Cooper Cameron, Halliburton rise as oil prices surge; Schering-Plough eases, but LSI gains

By Rebecca Melvin

Princeton, N.J., July 6 -Cooper Cameron Corp., Halliburton Co. and other oil and gas services companies saw their convertible bonds lift Wednesday as bad weather in the U.S. Gulf helped boost crude oil prices to record levels. Schering-Plough eased, but LSI Logic Corp. gained as the level of market activity picked up following a quiet period after the Independence Day holiday, traders and analysts said.

Meanwhile the primary market was dormant again, remaining quiet so far in July after notching a significant volume improvement in June.

Saks Inc. saw its convertible issue ease after news Tuesday that the retailer received a waiver of default from holders of its $230 million (at the time of issuance) of 2% convertibles, and amendments were approved.

Oil services names rose in early trade and remained firm, if off their session highs, even as their stock prices declined Wednesday, traders said.

The crude oil contract for August delivery touched $61.35 a barrel in New York before settling off its high at $61.28 a barrel, up 2.8%, still a record level. The gains, notched after record prices last week as well, came amid concerns that Tropical Storm Dennis could intensify to hurricane strength and further disrupt shipments along the U.S. Gulf coast.

Tropical Storm Dennis is forecast about three days away from the Gulf, but comes on the heels of Tropical Storm Cindy, which caused cuts in oil output and refinery operations.

In other news, the U.S. Army announced that it awarded Halliburton $4.97 billion for new work in Iraq. The agreement was signed in May but not made public earlier.

Halliburton's 3.125% convertible senior notes due 2023 traded early at 142.375 versus a stock price of $49.63. Its shares fell 93 cents, or 1.9%, to $48.71 on the New York Stock Exchange, tracking a decline in the sector overall.

Ahead of the session, Houston-based oil services company Cooper Cameron said that it named Lorne E. Phillips as its new treasurer, replacing Michael Jennings, who left the company last month to take a position at refinery operator Frontier Oil Corp.

Cooper Cameron's 1.5% convertible senior notes due 2024 traded actively in the session, up about 0.5 at 113.5, versus a stock price of $65.50. They were seen going out Wednesday at 113, traders said. Cooper Cameron shares closed down 83 cents, or 1.3%, to $64.64.

The convertible of oil drilling company Nabors Industries Ltd. - a 0% bond due 2023 - traded at 105, versus a stock price of $62.75. Its shares ended the day down 73 cents, or 1.7%, to $62.13.

Schlumberger Ltd. convertibles remained firm after recent gains with its 2.125% convertible senior debentures B tranche at 115.25 versus a stock price of $78.75. The company's shares fell $1.11, or 1.4%, on Wednesday to $77.71 on the New York Stock Exchange.

Pact pressures Schering-Plough

Schering Plough's mandatory preferred convertibles eased following news of a pact the Kenilworth, N.J.-based drugmaker inked with ViroLogic Inc. for patient-testing technology in its HIV studies.

Schering will pay $4.8 million over several years for the technology which it plans to use to develop a potential new HIV infection drug, scheduled to begin late-stage trials this year. Schering-Plough will use the technology to identify and monitor patients during the studies.

Schering-Plough's 6% mandatory convertible preferreds eased 0.63, or 1.3%, to 50.26, as the underlying stock lost 24 cents, or 1.3%, to $18.76.

Expectations boost chips

LSI Logic's 4% convertible due 2010 gained "decently," a sellside trader said, following its stock price higher, after Merrill Lynch included the Milpitas, Calif.-based chip maker among a list of recommended stocks.

Merrill's advice that clients move into the chip sector was based on what it viewed as attractive pricing for many stocks as the industry recovers. It included the 15 least expensive semiconductor stocks that have risen 5% on average since January.

Also on Wednesday, UBS raised its second-quarter estimates for industry leader Intel Corp., saying it could see higher-than-expected quarterly sales amid a boost in laptop business.

UBS lifted its Intel forecast to 33 cents a share on sales of $9.3 billion, up from a prior estimate of 32 cents a share on sales of $9.2 billion.

LSI's 4s due 2010 traded up about a point to 102.625, compared with 101.638 bid, 102.138 offered versus a stock price of $9.19 on Tuesday. Its shares added 31 cents, or 3.4%, to close at $9.50 Wednesday.

New issues seen soon

Traders and analysts didn't expect to see any new issues this week, but were optimistic that the primary market would revive next week. CV Therapeutics Inc. was the last big convertibles issuer with a $149.5 million issue of 3.25% convertibles priced June 29.

"I think we're done for this week," one trader said, indicating that he didn't think anything would come to market before Friday.

A sellside analyst said, "Don't forget, we're in holiday mode. It's somewhat of a holiday week."

And even despite improved volume and cheapness in new issuance in June, the convertibles market continued a steady march smaller, according to Lehman Brothers' June 2005 - New Issue Trends Monthly released Wednesday.

It was the 14th straight month of organic contraction resulting from outflows related to redemptions, calls, puts, maturities, buybacks and coupon income, the report said.

The figure excluded external cash flow into the market, which is more difficult to track, said Lehman Brothers analyst Venu Krishna.

But while July has been void of new issues so far, "June saw some new deals get priced well and absorbed well," which may be a portent for improved new issuance following the slow summer months, Krishna told Prospect News.

"There was some testing of the market [in June], and the aggressively priced deals didn't go so well," Krishna said.

He said an increase in mergers and acquisitions will help new issuance. "We've been waiting for an increase in M&A activity and MetLife was a classic example," Krishna said.

New York insurer MetLife Inc. issued $1.8 billion of 6.375% mandatory convertibles, up 22.5%, on June 16. The successful, large issue helped boost new issuance in June well above levels seen in recent months. Proceeds were used to help buy various insurance lines from Citigroup Inc.

Saks eases after consent

Saks' 2% convertibles due 2023 eased to 112.5 bid, 113 offered, versus a stock price of $19.15, after the Birmingham, Ala.-based retailer resolved a technical default by getting agreement from holders to allow it to file financial reports late for a 10 cents per $100 fee.

An analyst said that the agreement essentially represented the company "calling the bluff" of holders, in particular New York-based hedge fund, Highbridge Capital, a holder of at least 25% of the issue, that served the default notice June 14.

"Saks was not in trouble," a sellside analyst said, referring to the fact that Saks needed the extension not for fundamental problems but for smaller issues related to accounting.

Therefore, when the threat of default presented itself to Saks, the company readied itself to pay all of the issue off. Bondholders didn't necessarily want that, so they settled with the small fee, the analyst said.

The same analyst speculated whether Highbridge was behind the default notice to Brocade Communications Systems Inc. announced Friday. But a source at Highbridge said that the hedge fund "was not involved in that one."

US Bancorp, trustee for the holders of the 2% convertible notes, gave notice on June 24 of a potential default if the San Jose, Calif.-based networked storage company fails to file its fiscal second quarter 10-Q within 60 days.

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