Fannie Mae, Huntington edge lower; Amylin expands as shares sink; Cheniere places private deal

By Rebecca Melvin

New York, Aug. 18 - Fannie Mae convertibles were pulled lower outright by the weight of their plunging equity after a Barron's article over the weekend fanned fears that a bailout for itself and its sister mortgage entity Freddie Mac was "growing increasingly likely."

Other convertible names in the financial sector were only slightly lower despite hefty losses posted by their underlying shares as pundits suggested that the market will see credit problems persist for the long haul.

Morgan Stanley co-president Walid Chammah, for example, told a German newspaper that the financial crisis will probably not end until 2009 or 2010.

"We will likely see more insolvencies among small U.S. regional banks that have focused on mortgage business," Chammah told the Handelsblatt newspaper.

Huntington Bancshares Inc. convertibles were lower in line with their underlying shares amid questions whether the regional bank's reserve assumptions for losses related to subprime lender Franklin Credit Management Corp. are high enough. The Columbus, Ohio-based regional bank said they are.

Elsewhere, Amylin Pharmaceuticals Inc. suffered a blow Monday when the Food and Drug Administration said it has received more reports of patients developing a dangerous form of pancreatitis while taking the diabetes drug Byettta, an Amylin top seller. Two patients died from the pancreatitis and four were recovering, the FDA said.

Amylin's 3% convertibles actually traded up a little at midday and expanded on the day, sources said.

Cheniere Energy Inc., which last week said it was doing a convertible offering to stem financing shortfalls, announced that it completed a $250 million convertible loan agreement, under which private equity loaned the liquefied natural gas company funds in exchange for a convertible yielding 12% and maturing in 2018.

Cheniere's existing 2.25% convertible paper was indicated higher at 35 bid, 40 offered, compared with last week's 28.

In the primary market, Salix Pharmaceuticals Ltd. said it plans to price $50 million of 20-year convertible senior notes, but no timing or talk had been heard on the proposed Rule 144A deal, market sources said.

They suggested the small size of the deal and the small company would encourage a placement with venture or private equity investors.

Meanwhile, CVR Energy Inc.'s proposed $125 million five-year convertible senior notes were now expected to price after Labor Day, although the company is waiting for an opportune moment in the market, a syndicate source said on Monday.

The CVR deal - unveiled in June - was originally expected to price in mid-August. A concurrent stock offering of 10 million shares of equity has been canceled.

Fannie Mae lower in line

Fannie Mae's convertible preferreds responded mildly as their underlying shares crumbled 22% Monday.

The fall was precipitated by a Barron's article that said it's likely that the Treasury Department will recapitalize the two mortgage giants, a move that would torpedo shareholders' holdings.

Fannie Mae's 8.75% mandatory preferreds - which were issued May 8 - were seen at 17.25 versus a share price of $7.07. Recently the paper was at 20 or 21.

The older Fannie Mae 5.375% series 2004-1 convertible perpetual preferreds traded at 37,500 versus a share price of $6.625 on Monday.

Shares of the Washington, D.C.-based GSO (NYSE: FNM) closed down $1.76 to $6.15.

Huntington mostly in line

Huntington Bancshares' 8.5% perpetual convertible preferred shares stood at about 800 versus a share price of $6.75 shortly before midday, and they were said to close at that level versus a share price (Nasdaq: HBAN) of $7.31, which was down 8% on the day.

"It was mostly the same, or down slightly," a sellsider said. "We didn't have people looking to puke their positions."

Huntington has a $1.1 billion commercial relationship - one of its largest - with Franklin Credit Management. The Jersey City, N.J.-based lender Friday delayed its quarterly filing with the Securities and Exchange Commission after warning of higher loan losses and significant provisioning on originated and purchase loans as a result of the deterioration in the housing and subprime markets.

Franklin said it has entered into additional amendments to its forbearance agreements with Huntington, where the minimum net worth covenant was eliminated and all identified forbearance defaults as of June 30 were waived.

Huntington reassured investors Friday. But on Monday FTN Midwest Securities downgraded Huntington to a "sell" from "neutral" and cut its stock price target to $3 from $5.

