Intel down on earnings; Pioneer opens flat on falling oil; Transocean down; Citigroup deal drawing high bids

By Evan Weinberger

New York, Jan. 16 - Intel Corp. was hit hard after it failed to meet Wall Street expectations for the fourth quarter of 2007 and gave lower guidance for 2008 than the street had hoped.

Other semiconductor convertibles, including Advanced Micro Devices Inc. and Micron Technology Inc., traded higher, however.

Market watchers said they saw a fall in energy convertibles, including Transocean Inc., Peabody Energy Corp., Nabors Industries Inc. and USEC Inc. Declining oil prices were partly to blame.

Weakness in the energy sector didn't help Pioneer Natural Resources Co., which priced an upsized $440 million in 2.875% convertible senior notes due Jan. 15, 2038 with a 65% initial conversion premium Wednesday after the market close.

The deal came in at the rich end of talk, which had been for a 2.875% to 3.375% coupon and a 60% to 65% initial conversion premium. The deal was upsized from an originally announced $400 million.

There is a $60 million greenshoe on the Securities and Exchange Commission-registered transaction.

Stock markets yo-yoed throughout the day Wednesday. A raft of contradicting news made it difficult for the market to decide which way to go. Intel reported its disappointing earnings before the open. JPMorgan and Wells Fargo reported that they weren't as badly hurt by subprime write-downs as feared.

The Labor Department gave mixed readings on inflation. It was up in 2007 - the highest in 17 years - due to a spike in energy and food prices, but core inflation remained relatively stable.

The Federal Reserve released its Beige Book survey of regional economies. The book provided a picture of a slowing economy in December, but not one necessarily in a recession.

And the Fed reported that industrial output in the United States was flat in December. Wall Street was expecting a 0.2% decline. "We're being saved from the end, for maybe a couple of days here," a fund manager said.

In the end, though, the bears won.

The Dow Jones Industrial Average was down 34.95 points, or 0.28%, to close at 12,466.16.

The Nasdaq fell 23 points, or 0.95%, to 2,394.59.

And the Standard & Poor's 500 closed at 1,373.20, a drop of 7.75 points, or 0.56%, Wednesday.

'You gotta believe' in Theravance

In coming new issues, Theravance Inc. was set to price $150 million in convertible subordinated notes due Jan. 15, 2015 Wednesday after the market close. The convertibles are talked at a 2.75% to 3.25% coupon and a 25% to 30% initial conversion premium.

The South San Francisco, Calif.-based biopharmaceutical company specializes in fighting bacterial infections and works directly with drug giant GlaxoSmithKline. That, a buyside source said, is a big help.

Otherwise, the deal is a small one, the buysider said, and needs significant interest from outright investors. "You gotta believe in the studies," he added of the company's drugs.

The convertibles carry a $22.5 million greenshoe as well as four years of call protection. In the last three years of the convertibles' duration they are callable subject to a 130% hurdle.

Theravance stock (Nasdaq: THRX) closed down $1.78, or 8.21%, at $19.90.

Theravance just an appetizer

Citigroup's coming $2 billion in perpetual preferred convertible stock was drawing a lot of interest. The preferreds, set to price Thursday after the close, are talked at a 6.5% to 6.75% dividend and set at a 24% initial conversion premium.

A trader said he's seeing bids as high 103.125 leading into the opening of the New York-based bank's offering.

Citigroup has been battered since it announced a nearly $10 billion fourth-quarter loss Tuesday. The bank also announced $12.5 billion in funding from foreign sovereign wealth funds, managed private funds and individual investors.

There are reports of thousands of jobs getting cut.

Citigroup stock (NYSE: C) fell a further 70 cents, or 2.60%, to close at $26.24.

Another ailing financial institution may soon be bringing convertibles as well. New York-based bond guarantor Ambac Financial Group Inc. announced that it would raise at least $1 billion in equity and equity-linked securities to help it out of a hole dug in the subprime mortgage pile. No further details were available as of press time.

Ambac stock (NYSE: ABK) tumbled $8.17, or 38.65%, for a close at $12.97.

Missed expectations hurt earnings

Santa Clara, Calif.-based semiconductor giant Intel's 2007 fourth-quarter earnings report late Monday disappointed investors.

Despite posting a 51% rise in the last three months of last year, the company failed to meet expectations. And it gave guidance for the coming year that investors found less than reassuring.

Intel's stock and convertibles bore the brunt of that disappointment Wednesday.

The company's 2.95% junior subordinated convertible notes due Dec. 15, 2035 closed Wednesday at 96.86 versus a closing stock price of $19.88. They closed Tuesday at 101.51 versus a stock price of $22.69.

Intel stock (Nasdaq: INTC) was gutted, losing $2.81, or 12.38%, on the day.

