P bonds recoup losses

A late Friday market in A&P's 6.75% convertibles due 2012 was 53.5 bid, 55 offered, which compared to a 39 bid on Monday, after printing in the low 40s, according to a Connecticut-based sellside analyst. Monday's market was said to be 40 bid, 42.5 offered.

"The last print of any meaning was at 55. There were dealer-to-dealer trades in the 54 context," the analyst said Friday.

Last week ahead of Friday's plummet on weaker-than-expected earnings, the A&P 6.75% convertibles traded around 70.

Since the plunge, "they printed as low as 42, with odd lots at 41 and change," the analyst said.

A&P's 5.125% convertibles due 2011 were last at 75 bid, 79 offered, with a print at 79 on Friday. That compared to trades as low as 63.25 after the negative earnings news, and compared to trades at 95.5 pre-earnings.

The A&P 5.125% notes are the first to mature on June 15, 2011.

"It's the first thing due, and the thought out there is that if they can raise capital, they can somehow mature this even if it's less than par," the analyst said.

Shares of the Montvale, N.J.-based grocery store ended up 9 cents, or 2.7%, at $3.46 on Friday.

The A&P bonds dropped about 30 points on July 23 after the company reported wider losses and appointed another chief executive, its second this year. Nevertheless, A&P reported revenue that was in line with expectations.

The grocery store chain reported $18 million in EBITDA for its first quarter, but it will have to do better than that if it's going to weather the tough trends buffeting the supermarket sector in general, the analyst said.

Behind this week's bounce was speculation that the company is going to sell some noncore assets, including seven strip malls that the company owns outright.

"If they could re-strike their leases that would be significant for them," the analyst said.

Nevertheless, with such negative same-store sales, a significant turnaround is going to be necessary.

"They don't have a ton of time from the capital markets perspective. I suspect we'll hear something in the next few weeks, maybe some sort of distressed equity for debt exchange," the analyst said.

The company filed an updated shelf registration earlier this week.

With so little distressed paper in the market, people in that strategy are "making their bets quickly and aggressively," the analyst said by way of explaining the wild swings in those bonds in the past week.

Virgin Media 'in' about 2 points

Virgin Media's 6.5% convertibles due 2016 traded at 137 versus a share price of $21.00 on Friday.

That price was steady on the previous level, despite a 52-cent, or 2.5%, climb in the underlying shares to $21.53 on Friday.

Virgin Media said it enjoyed its best quarter since it was formed in 2006 amid a jump in new subscriptions.

Virgin added 9,100 new customers in the second quarter, compared to a loss of 27,800 customers in the second quarter of 2009. Revenue rose 7% during the period.

Virgin said it planned to pay down some debt with the improved cash flow and has set a target leverage ratio of 3.0 times, down from the current 3.8 times. But it also plans an accelerated share buyback program.

The company has more than £525 million of debt repayments scheduled for 2011 through 2013, which include £150 million in 2011, £175 million in 2012 and £200 million in 2013.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Apache Corp. NYSE: APA

Genco Shipping & Trading Ltd. NYSE: GNK

Gilead Sciences Inc. Nasdaq: GILD

Great Atlantic and Pacific Tea Co. Inc. NYSE: GAP

Sino-Ocean Land Holdings Ltd. Hong Kong: 3377

Virgin Media Inc. Nasdaq: VMED

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