By Rebecca Melvin
New York, Sept. 10 - Titan Machinery Inc.'s convertibles dropped on an outright basis but added on a dollar-neutral, or hedged, basis Monday after the West Fargo, N.D.-based farm equipment retailer reported lower-than-expected quarterly results and cut its full-year profit forecast, citing the U.S. Midwest drought for dousing sentiment and demand for its products.
Intel Corp.'s two convertible bond issues remained active and were lower on Monday after trading mixed on Friday when the Santa Clara, Calif.-based chipmaker said it is cutting its third-quarter revenue estimate due to lower demand for personal computers. The company also said it was scaling back capital spending.
Royal Gold Inc.'s convertibles dropped several points outright, but were better on a hedged basis, market sources said. UBS AG downgraded shares of the Denver-based precious metals royalties company to "neutral" from "buy."
Alpha Natural Resources Inc. also traded, and the sister convertibles both improved about 0.5 point on no particular news for the Abingdon, Va.-based steam and metallurgical coal producer, a New York-based trader said.
Overall, the convertible market was "pretty quiet," sources said, following the lead of the equities markets, which traded sideways most of the session.
Markets initially shrugged off poor jobs data for August reported on Friday, although the reading cast a specter over the markets, but equities turned lower late in the day Monday.
Nonfarm payrolls rose by only 96,000 jobs in August, which was less than the 125,000 gain that markets expected. The payrolls count for July was revised lower to 141,000 jobs from 163,000.
The unemployment rate fell to 8.1% from 8.3% in June, but that was a function of the labor force participation rate falling.
In the U.S. primary market, Sequenom Inc. launched $100 million of five-year convertible bonds after the market close. The notes were talked to yield 4.75% to 5.25% and with an initial conversion premium of 25% to 30%, and were seen pricing after the market close on Tuesday, according to market sources.
Internationally France's Faurecia SA priced €220 million of 5.25-year convertible bonds in the Oceanes structure at par on Monday to yield 3.25% with an initial conversion premium of 37%.
Titan Machinery expands
Titan Machinery's 3.25% convertibles due 2019 fell about 7 points to 87.75 bid, 88.75 offered versus the closing share price of $19.40.
Earlier in the session, markets in the paper was heard at 88.5 bid, 89.5 offered versus an underlying share price of $20.00, and 89.875 bid, 90.875 offered, versus an underlying share price of $21.00.
How much the paper improved depended on the amount of delta holders held it on going into the day.
One source said that using a 50% delta, the paper improved about 0.5 point. A second source said that the 50% delta would have left the paper unchanged dollar neutral, but on a 60% to 65% delta hedge going into the day, the paper would have expanded by probably more than a point.
Titan shares slumped $5.95, or 23.5%, to $19.41. Friday's close was $25.36.
Titan reported lower-than-expected quarterly profit and cut its full-year forecast, citing demand-sapping drought in the U.S. Midwest.
Gross margin for the second quarter fell to 17.2% from 18% a year earlier.
Second-quarter income fell to $5.2 million, or 25 cents per share, from $6.3 million, or 30 cents per share, a year earlier.
Revenue rose 32% to $410.1 million.
Analysts had been expecting earnings of 43 cents per share on revenue of $401.9 million.
The company cut its full-year profit forecast to between $2.10 and $2.30 per share, which was down from its previous forecast of between $2.55 and $2.75 per share.
The company maintained its full-year revenue forecast of between $1.95 billion to $2.1 billion.
The company ended the second quarter with cash and cash equivalents of $126.5 million.
Intel moves lower
Intel's older 2.95% convertibles due 2015 traded down to 110 on Monday, which was down from 110.5 on Friday.
The older Intel trades on about a 40% delta hedge.
Intel 3.25% convertibles due 2039 traded down a point or more to about 125.125, compared to 126.875 on Friday.
Intel shares were down 93 cents, or 3.8%, to $23.26 in active trade, and that was on top of a 3.6% drop on Friday.
"The stock is off; but the bonds don't do much," a West Coast-based trader said.
The company said Friday it now expects third-quarter revenue of $13.2 billion, which would be a 7% decline from the same quarter a year earlier when revenue totaled $14.2 billion.
The estimate was below the company's July forecast for third-quarter revenue of $13.8 billion to $14.8 billion.
Investors are leery about the prospects of ongoing low demand for computer chips in the face of growing sales of mobile devices that don't rely on the chips.
Royal Gold expands some
Royal Gold's 2.875% convertibles due 2019 closed at 113.5 bid, 114.5 offered versus an $88.28 underlying share price. Previously the convertibles were higher at about 116.
Shares of the Denver-based precious metals royalties acquisitions and management company fell $2.14, or 2.4%, to that $88.28 level. Volume was light.
"They probably expanded half a point," a trader said.
UBS downgraded the shares, but has a $91.00 price target on the stock, up from its previous price target of $86.00.
Sequonom to price
The San Diego-based provider of genetic analysis products planned to price $100 million of five-year convertible bonds after the market close on Tuesday that were talked to yield 4.75% to 5.25% and with an initial conversion premium of 25% to 30%.
J.P. Morgan Securities LLC and Jefferies & Co. are the joint bookrunners of the deal, which has a $20 million greenshoe.
Proceeds of the offering will be used to fund the commercialization of a laboratory-developed test, as well as for other general corporate purposes, including research and development, capital expenditures, working capital and general administrative expenses.
The notes are non-callable for three years and then provisionally callable at a price hurdle of 140%. There are no puts. There is also takeover and dividend protection.
Faurecia prices
Faurecia launched and priced €220 million of 5.25-year convertible bonds in the Oceanes structure at par on Monday to yield 3.25% with an initial conversion premium of 37%.
The Regulation S deal came at the rich end of talk, which was for a yield of 3.25% to 4% and with a 32% to 37% premium.
Moody's Investors Service assigned a B2 rating to the convertibles, which is two notches below Faurecia's Ba3 corporate family rating.
Moody's said the lower rating reflects the convertibles' structural subordination to the financial obligations of Faurecia's operating subsidiaries, including financial debt, trade payables and pensions.
There is an over-allotment option for another €30 million of bonds that may be exercised by the deal's joint bookrunners Societe Generale CIB, BNP Paribas, Credit Agriole CIB and Lazard-Natixis by Sept. 14.
Proceeds will be used for general corporate purposes, including financing its industrial investments and research and development expenses.
Nanterre, France-based Faurecia is an automotive equipment supplier.
Mentioned in this article:
Alpha Natural Resources Inc. NYSE: ANR
| Faurecia SA: | Paris: EO
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| Intel Corp. | Nasdaq: INTC
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| Royal Gold Inc. | Nasdaq: RGLD
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| Titan Machinery Inc. | Nasdaq: TITN
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