Alliance Data convertibles hold in despite share decline; Exide down; Massey Energy steady

By Rebecca Melvin

New York, Feb. 3 - The convertibles market was mixed Wednesday as earnings news boosted activity again after giving trading volume a kick start on Tuesday.

Alliance Data Systems Corp. saw its convertibles hold in on a hedged basis, moving down about 3 points compared to an 11% slide in their underlying shares after the Dallas-based marketing services company reported quarterly profit that fell 10% on an 8% revenue rise.

Exide Technologies, another notable loser in the equity market, saw its convertibles trade about 11% lower after the Lawrenceville, N.J., battery maker beat earnings estimates but said that it lost Wal-Mart, the world's largest retailer, as a customer for its automotive batteries.

Massey Energy Co. was steady to higher, along with its underlying shares, after the metallurgical coal company's earnings missed estimates; but Citigroup upgraded the company's shares to "hold" from "sell," citing improved guidance that should reduce downside risk.

Away from the earnings front, Eastman Kodak Co. saw its convertibles and shares continue to gain during the session, rising to 119 versus a share price of $6.90. After the market close, the Rochester, N.Y.-based digital photography company said that it has begun a tender offer to purchase up to $100 million of its outstanding 7.25% convertible senior notes due 2013.

In the primary arena, BPZ Resources Inc., formerly known as BPZ Energy Inc., priced $140 million of five-year convertibles late Tuesday. But the new BPZ 6.5% convertible senior notes weren't heard in trade although there were bidders on the paper willing to pay 7 points more than issue price.

The Rule 144A deal, sold via bookrunner Raymond James & Associates, was probably "put away" by outright investors, sources said.

The stock markets pared losses after an early retreat from a two-day rally Wednesday. The Dow Jones Industrial Average fell 26 points after jumping 230 points in the past two days. The S&P 500 index ended down 6 points, or 0.6%, and the Nasdaq Stock Market gained almost a point.

The Institute for Supply Management said its index of service activity rose to 50.5 in January from a revised 49.8 in December. The January reading was below the level of 51 analysts had been expecting. Any number above 50 signals growth.

Alliance Data holds in

Alliance Data's 1.75% convertibles due 2013 traded down to about 94 at the end of the session, having also traded at 95 versus a share price of $57.25, compared with 98.5 versus a share price of $61.60 during the previous session.

Shares of the marketing services company lost $6.76, or 11%, settling at $54.70 on Wednesday.

The company's earnings fell below the average analyst forecast of earnings.

In the quarter, Dallas-based Alliance Data Systems reported earnings of $40.7 million, or 73 cents per share, on revenue of $545.9 million. That is down from a profit of $45.3 million, or 68 cents per share, on revenue of $507.6 million for the comparable quarter a year earlier.

For fiscal 2009, Alliance posted a profit of $143.7 million, or $2.47 per share, on revenue of $1.96 billion. That is down from a profit of $206.4 million, or $2.80 per share, on revenue of $2 billion a year earlier.

Shares of Milton, Ga.-based Exide slumped $1.84, or 23%, to $6.08 on Wednesday, while the company's floating-rate convertible notes due 2013 lost about 11 points to trade at 61.5.

Third-quarter net income attributable to Exide Technologies fell to $9.8 million, or 12 cents per share, from $15.4 million, or 20 cents per share, a year earlier.

Revenue fell 5% to $746.5 million.

Analysts expected earnings of 16 cents a share, excluding items, on revenue of $684 million.

Massey mostly steady

Massey Energy's 3.25% convertibles due 2015 traded at 91 versus a share price of $42.75 and also at 90 on Wednesday, compared to 90.5 versus a share price of $41.75 a week ago.

Shares of the Richmond, Va.-based coal company ended higher by 50 cents, or 1.2%, at $42.60 in heavier-than-average volume on Wednesday.

The coal company reported net income of $24.4 million, or $0.28 per diluted share, and EBITDA of $123.3 million for the fourth quarter of 2009, compared to net income of $47.7 million, or $0.56 per diluted share, and EBITDA of $144.3 million in the year earlier.

Revenue from coal production was $498.7 million, compared to $640.0 million in the fourth quarter of 2008.

"We were pleased with our control of costs and our positive cash generation during the fourth quarter in spite of very difficult market and operating conditions. We are pleased to have improved our market position, balance sheet and regional reserve position in 2009. We look forward to continued improvement in all of these critical categories in 2010," Massey chairman and chief executive officer Don Blankenship said in a news release.

Capital expenditures for 2010 are expected to be approximately $280 million including the capital for the initial stages of the Rowland development and the costs associated with the rebuilding of the Bandmill plant.

Citigroup analyst Brian Yu said that Massey's reported earnings per share for the fourth quarter were well below Citi's estimate of $0.20 and the consensus estimate of $0.27. Downside to Citi's model was primarily driven by lower-than-expected gross profits of $111 million versus Citi's estimate of $118 million and SG&A expense of $34 million that was above its estimate of $20 million.

Kodak to tender

Kodak's convertibles have been gaining consistently in recent sessions in tandem with their underlying shares. The company announced after the close of markets Wednesday the start of a tender to purchase for cash up to $100 million of its 7.25% senior notes due 2013.

The tender offer is being made under an offer to purchase dated Feb. 3, and a related letter of transmittal which sets forth a more detailed description of the terms and conditions of the tender.

Kodak is making the tender offer at this time in light of recently improved conditions in the debt markets that may allow the company to extend the maturity of its existing debt, thereby further improving its capital structure, according to a release.

The tender offer will expire March 4.

BPZ quiet on debut

BPZ's newly priced 6.5% convertibles due 2015 were heard bid at 107, but no trades were heard in the name, and none were expected, sellsiders said.

The issue of the Houston-based oil and natural gas exploration company "was probably put away; it was a very private deal," sources said.

"Everyone assumed that it was being put away. It was a private deal that came as a drive by, and it was coming from Raymond James, for a relatively small $140 million: we probably won't even see it," a Connecticut-based sellside analyst said.

Nevertheless, some valuation work was done on the issue since "these things tend to come back a year later. You thought you'd never see it, and then all of a sudden, there it is," the sellsider said.

Mentioned in this article:

Alliance Data Systems Corp. NYSE: ADS

BPZ Resources Inc. NYSE: BPZ

Eastman Kodak Co. NYSE: EK

Exide Technologies NYSE: XIDE

Massey Energy Co. NYSE: MEE

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