Franklin Credit said that it expects to record a second-quarter loss in the range of $280 million to $285 million due to higher loan loss provisions, compared to $3.6 million in the 2007 second quarter.

Amylin expands despite bad Byetta news

Amylin's 3% convertibles traded as high as 88.77 on Monday and at 88.4 later on the day despite a 13% drop in the company's underlying shares after news hit that two patients taking the San Diego, Calif.-based biopharmaceutical company's Byetta drug had died.

On Friday the 3% convertibles traded at 88.279, and two weeks ago they were 84 versus a share price of $30.50.

On Monday the shares (Nasdaq: AMLN) closed down $4.45 at $29.76.

A New York-based sellsider, who said the paper expanded on the day, also noted that going into the trading day players were focused on a Barron's article that mentioned the company in a list of good takeover candidates.

The Amylin 2.5% convertibles due April 2011, which don't have takeover protection, were not seen in trade, and were quoted on NASD Trace at 111.5, compared with two weeks ago when they were 108.185.

Among other names in trade in the sector were two issues from Amgen Inc., which were up on rumors of a large buyer, and Genzyme Corp., for which there were rumors of a big seller.

Medtronic Inc., the Minneapolis-based medical device maker, was eyed ahead of its first-quarter earnings report expected Tuesday.

Cheniere indicated higher

Cheniere Energy's 2.25% convertibles looked better on Monday after the Houston-based LNG company said that is closed on $250 million of 10-year convertibles, which forms the basis of a loan agreement with funds led by GSO Capital Partners LP.

The convertibles, which have been privately placed, will have a yield of 12% and an initial conversion premium of 2%, with puts in 2011, 2013 and 2015, said a New York-based sellside desk analyst looking at the name.

"They are 12s up 2%, but they are going to Blackstone's debt," the analyst said.

Shares of Cheniere (NYSE: LNG) surged on the news, moving up as much as 95 cents, but they retraced gains to end only 9 cents higher, or nearly 2%, at $4.98.

The deal was inked by Cheniere Common Units Holding LLC, a subsidiary of Cheniere Energy.

Proceeds will be used to repay the $95 million bridge loan obtained in May 2008, to fund a reserve account for payments under Cheniere Marketing, Inc.'s Terminal Use Agreement with the Sabine Pass LNG receiving terminal and for general corporate purposes.

The company believes that it will be able to operate its liquefied natural gas storage business for three years with the liquidity provided by this capital investment, along with recent restructuring, according to chairman and chief executive Charif Souki.

"Through our strategic options process, we have identified GSO as the ideal partner to provide the company with additional liquidity and operating flexibility. GSO is a long-term investor committed to our company's success and we look forward to returning our focus to our business plan of maximizing the value of the 2.0 Bcf/d of regasification capacity held at the Sabine Pass terminal," Souki said in a news release.

Cheniere owns and operates Sabine Pass Terminal and Creole Trail Pipeline.

The principal amount of $250 million can be exchanged in whole or in part, at any time, for a newly created series of preferred stock, with total voting rights limited to 19.99% of the total voting rights of the common and preferred stock.

The preferred stock is exchangeable into 50 million shares of common stock at a conversion price of $5 per share.

Salix, CVR to price

Salix Pharmaceuticals plans to price $50 million in convertibles with a $7.5 million greenshoe. No timing or talk on the offering was available, market sources said.

Proceeds are to fund potential product acquisition or in-licensing opportunities, to develop and commercialize product candidates and new indications for its rifaximin drug, to provide ongoing working capital and for general corporate purposes.

Based in Raleigh, N.C., Salix makes and markets prescription pharmaceuticals for the treatment of gastrointestinal diseases.

Meanwhile, CVR Energy is aiming for its $125 million offering with a planned $18.75 million greenshoe.

The deal is being sold via bookrunners Goldman Sachs & Co. and Citigroup.

The convertibles were seen having contingent conversion at a price hurdle of 130% and were to be non-callable, with no puts. Interest payments through 2011 were to be held in escrow.

Proceeds were going to be used for general corporate purposes.

Sugar Land, Texas-based CVR is an independent refiner and marketer of transportation fuels.

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