Transocean extends fall; Superior Energy off; Western Refining under pressure; Teva slips

By Rebecca Melvin

New York, June 1 - Bad news on the Gulf of Mexico oil leak took the convertibles of Transocean Ltd. lower again outright on Tuesday, extending losses from Friday and after U.S. markets were closed Monday in observance of the Memorial Day holiday.

The oil leak disaster stemming from the explosion of a BP plc-operated Transocean rig took a disappointing turn when BP announced that its "top kill" plan to plug the leak with mud didn't work, despite early hopeful signs. The company is next going to try to cap the leak and siphon the leaking oil to the ocean's surface.

Also on Tuesday, attorney general Eric Holder said that criminal and civil investigations have been opened into the oil spill. Meanwhile, president Barack Obama said deepwater drilling permits will be suspended for six months until an independent commission he has created to investigate completes its mandate.

Transocean accounted for a sizable amount of the day's trading Tuesday, which was described as light.

But also trading lower was Superior Energy Services Inc., and Western Refining Inc. was under pressure.

Cameron International Corp., which also has an active convertible issue, saw its shares plunge steadily through the session to end down 12%. Those convertibles were indicated lower by about 4 points to 112.

Away from oil and oilfield services, there was some activity in Hartford Financial Services Group Inc. Hartford's 7.25% mandatory convertible preferred stock due 2013, which priced in March, traded at $24.00 versus a share price of $25.05, which was down from $25.25 on the preferreds versus a share price of $26.85 on May 10.

Teva Pharmaceutical Industries Ltd. saw its 1.75% convertibles "come in" in sympathy with their underlying shares after the Israeli generic drug maker launched a generic version of Yaz, an oral contraceptive, prompting Bayer, the original maker of the pill, to file a patent infringement lawsuit in Delaware.

On the upside, Newmont Mining Corp., which has been trading mostly outright, saw its 3% convertibles due 2012 trade at 132, which was up from about 129 as shares of the Denver-based gold mining concern gained with higher gold prices.

Equities moved into positive territory during Tuesday's session after opening sharply lower, pulled up by better-than-expected economic data on manufacturing and construction. But the major stock indices sold off into the close, leaving the Dow Jones Industrial Average down 112.61 points, or 1.1%, at 10,024.02; the S&P 500 Stock index down 18.70 points, or 1.7%, at 1,070.71; and the Nasdaq Stock Market down 34.71 points, or 1.5%, at 2,222.33.

The Commerce Department said construction spending jumped 2.7% in April, the biggest gain in nearly a decade, and an indicator that the housing market is picking up. Economists had expected the report to be flat in April after rising 0.2% in March.

In addition, the Institute for Supply Management's monthly manufacturing index came in at 59.7 for May, which was slightly better than expected but still lower than 60.4 for April. Any reading above 50 indicates expansion.

Transocean extends losses

Transocean saw continued weakness after a failed attempt to plug the oil leak in the Gulf of Mexico and after word that the government is opening criminal and civil investigations into the oil spill that continues to spew out oil after 40 days.

Transocean's 1.625% series A convertibles due 2037 traded at 97 early and were seen settling at 96.7 after trading at 98 on Friday.

The Transocean 1.5% B convertibles due 2037 were indicated to have closed at 90.5 after changing hands at 92.875 on Friday. And the Transocean 1.5% series C convertibles due 2037 traded at 86.5 after trading at 89.5 on Friday.

More than $134 million of Transocean's convertibles traded between the three issues, a Connecticut-based sellside trader said in late afternoon. Another sellsider said that of about $500 million total convertible volume, Transocean and Medtronic accounted for about $200 million of it.

And given that the pricing was lagging, it was certainly a disappointing way to begin June after a very weak May.

"The thing isn't stopped, and it could get into other people's drilling activity," a Connecticut-based sellside analyst said as to heavy drag on the market. Also the litigation costs to BP and potential awards just seem to be spiraling, the sellsider said.

BP, Transocean and Cameron are "big companies. They are not going to go out of business, but this is going to cost billions and billions. All my oil field services names and E&P also are red," the sellsider said at the end of the day.

Superior Energy trades lower

Superior Energy's 1.5% exchangeable senior notes due 2026 were down about 0.5 point on the day and have dropped 1.5 points from late last week.

The 1.5% notes traded down at 91.5 from 92 bid, 92.125 offered in the middle of the day Tuesday, a Connecticut-based sellside analyst said.

"Anything oil related definitely has a sense of uneasiness around it," the sellsider said.

Superior is a specialized oilfield services company focused offshore in the Gulf. The bonds are putable in December 2011.

Last week they traded at 93 in a $500 million bond sale to a customer, the sellsider said. "That's in a point and a half from last week, and if you go back to late April when the stock was at its high, the bonds were at 96. That's in about 4.5 points, and that's a big move, especially with something that's only going out 18 months."

The sellsider said the Superior 1.5s were still "holding in" pretty well, and given that it's rated BB+ by S&P is helpful.

The bonds are convertible at $45.50, and the stock ended Tuesday at $20.25, down $8.00 from its April high.

"The stock has gotten absolutely hammered as so many of these oil-related Gulf plays have," the sellsider said.

Western Refining under pressure

Western Refining's 5.75% convertibles due 2014 were seen ending the day at 75.7, which was down from 77.7 on Friday. Shares of the El Paso, Texas-based refining and marketing company lost 36 cents, or 6.8%, to $4.90.

Western Refining works on the spread, or the difference between what they buy oil for and where they sell the processed product.

"The good news for them is they did get taken off of watch, and they firmed. But they remain on negative outlook from S&P," the Connecticut-based sellside analyst said.

At 78.125 to 78.5, which was where they were when the last round lot traded May 21, they had a 12.7% yield.

"I haven't seen much of them. It doesn't trade a ton," the sellsider said.

Mentioned in this article

Cameron International Corp. NYSE: CAM

Hartford Financial Services Group Inc. NYSE: HIG

Newmont Mining Corp. NYSE: NEM

Superior Energy Services Inc. NYSE: SPR

Teva Pharmaceutical Industries Ltd. Nasdaq: TEVA

Transocean Ltd. NYSE: RIG

Western Refining Inc. NYSE: WNR

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