Fidelity, Alpha Natural edge higher on swap; convertibles mostly flat on hedge; primary quiet

By Rebecca Melvin

New York, May 12 - Convertibles traded quietly and were little changed on a dollar neutral, or hedged, basis on Monday as equity markets moved broadly higher. The primary market remained quiet, although market sources said that there are deals in the pipeline that are expected to price in the next couple of weeks as earnings season winds down.

In established issues, at least one buyer helped lift Fidelity National Financial Inc.'s 4.25% convertibles, and they were a little better on swap, a New York-based trader said.

The market was eyeing data coming out toward the end of the week including real estate statistics that may be a catalyst for mortgage insurers and homebuilders, the trader said.

Walter Investment Management Corp.'s 4.5% convertibles were seen 93.1875 bid, 93.6875 offered versus an underlying share price of $30.58 on Monday, a second trader said.

Elsewhere, Alpha Natural Resources Inc.'s 4.875% convertibles due 2020 was also seen a little bit better on swap by about 0.5 point, according to a Connecticut-based convertibles trader.

Shares of the Bristol, Va.-based coal producer jumped, as did the sector in general after a positive note by Morgan Stanley analysts that predicted metallurgical coal prices have bottomed and thermal coal could recover sooner than expected following this past winter's prolonged frigid temperatures that raised heating demand.

Meanwhile, Peabody Energy Corp.'s 4.75% convertibles due 2066 traded at 80 early Monday, which was little changed from previous levels that have toggled on either side of that level in recent sessions, according to Trace data. Peabody shares were also higher. Morgan Stanley boosted its rating on the St Louis-based coal producer's shares to "overweight" from "equal weight" and raised its stock-price target to $30.00 from $20.00.

Tesla Motors Inc. traded on Monday, although not notably well, a New York-based trader said.

A second trader said there were buyers for the Tesla A convertibles, or the 0.25% convertibles due 2019, but not enough supply.

Among recent new issues, Iridium Communications Inc.'s 6.75% convertible preferreds, which debuted in the market on Friday, jumped to a close of $306.00 from the $270-range on Friday as the common stock of the McLean, Va.-based mobile satellite service company rallied for a second straight day.

But Cobalt International Energy Inc.'s new 3.125% convertibles, of which $1.15 billion debuted Thursday, were notably quiet, a New York-based trader said. Shares of the Houston-based oil exploration and development company recouped 50 cents, or nearly 3%, to $17.82 on Monday, following a drop last week.

The market overall was very quiet, sources said.

"Volumes are so light. On a dollar neutral basis, it's not moving around much," a New York-based trader said.

"I'm just trying to get something done. We've had some outrights lifting us on things, but mostly it's pretty quiet," he said.

Others concurred that with stocks continuing to push higher, the convert market feels a bit stifled.

"The market has gotten so equity sensitive," a Connecticut-based trader of distressed bonds said.

Fidelity adds on swap

Fidelity National's 4.25% convertibles traded to around 171 versus an underlying share price of $34.45.

That was seen as a 0.25 point to 0.5 point expansion on a dollar neutral basis from previous levels, a New York-based trader said.

Fidelity shares added 36 cents, or 1%, on the day.

The issuer provides title insurance mortgage services and other services and is based in Jacksonville, Fla.

"It's printing a little higher. There are buyers out there," the trader said of the Fidelity bond.

As for trading catalysts this week, earnings announcements have started to lighten up, so the focus will turn to economic data, a trader said.

Toward the end of the week, there will be some housing data that could spark trades in that sector as well as the consumer price index in addition to retail data due out Tuesday.

Alpha Natural expands

Alpha Natural's 4.875% convertibles traded at 84 versus an underlying share price of $4.55.

On a delta of about 70%, the bonds were about 0.5 point better on swap.

These bonds are quoted pretty frequently, a trader said. But overall the market has been quiet.

"On a dollar neutral basis, we are not seeing things moving around much," he said.

Shares of the Bristol, Va.-based coal producer jumped 25 cents, or 5.8%, $4.54.

Peabody's 4.75% convertibles due 2066 traded at 80 early Monday, with shares higher. However early gains were pared and Peabody shares ended the day up 45 cents, or 2.4%, at $19.11.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Fidelity National Financial Inc. NYSE: FNF

Iridium Communications Inc. Nasdaq: IRDM

Peabody Energy Corp. NYSE: BTU

Tesla Motors Inc. Nasdaq: TSLA

Walter Investment Management Corp. NYSE: WAC

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