Airline names higher; Xilinx, Sirius improve; Transocean strong; but Cheniere Energy falls

By Rebecca Melvin

New York, July 9 - The convertible bond market was mostly better Friday as investors generally became more engaged during the holiday-shortened week and as stocks rallied, market participants said.

The markets were closed Monday for the Independence Day holiday.

"Credit is better and stocks are up," a Connecticut-based trader said Friday of the broader markets.

Airline convertibles, including AMR Corp., Continental Airlines Inc. and UAL Corp., were higher Friday, after climbing earlier this week as airlines have been reporting their monthly traffic results.

Technology names were mixed, with Xilinx Inc. and Sirius XM Radio Inc. trading better, but Micron Technology Inc. looked weaker.

Among energy names, Transocean Ltd. improved again on Friday, having strengthened steadily through the week. But Cheniere Energy Inc. fell pretty hard amid no particular company news, a trader said.

Human Genome Sciences Inc. also climbed throughout the week. A Citi analyst put the Rockville, Md., biotechnology company's shares on his recommended list Friday and said such names have become bargains because of the overhang of U.S. health care reform and worries about price cuts in Europe and Medicare payment reviews.

Equities show strength

Equities had four straight days of gains, and all three major indices notched 5% gains on the week, although on light volume. Investors were said to be optimistic about earnings season that starts during the July 12 week.

The Dow Jones Industrial Average gained 52.94 points, or 0.5%, to close at 10,191.93 on Friday; the S&P 500 stock index added 7.5 points, or 0.7%, to end at 1,077.74; and the Nasdaq stock index was up 21.05 points, or 1%, at 2,196.45.

Volume was light in the convertibles market with about $500 million to $510 million of bonds changing hands, although order flow was improved on individual desks, a New York-based trader said.

"Maybe this is the sustained rally people were looking for," he said.

There was no action in the U.S. convertible primary market in the past week, although internationally, French independent oil concern Maurel & Prom SA sold €65 million of 7.125% convertible Oceane bonds and India's Essar Oil Ltd. issued $147 million in foreign currency convertible bonds.

AMR, UAL gain

AMR's 6.25% convertibles due 2014 gained about 0.5 point from the beginning of the week, trading at 95.5 versus a share price of $6.65 on Friday, compared to 95 versus a share price of $6.70 on Tuesday, according to one sellsider.

Shares of the Fort Worth-based airline ended at their highs for the day, up 13 cents, or 1.9%, at $6.91 on Friday.

Continental's 5% convertibles due 2023 traded Friday at 113.5 versus a share price of $22.10, compared to 109.5 versus a share price of $20.70 on Tuesday, according to a sellsider. Continental is a Houston-based airline. Its shares also ended at their highs for the day, up 82 cents, or 3.7%, at $22.92.

UAL's 4.5% convertible notes due 2021 trade at 98.25 versus a share price of $20.50 on Friday, and shares of the Chicago-based carrier ended at the highs, up 85 cents, or 4%, at $21.36.

The UAL 6% convertibles due 2029 were offered at 248 on Friday, compared to 243 on Thursday and 226 on Tuesday.

UAL is the parent of United Airlines, and late Thursday it said its system traffic last month rose 3.4% from a year earlier, while seat capacity increased only 1.1%. That lifted its load factor by 2% to 87.9%.

Also United ticket prices for June were higher, lifting estimated passenger revenue per available seat mile 30.5% to 31.5% from a year earlier. United's results came on the heels of similar June growth for US Airways and Continental Airlines.

"Airlines are higher today. All the stocks and the convertibles are slightly higher today after climbing earlier this week," a sellsider said.

UAL shares on Tuesday were $18.50 on Tuesday, and they jumped to $20.00 on Thursday and to $20.50 on Friday.

Xilinx, Sirius improve

Xilinx's 2.625% convertibles due 2017 traded at 107 versus a share price of $27.15 on Friday, compared with 105.5 versus a share price of $27.00 on Thursday.

Shares of the San Jose, Calif.-based maker of electronic equipment and systems gained 60 cents, or 2.2%, to $27.62 on Friday.

The company priced its $520 million of 2.625% convertibles in early June.

"I think the generic, not in the news, equity sensitive names are a little bit better," the trader said.

Meanwhile, Sirius' 3.25% convertibles due 2011 traded at 97, which was up about 0.75 point on the day, a trader said.

That paper trades outright.

"People don't need to sell things," the trader said.

But Micron's 1.875% convertibles due 2014 traded at 89 versus a share price of $8.60, which was a little weaker.

Transocean adds, Cheniere falls

Transocean's 1.625% series A convertibles due 2037 traded at 97.75 on Friday, which was up from 97.125 on Thursday.

The Transocean paper was "all better again today," a sellsider said Friday.

A second sellsider said, "It's short-dated paper: if you don't think it's going to disappear, it's going to start strengthening."

Cheniere Energy, on the contrary, was getting hit hard and traded down 10 points on the day.

Cheniere's 2.25% convertibles due 2012.traded at 51 compared to where it last traded about two weeks ago at 61.

"It's a sketchy name. There are not many bids in this. Someone was looking to make a sale and hit the first bid they saw," a trader said.

Human Genome gains

Human Genome Sciences' 2.25% convertibles due 2011 traded at 170 on Friday, compared to 164 versus a share price of $23.50 on Thursday and 155 versus a share price of $21.85 on Wednesday.

Human Genome shares gained during the session, ending at session highs, up $1.18, or nearly 5%, at $25.23 in light volume.

Despite a gloomy view about drug discovery shares, Human Genome is a bargain that has been oversold, a Citi analyst said Friday.

Human Genome's lupus drug candidate Benlysta should get a positive regulatory panel review this year and be approved in late 2010 or early 2011. The analyst said that could make Human Genome attractive to potential acquirers.

Mentioned in this article:

AMR Corp. NYSE: AMR

Cheniere Energy Inc. NYSE: LNG

Continental Airlines Inc. NYSE: CAL

Essar Oil Ltd. Bombay: ESSAROIL

Human Genome Sciences Inc. Nasdaq: HGSI

Maurel & Prom SA Paris: MAU

Micron Technology Inc. NYSE: MU

Sirius XM Radio Inc. Nasdaq: SIRI

Transocean Ltd. NYSE: RIG

UAL Corp. Nasdaq: UAUA

Xilinx Inc. Nasdaq: XLNX

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