A fund manager was sanguine about the fall. "I think they're kind of rich," he said. "It's kind of a must-own. Outright, they look pretty balanced, relatively balanced."

Intel fall doesn't spread

The tech sector wasn't all down Wednesday despite Intel. "Very mixed in tech," a sellside analyst said. "There were some stocks that looked tired today."

Intel's competitors went in the opposite direction Wednesday.

Sunnyvale, Calif.-based chipmaker AMD's 5.75% convertible senior notes due Aug. 15, 2012 closed Wednesday at 74.825 versus a closing stock price of $6.57. They closed Tuesday at 72.98 versus a stock price of $6.12.

AMD's 6% convertible senior notes due May 1, 2015 closed the day at 67.0648 versus a stock price of $6.57 after finishing Tuesday at 66.0311 versus a stock price of $6.12.

AMD stock (NYSE: AMD) stretched 45 cents, or 7.35%, Wednesday.

Boise, Idaho-based semiconductor producer Micron Technology's 1.875% convertible senior notes due June 1, 2014 closed Wednesday at 74.273 versus a closing stock price of $5.93 after closing Tuesday at 73.547 versus a stock price of $5.75.

Micron stock (NYSE: MU) picked up 18 cents, or 3.13%, in trading Wednesday.

Pioneer hurt by falling oil

Pioneer was able to upsize its convertible offering and bring it in rich.

But they were trading flat throughout most of the day. Market watchers attributed the flat opening for the Dallas-based oil and gas driller's convertibles to falling oil prices. A barrel of light, sweet crude closed trading on the New York Mercantile Exchange $1.06 lower at $90.84 after a government report said U.S. oil reserves were up last week.

"Oil is just going the wrong way," one longtime fund manager said.

Pioneer's 2.875% convertible senior notes due Jan. 15, 2038 closed at around par versus a closing stock price of $41.90.

Pioneer stock (NYSE: PXD) was down $2.10, or 4.77%, on the day.

Pioneer set the initial conversion price for the deal at $72.60 and subject to adjustment. The initial conversion ratio is 13.7741, and it too is subject to adjustment.

The incremental share factor is initially 8.9532.

There are embedded warrants underlying the convertibles.

The convertibles are callable beginning Jan. 15, 2013. There are puts on Jan. 15 in each of 2013, 2018, 2023, 2028 and 2033.

The convertibles carry fundamental change and takeover protection and a net share settlement agreement.

The company plans to use the proceeds to repay some of its outstanding bank debt.

Settlement is expected on Jan. 22.

Energy sector hurt all around

Falling oil prices didn't just hurt oil-related convertibles. There was "a lot of red in the energy sector today," a sellside analyst said.

Houston-based offshore oil and gas driller Transocean saw all three of its newly minted convertibles fall Wednesday.

Transocean's 1.625% series A convertible senior notes due Dec. 15, 2037 closed Wednesday at 106.972 versus a closing stock price of $130.01. They closed Tuesday at 107.81 versus a stock price of $133.07.

The 1.5% series B convertible senior notes due Dec. 15, 2037 closed Wednesday at 106.872 versus a stock price of $130.01 after finishing Tuesday at 107.964 versus a stock price of $133.07.

And the 1.5% series C convertible senior notes due Dec. 15, 2037 closed Wednesday at 107.396 versus a stock price of $130.01 after closing Tuesday at 108.585 versus a stock price of $133.07.

Transocean stock (NYSE: RIG) fell $3.06, or 2.30%, on the day.

Hamilton, Bermuda-based land oil and gas driller Nabors' 0.94% exchangeable senior notes due May 15, 2011 closed Wednesday at 95.76 versus a closing stock price of $26.84. They closed Tuesday at 96.31 versus a stock price of $27.47.

Nabors stock (NYSE: NBR) fell 63 cents, or 2.29%, Wednesday.

St. Louis-based coal miner Peabody Energy's 4.75% convertible junior subordinated debentures due Dec. 15, 2066 closed Wednesday at 114.775 versus a closing stock price of $52.78. They closed Tuesday at 120.575 versus a stock price of $56.83.

Peabody Energy stock (NYSE: BTU) fell $4.05, or 7.13%, Wednesday.

Alternative energy down, too

It's not just hydrocarbon-based energy producers that are feeling the pinch these days. "There's more gamma in the alternative energy" when energy does well, the fund manager said.

That said, Bethesda, Md.-based nuclear fuel provider USEC's 3% convertible senior notes due Oct. 1, 2014 closed Wednesday at 92.182 versus a closing stock price of $8.08. They closed Tuesday at 92.75 versus a stock price of $8.11.

The enriched uranium producer's stock (NYSE: USU) slipped 3 cents, or 0.37%, on the day.

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