Transocean convertibles firmer; Newmont Mining adds outright; Trico Marine extends slide

By Rebecca Melvin

New York, May 11 - Transocean Ltd. continued to trade heavily in the convertibles market Tuesday, sporting a firmer tone compared to Monday, especially heading into the market close, but still lower since the April 20 oil-rig explosion and subsequent oil leak in the Gulf of Mexico.

Testimony before lawmakers on Capitol Hill Tuesday by executives of rig owner Transocean, well owner BP plc and Halliburton Co., the drilling operations contractor, included a lot of finger pointing, but it appeared, at least initially, to weigh in Transocean's favor.

"The hearing did help the equity," a New York-based sellside convertibles analyst said of Transocean.

Newmont Mining Corp.'s convertibles also gained outright as outright players expressed their view on gold, which hit a closing record high Tuesday.

Gold for June delivery jumped $19.50 to settle at $1,220.30 an ounce. The price of gold has been climbing as investors seek safe havens in the face of the eurozone sovereign debt crisis.

Despite higher shares, Trico Marine Services Inc.'s convertibles were weaker in trade. Investors were put off Friday when the Texas-based oil and natural gas subsea services provider warned of a possible default on its debt covenants and shares fell to an all-time low.

Trico said it was in talks to modify its 8.125% convertibles indenture and that it may avail itself of the 30-day grace period related to an interest payment on that paper of about $8 million due on May 15.

Priceline.com weakens

The convertibles and stock of Priceline.com Inc. were weaker after the online travel company lowered its second-quarter financial forecast, citing travel disruptions in European air travel related to the recent volcano eruption in Iceland, concerns over Greece and other debt-burdened countries in Europe and civil unrest in Thailand.

Priceline.com's 1.25% senior notes due 2015, which priced in March, traded at 95.875 versus a share price of $213.00 on Tuesday, which compared to a previous level of 103 and to 105.75 versus a share price of $259.80 a month ago.

"They definitely came in today," a New York-based sellside trader said of Priceline.

JA Solar Holdings Co. Ltd.'s convertibles were mostly quiet after the solar power company reported a strong first-quarter profit on sales volume that was better that upwardly revised guidance.

SunPower Corp., which reported earnings after the market close, was also quiet, sources said. Shares of the San Jose, Calif.-based solar company were down in after-hours trading.

Overall, the convertibles secondary market was described as quiet, but with a slightly better tone.

Transocean firmer

Transocean's 1.5% series C convertibles due 2037, which have lost the most of three sister issues since the well explosion, were down to 90.5 bid, 91 offered in early trade Tuesday but were last seen higher at 91.875 bid, 92.375 offered at the close of markets.

Since the explosion April 20, the series C paper has lost about 5 points, a sellside analyst said. On April 22 and April 23, the convertibles were 95 bid, 96 offered.

Transocean's 1.5% series B convertibles due 2037 were 97 bid, 98 offered before the incident and now they trade around 94 bid, 95 offered; so they are off about 3 points, he said.

Transocean's 1.625% series A convertibles due 2037, which are putable at the end of 2010 and the most resilient of the three issues, are trading around 98, which is off by about 0.5 point during the last three weeks.

Shares of the Vernier, Switzerland-based company ended up $2.52, or 3.8%, to $68.86 on Tuesday.

"I think there will be a good outcome ultimately, but I don't know what the low of the bond will be in the meantime," a New York-based sellside convertibles analyst said.

The Transocean issues are the convertible market's largest, and therefore generally very active, but trading volume has been elevated from even those normally healthy levels in recent sessions, given speculation about what is going to happen to Transocean stock.

"At this point, it's hard to say what kind of downside the stock still has. The convertibles don't really have a lot of equity sensitivity," the analyst said.

With the Bs and Cs, most of the scenarios have to do with litigation, fines related to negligence and the like, the convert analyst said. "But the 2010 and 2011 notes are probably money good, and there is likely to be a good outcome to the whole drama."

"There's always the risk that something unpredictable happens, such as a finding of massive negligence from the Transocean side and the company faces massive amount of fines and legal liabilities. But statistically there's little chance that this risk is going to be true," the analyst said.

He said that both traditional investors and crossover investors, looking to the convertibles as an equity substitute, were boosting volume.

The upside potential is not that great, he said, even in the Cs.

It's just not that impressive," he said. "There's the potential for a pretty reasonable outcome two months from now and then it goes to 97 and you profit 5 points." But he'd be a lot more excited if the bonds were trading in the 80s.

Newmont Mining better outright

Newmont Mining's 3% due 2012 traded at 136.25 versus a share price of $58.25, compared to a level seen at about 130 previously, according to a market source.

One source said his firm's trades were being quoted in points, or 9.5 points to 10 points of premium to parity.

Shares of the Denver-based gold mining company rose $2.71, or 4.9%, to $58.20.

The Newmont convertibles are rich - as is the case with the gold names in general - and they are a high delta, in-the-money name that convertible arb players haven't typically been playing, a sellside analyst said.

Instead most players are outright using Newmont and the other gold names as a risk hedge.

"For the convert arb accounts, the gold offer no upside," the sellsider said.

Moving forward, the situation with sovereign debt in Europe that has sparked the current flight to quality and safety play is likely to be contained and the market is getting better, he said.

"The only concern is on the commodity side, with base materials and commodities, or growth driven and cyclical sectors, that are likely to be muted," he said.

Trico Marine sinks

Trico Marine's 3% convertibles due 2027 traded in good size at 20.25, which was down from 28.5 previously, according to pricing sources.

Trico Marine's 8.125% convertibles due 2013 traded around 66, which was down from about 69.

But shares of the Woodlands, Texas-based subsea services provider jumped 14 cents, or 8.8%, to $1.74 on Tuesday.

Late Monday, Standard & Poor's cut Trico Marine to CC from CCC+.

"They have been able to sell some of their vessels, and they have a good number more for sale, but things are obviously troubled. They didn't have a particularly strong quarter, although that didn't necessarily come as a shock," a Connecticut-based sellside analyst said.

Mentioned in this article:

JA Solar Holdings Co. Ltd. Nasdaq: JASO

Newmont Mining Corp. NYSE: NEM

Priceline.com Nasdaq: PCLN

SunPower Corp. Nasdaq: SPWRA

Transocean Ltd. NYSE: RIG

Trico marine Services Inc. Nasdaq: TRMA

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