AMR, UAL lower on disappointing Delta earnings; Transocean slips; Newmont Mining steady

By Rebecca Melvin

New York, July 19 - The convertibles market saw its airline paper shot down Monday on an earnings disappointment from Delta Air Lines Inc., which posted better-than-expected income but missed on revenue.

AMR Corp.'s convertibles came in about 1.5 points compared to Friday, a New York-based trader said. Although convertible airline paper, in general, was lower in line with stocks.

Transocean Ltd. was also a little bit lower on Monday, having backed off its recent rally on Friday. The oil-services company saw its shares hit, along with those of BP plc and Anadarko Petroleum Corp., on reports that there was seepage next to BP's ruptured well, and at the well, which was capped off last week.

Newmont Mining Corp. was active and moved in line, on a dollar-neutral basis, with its underlying shares, which were lower.

Gilead Sciences Inc.'s convertibles were a little higher but not keeping pace with their underlying shares, which rose after reports of a new treatment that looks promising in protecting women from contracting the AIDS virus.

Gilead's 0.5% notes due 2011, or the A paper, traded at around 103.5 on Monday, which was up more than half a point from Friday, but lower compared to Thursday when the Gilead A's printed at 104.85 versus a share price of $34.80.

Sources queried still hadn't heard whether bookrunners were appointed for General Growth Properties Inc.'s planned $2.15 billion offering of mandatory exchangeables. But market interest was minimal given that the deal has a term of six months and was said to resemble a forward sale of common stock.

"It looks something like those bank preferreds that were really just forward sales," a trader said, referring to several large bank equity unit sales, including one from Bank of America Corp. last year. General Growth is a Chicago-based real estate investment trust.

The General Growth exchangeables will have a 0.5% coupon for the first three months, stepping up to a 1% coupon after that.

In the broader markets Monday, stocks rallied amid positive expectations for earnings due out during the remainder of the week, but stock-trading volume was light as typically is the case on a summer Monday, and IBM Corp.'s earnings released after the close of markets caused IBM shares to drop in after-hours trade.

The Dow Jones Industrial Average gained 56.53 points, or 0.6%, to close at 10,154.43 on Monday; the S&P 500 stock index added 19.18 points, or 0.6%, to end at 1,072.25; and the Nasdaq stock index was up 19.18 points, or nearly 1%, at 2,198.23.

AMR, UAL lower

AMR's 6.25% convertibles due 2014 traded at 93.785 versus a share price of $6.52 on Monday, on about a 78% delta, according to a sellside trader. The same paper also traded earlier at 97.5 versus a share price of $6.85.

The bonds came in about 1.5 points on the day, the trader said.

Shares of the Fort Worth-based airline ended down 13 cents, or 1.9%, at $6.74 on Monday.

The whole group of airlines was taken lower on the earnings miss - both shares and convertibles - but shares pared losses in the afternoon, a sellsider noted.

AMR will report earnings on Wednesday.

The 6% convertibles of UAL Corp., which reports second-quarter earnings on Tuesday, traded at 239.5 versus a share price of $19.70. Shares of the Chicago-based parent of United Airlines ended the session down 17 cents, or nearly 1%, at $21.18 on Monday.

And Continental Airlines Inc.'s 5% convertibles traded at 112 versus a share price of $21.50 on Monday, according to a New York-based sellsider.

Continental is a Houston-based airline. Its shares ended down 8 cents, or less than half a percentage point, to $22.78.

Delta's second-quarter net income was $549 million, or $0.65 per diluted share, excluding special items. This is a $748 million improvement year over year, the company's earnings release stated.

Results included $90 million in profit sharing expenses. Excluding that profit, net income was $467 million, or $0.55 per diluted share, for the June quarter. And that reversed a year-ago loss of $257 million, or 31 cents a share.

Meanwhile, Delta revenue rose 17% to $8.17 billion, up from $7 billion a year earlier. But the top line figure was below analysts' estimates for revenue of $8.25 billion. In addition, investors weren't encouraged by the company's outlook for the remainder of the year.

Delta, the world's largest airline, generated more than $1 billion in operating cash flow and ended with $6 billion in unrestricted liquidity. It issued its largest quarterly profit in 10 years but was cautious about the second half.

Transocean eases again

Transocean's series A convertible due 2037 traded a little lower to 97.75, and the Transocean 1.5% series C convertible due 2037 changed hands at 88.75.

The Vernier, Switzerland-based offshore oil drilling contractor's common stock fell $4.00, or 7.7%, to close at $48.08 on Monday.

The Transocean convertibles were "all a bit lower than Friday," a sellside desk analyst said of the sister issues.

News that engineers detected seepage on the ocean floor after BP's Macondo oil well in the Gulf of Mexico was capped last week took a toll on oil names on Monday.

Later Monday, the U.S. government's Thad Allen said scientists had determined the seepage was not related to the well. Nevertheless, Transocean continues to face risks associated with the oil leak.

The Transocean convertibles trade outright and not against its underlying shares, but they still tend to move in the same direction as the shares.

Newmont moves lower, in line

Newmont Mining's 1.25% convertibles traded at 135.041 versus a share price of $56.85, on about a 77% delta, and the Newmont Mining 1.625% convertibles traded at 136.725 versus a share price of $57.03, on about an 80% delta.

Both of these bonds moved about in line on a dollar-neutral basis, a trader said.

The Newmont 3% convertibles due 2012 were also seen in trade, changing hands at 134 versus a share price of $56.90 on Monday.

Shares of the Denver-based gold mining company fell to as low as $56.27 during the session but recovered some losses to end lower by 88 cents, or 1.5%, at $58.02.

The securities of Newmont Mining move in tandem with gold prices, which fell on Monday after weak housing numbers were released, signaling continuation of a slow economic recovery.

The National Association of Home Builders on Monday reported that the July housing market index came in at 14, falling 2 points from June's downwardly revised figure of 16.

Mentioned in this article:

AMR Corp. NYSE: AMR

Continental Airlines Inc. NYSE: CAL

General Growth Properties Inc. NYSE: GGP

Gilead Sciences Inc. Nasdaq: GILD

Newmont Mining Corp. NYSE: NEM

Transocean Ltd. NYSE: RIG

UAL Corp. Nasdaq: UAUA

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