Thin trade in pre-holiday session; Newmont slips on hedge; Frontline earnings in focus

By Rebecca Melvin

New York, Nov. 27 - Convertible bond trading was light Wednesday as market players began to shift into vacation mode ahead of the Hanukkah and Thanksgiving holidays. The primary market, which was very busy in November, was quiet.

"It's totally dead. We have three people here; that's it," one market source said.

U.S. financial markets will be closed Thursday with a shortened trading session on Friday in observance of Thanksgiving.

Newmont Mining Corp.'s convertibles were among the issues that saw a limited amount of trading. They were weaker on both an outright and dollar-neutral, or hedged, basis, although it was difficult to read much into the move given light volume, a New York-based trader said.

Shipping-sector convertibles, including those of Genco Shipping & Trading Ltd. and DryShips Inc., were in focus after positive earnings boosted shares of Hamilton, Bermuda-based oil tanker company Frontline Ltd. by more than 16%. Frontline also has a convertible bond issue, but it wasn't heard in trade.

Elsewhere, the week's two new issues continued to trade fairly actively and were seen mostly in line with trading levels on Tuesday, which marked their debut in secondary market trading.

Nvidia Corp.'s new 1% convertibles due 2018 were seen at 100 bid, 100.625 offered with the underlying shares of the Santa Clara, Calif.-based graphics processor company at about $15.70. The bonds were wrapped around par on Tuesday.

"Maybe we made them a little wider because they were not as active," a New York-based trader said of Nvidia.

Stanley Black & Decker Inc.'s new 6.25% mandatory equity units traded at 102, which was within the range of Tuesday's close. Stanley shares ended up 0.2%.

The convertibles primary market has been hot in November, with some $7.36 billion in new issuance in 21 deals priced so far, and making it the biggest month for new issuance in 2013 so far.

Equity markets edged up again, with the Dow Jones industrial average and S&P 500 index closing at record highs again, and the Nasdaq stock market tacking on another 27 points to 4,044.75.

Newmont slips in trade

Newmont's 1.625% convertibles due 2017 were active on what was otherwise a quiet, pre-holiday session. The bonds were seen at 103.625 bid, 104.625 offered versus a share price of $24.57.

The bonds, which trade on a light 35% delta, were seen down about 0.25 point on a dollar-neutral basis, a New York-based trader said.

"It's very quiet today, but based on a run from yesterday, they look about 0.25 point lower," the trader said.

The Newmont 1.25% convertibles due 2014, or Newmont As, were seen at 99.75 bid, 100.5 offered versus a share price of $24.72.

The As don't really trade on a hedged basis, the trader said, and they seemed "very slightly lower" from Tuesday.

Shares of the Denver-based gold mining concern closed down 2 cents at $24.70.

The Newmont shares appeared to be struggling to end a downward spiral that leaves them down about 50% for the year so far. The drag has been sector wide for gold miners, with the shares of Goldcorp Inc. and Barrick Gold Corp. also down about 50%. The sector has been hurt by a slump in gold prices precipitated by easy money monetary policies across the globe and stronger stock markets.

Frontline, DryShips in focus

Frontline's 4.5% convertibles due 2015 were not seen in trade on Wednesday but last traded in the mid-60s, according to Trace data. Frontline shares surged 39 cents, or 16.6%, to $2.74.

DryShips' 5% convertibles due 2014 changed hands at 97, which was in line with previous trades, according to Trace data.

"The stocks were moving, but I have not heard the bonds," a Connecticut-based analyst said of the shipping names.

Frontline reported a third-quarter net loss of $36.4 million, or $0.46 per share, compared to a net loss of $120.3 million, or $1.54 per share, in the second quarter.

The company ended the third quarter with cash and cash equivalents of $79.3 million and restricted cash of $59.2 million.

Cash decreased by $16.6 million from the prior quarter, said chief financial officer Inger Klemp during the company's third-quarter earnings conference call on Wednesday.

As of Sept. 30, Frontline had total debt and lease obligations, excluding non-recourse debt in ITCL, of about $1.2 billion, comprised of $841 million in lease obligations to Ship Finance, $66 million in lease obligations to German KGs and $215 million in a convertible bond loan.

Full repayment of this debt is primarily dependent on a sustained improvement in tanker rates in the years to come, according to a company news release.

Frontline's board is "actively monitoring the situation" and seeking opportunities to restructure the balance sheet and improve the company's financial position, the news release stated.

In October, the company entered into a private agreement to exchange $25 million of its 4.5% convertible bond for about 6.5 million shares and a cash payment of $2.25 million.

The board did not declare a third-quarter dividend.

During the third quarter, Frontline recorded a vessel impairment loss of $22.4 million and issued 329,532 of new ordinary shares.

Mentioned in this article:

Barrick Gold Corp. NYSE: ABX

DryShips Inc. Nasdaq: DRYS

Frontline Ltd. NYSE: FRO

Genco Shipping & Trading Ltd. NYSE: GNK

Goldcorp Inc. Toronto: GG

Newmont Mining Corp. NYSE: NEM

Nvidia Corp. Nasdaq: NVDA

Stanley Black & Decker Inc. NYSE: SWK

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.