Amgen gains on clinical results; financials weaker; new XM Satellite deal looks cheap; XL, PSS to price

By Rebecca Melvin

New York, July 28 - Amgen Inc.'s two convertible bond issues gained substantially in heavy trading Monday following word late Friday that the biotech's osteoporosis drug showed positive late-stage clinical results and ahead of quarterly results expected after the close.

The convertible bond market was mostly quiet, however, as the stock markets sank amid anxiety over the financial sector. In convertibles, Bank of America Corp. and Fifth Third Bancorp weakened along with the overall sector following last week's uptick.

Fannie Mae's convertible preferreds and mandatory convertibles - which weren't heard in trade - were indicated lower amid a drop in their underlying shares despite passage of a bill over the weekend aimed a propping up the ailing housing market and establishing a backstop for the U.S. mortgage buyer and its relative Freddie Mac.

It was "beyond monotonous," one New York-based sellside trader said of the convertibles market Monday. Only the likes of stalwarts such as Amgen, Transocean Inc. and Nabors Industries Inc. could generate any trades, he said.

The day brought a surprising number of new deals, however, given the recent dearth of activity. XM Satellite Radio Inc. said it planned to price $550 million of notes exchangeable into shares of Sirius Satellite Radio Inc. after the market close Monday.

XL Capital Ltd. said it planned to price $500 million of three-year mandatory convertibles and PSS World Medical Inc. said it planned to price $200 million of six-year convertibles. Both of these deals were announced after the close and were seen pricing on Tuesday.

The week overall was expected to be heavy on earnings reports, particularly from the health care sector, and that should foster trades in those names, a Connecticut-based sellside analyst said. Toward the end of the week, several energy companies are expected to report earnings including Chesapeake Energy Corp., the analyst added.

Premiums on Amgen convertibles rise

Both the Amgen 0.125% convertibles due 2011 (known as the A tranche) and the Amgen 0.375% convertibles due 2013 (known as the B tranche) did better Monday, sources said.

"They were strong in the morning and traded a lot, and their premiums went up pretty substantially," a West Coast-based buyside trader said.

The 0.125% convertibles were at 97 versus $62 near the close, which represented a 25% premium, and the 0.375% convertibles were at 95.5, representing a 22.5% premium, according to a New York-based sellside desk analyst.

A buysider put the 0.125% convertibles at 96.9 versus $62 and the 0.375% at 96.10 versus $60.25.

The buysider said he preferred the A tranche which he saw as having better gamma and a better bond floor. "I just like the profile better. I'm not one to have both tranches. But either one would have done well. For the longest time, there was premium in the stock, but now the bonds are better bid."

The results from a phase 3 trial showed that denosumab significantly reduced the risk of bone fracture in post-menopausal women. In response, analysts upgraded the Thousand Oaks, Calif.-based company.

The upgrades included Thomas Weisel's upgrade to "overweight" from "market weight," Rodman & Renshaw's upgrade to "market outperform" from "market perform" and Jefferies & Co.'s upgrade to "buy" from "hold."

The delta moved up. The 0.375% convertibles had been trading on a 30 delta to 40 delta, and now they are closer to 45 delta now, a trader said.

For a while there was trading at such a low delta, it was almost like an outright play, but now with such a big move in the stock, it's starting to get interesting," the trader said.

Shares of Amgen (Nasdaq: AMGN) closed up $6.56, or 12%, to $60.48.

BoNY, Fifth Third weaker

Bank of America and Fifth Third were among the first to react as concerns regarding credit, the economy and the financial sector reared their head again.

"They ended a bit on a positive note last week and they are the first to react as the clouds are starting to come over again, It's nothing new and I'm not really surprised," the West Coast-based sellsider said Friday.

Bank of America's 7.25% series L convertible preferreds were seen closing at 882.25, versus a share price of $28.06 on Monday, compared to 900, versus a share price of $29.58 on Friday.

Shares of the Charlotte, N.C.-based bank (NYSE: BAC) ended lower by $1.52, or 5%.

Fifth Third's 8.5% perpetual convertible preferred was seen closing at about 131, versus a share price of $12.94, compared to 133 versus a share price of $13.72 on Friday.

Shares of the Cincinnati-based bank lost 78 cents, or 5.7%, on Monday.

Fannie Mae's 8.75% mandatory convertibles were seen closing at 22 versus a share price of $10.31, compared to 25.75 versus a share price of $11.55 on Friday.

Fannie Mae's 5.375% perpetual convertible preferreds were seen closing at 46,495, compared to 46,748.

Shares of the Washington, D.C.-based mortgage company (NYSE: FNM) closed down $1.24, or 10.7%.

XM looks cheap

XM Satellite Radio, a subsidiary of XM Satellite Radio Holdings Inc., planned to price $550 million of six-year senior subordinated notes exchangeable into shares of Sirius Satellite Radio Inc. common stock after the close Monday.

Price talk on the exchangeables was for a coupon of 6% to 6.5% and an initial conversion premium of 20% to 30%.

"It will be hot. It will definitely be cheap. With a 6.5% coupon and a 25% premium, those metrics alone mean it's going to be cheap," a buyside trader said.

"Looks like they will create a borrow facility, though," he said, saying: "It's a pretty convoluted story.

"They came out that they are going to issue stock, and create a borrow facility. But it's Sirius stock since Sirius is acquiring XM," he said.

The Rule 144A offering is being sold via joint bookrunners Morgan Stanley, JP Morgan and UBS.

The deal is part of a series of transactions to refinance some XM debt in connection with its pending merger with Sirius, and it is conditioned on closing of the merger, which remains subject to Federal Communications Commission approval.

Concurrently with the notes offering, Sirius will enter into share lending agreements with share borrowers. Share borrowers will sell the borrowed shares in a separate public offering.

Sale of the borrowed shares is intended to facilitate privately negotiated derivative transactions by which investors in the notes will hedge their investment in the notes.

The share borrowers will be required to return the borrowed shares following the maturity of the notes or their earlier retirement.

XM Satellite's existing 1.75% convertibles, which recently had its indenture amended, lifting their interest rate to 10%, aren't generally actively traded. That paper was seen at 96.315.

Shares of the Washington, D.C.-based satellite radio services company (Nasdaq: XMSR) closed down $1.11, or 12%, at $8.17.

XL Capital to price

XL Capital planned to price $500 million of three-year mandatory convertibles, at par of $25, to yield 10.75% with an initial conversion premium of 18%.

The deal was seen pricing Tuesday.

Concurrently, XL Capital will price $2 billion of common stock.

The equity security units consist of a purchase contract for a number of ordinary shares for $25 and a 1/40, or 2.5%, interest in a $1,000 senior note.

The equity units will mature Aug. 15, 2011, while the senior notes will mature August 2021. The notes' maturity may be shortened if they are successfully remarketed.

The units will have full dividend and takeover protection.

XL Capital is a Bermuda-based insurance and reinsurance company.

PSS World to price

PSS World announced after the close that it planned to price $200 million of six-year convertible senior notes to yield a coupon of 2.625% to 3.125% and an initial conversion premium of 27.5% to 32.5%.

This deal was also seen pricing on Tuesday.

The Rule 144A deal, being sold via Goldman Sachs & Co., has a greenshoe of $30 million. The notes are non-callable, with no investor puts.

They have full dividend and takeover protection.

PSS is a Jacksonville, Fla.-based specialty marketer and distributor of medical products.

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