Alpha Natural gains on hedge despite coal share slump; Navistar up on hedge; Omnicare in line

By Rebecca Melvin

New York, June 11 - Alpha Natural Resources Inc. convertibles were lower outright, but better on a dollar-neutral, or hedged, basis on Monday as the underlying shares extended losses sparked by news out Friday that the Bristol, Va.-based coal producer is cutting production.

Alpha Natural shares fell 9% on Monday and Patriot Coal Corp.'s convertibles weren't active but the underlying shares plunged another 13% on Monday on top of a 10% drop on Friday.

The move lower in coal names "appeared to be more broad weakness across the energy sector with coal being one of the higher beta groups," analyst James Rollyson of Raymond James told Prospect News via email.

Oil- and natural gas-related stocks also slid on lower oil and gas prices.

Meanwhile, Navistar International Corp. continued to recoup a portion of the hedged losses notched last week, improving by about 0.375 point dollar neutral. There was renewed strength in Navistar initially on word Friday that billionaire investor Carl Icahn raised his stake in the company to 12%. On Monday, there was speculation that Volkswagen may be looking at whether a stake in the troubled engine and heavy-duty truck maker makes sense.

In health care, Omnicare Inc. was said to have moved in line with weaker underlying shares in quiet trade after news that its president John Figueroa resigned suddenly from the post he held since early 2011. President and chief financial officer John Workman was named interim chief executive. Its shares fell 9%.

The convertibles of Endo Pharmaceuticals Holdings Inc. looked to be down about a point at 117.375 with the underlying shares of the Chadds Ford, Pa., specialty drug maker off a couple of percentage points.

The price of crude oil fell below $83 a barrel as equities slid sharply amid mounting concerns about Europe's sovereign debt crisis.

Over the weekend, Spain received €100 billion in rescue funds for its ailing banking sector.

Alpha slips, Patriot weak

Alpha Natural's 2.375% convertibles due 2015 traded at 85 on Monday, which was up about a point outright from Friday's 84, and that was called up about 0.5 point on a hedged basis around mid-session.

"Things ended weak," a Connecticut-based trader said of Alpha Natural and the other coal names after the markets closed.

Alpha Natural shares fell 86 cents, or 9.2%, to $8.46., which was on top of a 2.6% drop on Friday.

Patriot Coal's 3.25% convertibles due 2013 were offered lower at 54, but weren't seen in trade, sources said. On Friday, the Patriot convertibles were offered at 57.5 without a bid.

A Connecticut-based analyst said that he hadn't heard anything new on Patriot Coal on Monday, when its shares slid 13%.

"Obviously, it was a rough day for the whole market," the analyst said.

On Friday, Alpha Natural said it will idle four mines in Kentucky, close more mines being operated by contractors and curtail production at other facilities. About 150 jobs will be eliminated.

The changes will cut thermal coal shipments by an additional 2 million tons in 2012 and 4 million tons in 2013. The company reiterated shipment guidance for 2012.

The company lowered its 2012 outlook target earlier this year to 100 million tons to 116 million tons from a previous goal of 107 million tons to 124 million tons.

Satellite offices in Richmond, Va., Denver, Latrobe, Pa., and Linthicum Heights, Md. will be closed by the end of the year to consolidate support functions, the company said.

Due to a mild winter in the United States and lower natural gas prices, which have encouraged power plants to switch to natural gas from coal where possible, demand for coal has fallen, the company has said.

Navistar expands

Navistar 3% convertibles due 2014 traded 96.75 versus an underlying share price of $29.75, which was up about a point on a $1 share price increase. The Navistar convertibles were seen at 95.75 versus a share price of $28.75 on Friday, said a New York-based trader, who put Monday's dollar-neutral improvement at 0.375 point.

That was on top of a 0.5 point improvement dollar neutral on Friday following a 1 point to 4 point slide dollar neutral on Thursday.

On Monday, Reuters followed up on speculation that Germany's Volkswagen auto company was looking at a potential stake in Navistar which last week posted a surprisingly disappointing quarterly report in which it slashed full-year guidance.

Omnicare in line

Omnicare's 3.75% convertibles due 2035 traded down to 90 to 91 versus an underlying share price of $30.50.

The Omnicare 3.75% convertibles due 2025 were seen at 128.75 bid, 129.75 offered versus the same underlying share price of $30.50.

Shares of the Covington, Ky.-based geriatric pharmaceutical services company fell $2.96, or 9%, to $30.40 on the day.

The higher-priced bonds moved pretty much dollar neutral on about an 87% hedge, a New York-based convertibles strategist said.

A New York-based trader said the bonds weren't trading actively "yet."

According to a release: "In remarking on his decision to resign, Figueroa indicated that he believed he accomplished goals established by the board when he was hired, namely to transition Omnicare to a more operations-driven company focused on customer service."

Workman will take over as interim CEO, and Nitin Sahney, executive vice president of specialty care, will be promoted to chief operating officer.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Endo Pharmaceuticals Holdings Inc. Nasdaq: ENDO

Navistar International Corp. NYSE: NAV

Omnicare Inc. NYSE: OCR

Patriot Coal Corp. NYSE: PCX

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