Telvent prices at the cheaps for the yield; Massey Energy contracts on mine blast disaster

By Rebecca Melvin

New York, April 6 - Telvent GIT SA priced $175 million of five-year convertibles after the market close Tuesday to yield 5.5% - representing the cheap end of price talk - and with a 22.5% initial conversion premium.

Sources said stock borrow for the Telvent issue was tough, thereby making the paper more expensive from a hedged investor's perspective, and it wasn't heard in the gray market ahead of final pricing. A syndicate source said the issue was well-subscribed, however.

Massey Energy Co.'s convertible bonds were lower outright and contracted about 0.5 point on a hedged basis amid sharply lower shares after the coal producer lost 25 miners in a mine blast Monday afternoon.

Other convertible issuers in the coal sector were not negatively affected by the tragic mine accident. Peabody Energy Corp. and Alpha Natural Resources Inc. were little changed to higher as their underlying shares ended in positive territory.

Elsewhere, United Therapeutics Corp. convertibles gained. The Silver Spring, Md.-based biotechnology company is conducting late-stage trials of oral treprostinil in patients with pulmonary arterial hypertension. But it doesn't anticipate filing a New Drug Application with the Food and Drug Administration for oral treprostinil before 2012.

Secondary market activity remained somewhat muted, although it was improved from last week when trading thinned during the holiday-shortened week.

Alliant Techsystems Inc. saw its 2.75% convertibles due 2011 traded at 103 versus a share price of $82.80, which was better on a weaker underlying stock.

Minutes from the Federal Reserve Open Market Committee's latest meeting revealed Tuesday that the policy makers are eyeing potential bubbles in the economy and could keep interest rates low for an extended period if the economic outlook worsens or inflation wanes.

The Fed's March 16 meeting notes showed a few Fed members indicated they thought the risk of tightening policy too soon was greater than that of waiting too long. The Fed kept its key rate at a historic low during the March meeting to help generate growth.

Telvent quiet in the gray

After remaining quiet in the gray market during Tuesday's session, Telvent priced $175 million of five-year convertible senior subordinated notes after the close of markets to yield 5.5% with an initial conversion premium of 22.5%. This was the cheap end of talk for the coupon and the midpoint of talk for the premium.

The Rule 144A offering was sold via RBS Global Banking & Markets and Barclays Capital, acting as joint bookrunners, and there is a $25 million greenshoe.

A syndicate source said placing went well.

"Borrow is very difficult," a Connecticut-based sellside trader said when asked if he liked the deal. He added that there is a negative 4 points of rebate on the paper, which means that the stock borrow cost adds 4 points to the paper's valuation.

Shares of Telvent, an information technology company focused on infrastructure markets, were active on Tuesday, nevertheless, slumping $1.52, or 5%, to $27.90 during the session.

Massey moves down

Massey Energy's 3.25% convertibles due 2015 traded down 2.75 points to 3 points outright on Tuesday and contracted about 0.5 point on a hedged basis, sources said.

The Massey 3.25% bonds traded at 95.5 versus a share price of $49.40, compared to 98.25 versus a share price of $53.00 on Monday, according to one sellsider.

Shares of the Richmond, Va.-based coal producer skidded $6.24, or 11.4%, to $48.45.

Massey Energy's 2.25% convertibles due 2024 weren't seen in trade as there are less than $10 million outstanding in that issue.

The reason for the slide was that Massey Energy, a metallurgical coal producer, lost 25 miners and four remained missing Tuesday following a blast at its Upper Big Branch Mine in Whitesville, W.Va., about 30 miles south of Charleston.

The tragedy was seen more as an equity event than a credit event.

"No one ever expects an accident, and this was a pretty bad accident. One of the things that is going to happen is that there is definitely going to be more government scrutiny, and the Upper Big Branch mine is going to be down for quite some time. It's going to hurt met coal overall," a New York-based convertibles analyst said Tuesday.

"Met coal supply is tight and the price is going up and its from there that your EPS is going to be going up. The company is very leveraged to the met coal market and also to the transaction to buy Cumberland. We like the [Cumberland] asset they are acquiring, and that's going to boost their met coal production another 40%, so we like the transaction. But the UBB mine is going to be down for quite some time and its going to hurt 2010 met coal production, and maybe 2011 production ," the analyst said.

As far as the bond goes, however, "it should be fine." It's a big move for a bond, he conceded, but it's a below-par bond, and in the short-term, the stock's going to be weighed down by these concerns, but investors should definitely be compensated at par in the end, the analyst said.

"I believe in the credit and the strength of the balance sheets. I'm not really concerned the bond is going to be distressed. It's still a solid bond," he said.

Peabody, ANR steady to better

Peabody's 4.75% convertibles due 2066 were seen a little higher at 108.66 compared to 107.33 on Monday, according to a pricing source.

Shares of the St. Louis-based coal producer closed higher by 43 cents, or nearly a percentage point, at $46.45 on Tuesday.

Peabody wasn't expected to be affected by the Massey accident as it is a more diversified company with a different portfolio of coal assets.

"Massey is underground mining and that has the most potential safety issues. These are the mines that are under the heaviest regulatory and government scrutiny," a sellside analyst said.

Likewise Alpha Natural Resources is a more diversified company.

Alpha Natural's 2.375% convertibles due 2015 were seen at 112.54 on Tuesday, according to a pricing source.

United Therapeutics adds

United Therapeutics' 0.5% convertibles due October 2011 traded at 154.5 versus a share price of $57.35, according to a New York-based sellside desk analyst. The previous level was at about 150, another pricing source said.

Shares of the Silver Spring, Md.-based biotech pushed gradually higher during the session, ending even higher that the "versus price," up $1.85, or 3.3%, at $58.16.

On Feb. 19, the company said it was withdrawing a European application for its hypertension treatment Tyvaso, citing an objection by regulators over clinical practices at testing sites.

Mentioned in this article:

Alliant Techsystems Inc. NYSE: ATK

Alpha Natural Resources Inc. NYSE: ANR

Massey Energy Co. NYSE: MEE

Peabody Energy Corp. NYSE: BTU

Telvent GIT SA Nasdaq: TLVT

United Therapeutics Corp. NYSE: UTHR

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