Intel slips in active trade; Xilinx quiet after cutting outlook; Transocean eases slightly

By Rebecca Melvin

New York, Dec. 22 - Intel Corp.'s older 2.95% convertible was the most actively traded issue in the convertibles market on Wednesday, which was otherwise a pretty quiet pre-holiday session, market players said.

The Intel convertibles were slightly lower in line with lower underlying shares.

Xilinx Inc. convertibles were quiet despite active trading in the common stock after the San Jose, Calif.-based chipmaker cut its revenue outlook for fiscal third quarter, citing weaker-than-anticipated sales to a few large communications customers, specifically in the wireless segment.

The Xilinx shares started out the day under water but strengthened throughout the session to eke out a small gain on the day.

Ciena Corp's 3.75% convertibles, which were initially priced in mid October, traded early at 126.5625 versus a share price of $21.48, according to a sellside trader. Shares of the Linthicum, Md.-based communications networking equipment and software company moved the opposite way to Xilinx, however, losing steam steadily through the session to end 3% lower at $20.81. The bonds looked lower at the close at 124, according to a pricing source.

Away from technology names, Transocean Ltd. was another decent trader of the day, with its 1.5% series C convertibles due 2037 slipping amid some selling pressure on the Vernier, Switzerland-based offshore oil services company's common shares. But the stock-trading volume was less than half of the three-month average volume.

Trading activity thins

Both equity and convertible market action continued the process of slowly grinding to a halt ahead of the Christmas holiday, when many market players take vacation. Wednesday marked the last full trading day ahead of Christmas, while Thursday will be an early close and on Friday markets will remain shut.

Economic data that came out on Wednesday included a final revision of third-quarter U.S. gross domestic product that stands at 2.6%. The GDP missed estimates but came in slightly better than last month's 2.5% revision. The estimate was for a 2.7% GDP.

Also providing data on Wednesday was the National Association of Realtors, which came out with its sales figure of previously occupied homes. Those sales rose 5.6% in November to an annual rate of 4.68 million, slightly below analysts' estimates.

The data nevertheless helped prop up equities - which have been on a tear this month: the Dow Jones Industrial Average was up 26.33 points, or 0.24%, to 11,559.49; the Nasdaq Stock Market settled up just 4 points at 2,671.48; and the S&P 500 stock index added 4.3 points to 1,258.84.

On this day a year ago, the averages were much lower. On Dec. 22, 2009, the Dow closed down 59.42 points, or 0.7%, at 8,519.69; the Nasdaq ended down 32 points, or 2%, at 1.532.35; and the S&P 500 closed down 16 points, or 1.8%, at 871.63.

In the primary market, Beacon Power Corp. priced $10 million of units, including convertible preferred stock, with a par of $1,000 to yield 8%, plus warrants.

Each unit consists of one share of the series B convertible preferred stock plus a warrant to purchase an additional 0.5 of a share of the preferred stock and a warrant to purchase 4,458.27 shares of common stock.

Transocean off slightly

Transocean's 1.5% series C convertibles due 2037 were seen in early trade at 98.5, according to a New York-based sellside desk analyst. At the close, those bonds looked nearly 2 points off that level at 96.77.

The Transocean 1.5% series B convertibles due 2037 were seen settling little changed at 98.5.

The Transocean 1.625% series A convertibles due 2037 were put by holders earlier this month, and only $11.4 million of that issue remains outstanding.

Shares of the offshore oil services company settled at $69.28, which was down 30 cents, or 0.4%, on the day.

Transocean was one of the heartache names of the convertibles market in the past year when its fortunes hung in a balance dictated by how and when workers could cap off an oil well leaking out of control miles from shore and a mile below the ocean's surface.

BP plc, which operated the well using a Transocean offshore rig, was deemed to be ultimately responsible for the Deepwater Horizon oil spill and costs associated with it, including clean up and other damage. But Transocean convertibles didn't recover until the well was successfully capped July 15, nearly three months after an explosion that killed 11 workers and touched off the leak on April 20.

The spill dumped millions of barrels of oil into the water and the sludge has washed up on the fragile coastlines of Louisiana, Mississippi and other states.

Transocean convertibles recovered late in the year from the steep slide in spring and early summer, translating into a complete round trip, with virtually no change in pricing from before the oil spill crisis that took the company's credit and stock through the mire.

The Transocean Cs slid to the 80 to 82 level, from 97 points, and the Transocean Bs also lost 17 to 18 points and then came back up again.

"It's basically been a roller coaster. Vol. [volatility] spiked, the credit spread spiked massively, and there was a massive amount of activity in those bonds because of the spill uncertainty," a New York-based sellside analyst said.

The convertibles sold off more than the straight bonds, as is typically the case because convertibles are at the lower end of the capital structure. But there was also more value in the convertibles than in the straight bonds since it was cheaper to buy them back, the analyst said.

Overall the drillers have come back in the past few months from the spring to late summer, when none did particularly well, the sellsider said.

Mentioned in this article:

Beacon Power Corp. Nasdaq: BCON

Ciena Corp. Nasdaq: CIEN

Intel Corp. Nasdaq: INTC

Transocean Ltd. NYSE: RIG

Xilinx Inc. Nasdaq: XLNX

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