Gilead lower after trial setback; new AmTrust slips; FiberTower doesn't cure default

By Rebecca Melvin

New York, Dec. 16 - A few large, liquid convertible issues made up the lion's share of trade on Friday, which was described as very quiet, as market players turned their focus to the holidays after another volatile week.

"People are shifting into holiday mode and are not motivated," a New York-based trader said.

Among volume names, Gilead Sciences Inc. was active, particularly the Gilead 1% convertibles due 2014, which were down 0.625 point, according to Trace data, after Pharmasset Inc., the company Gilead has agreed to take over for $10.8 billion, said it has halted use of an experimental hepatitis C drug in a mid-stage trial.

The setback wasn't expected to affect the sale agreement with Gilead, the companies said.

AmTrust Financial Services Inc.'s newly priced 5.5% convertible senior notes were heard in the market at 99.25 bid, 100 offered versus an underlying share price of $23.00, after the New York-based property and casualty insurer launched and priced a $175 million deal late Thursday. AmTrust shares fell about 10% on Friday. But there was little if any trading of the new convertibles heard by market players queried.

FiberTower Corp.'s 9% convertibles due 2012 were trading at 8 and 8.69 after the San Francisco-based wireless backhaul and access services provider saw 30 days pass since it missed coupon payments due Nov. 15.

In the broader markets, equities were down for the week after a volatile ride. Early Monday the Dow Jones industrial average was down triple digits after Moody's Investors Service said the European fiscal pact unveiled last week will not deter it from reconsidering the credit ratings of all European Union nations.

But on Tuesday, equities rallied before ending lower again. On Friday, Fitch Ratings lowered its outlook on France's triple-A rating to "negative" from "stable" and placed the ratings of six other euro-zone nations, including Italy, Belgium, Slovenia, Ireland and Cyprus, on watch for downgrade.

For the week, the S&P 500 stock index was down nearly 3% from its close Dec. 9.

Gilead trading actively

Gilead's 1% convertibles due 2014 traded at 106 and slightly lower at 105.875 on Friday while the underlying shares of the Foster City, Calif.-based company settled down 3.5% at $37.16.

"Gilead keeps trading actively and usually the stock doesn't even move, but the stock did move today and it's looking lower," a New York-based trader said.

Earlier this month, the biopharmaceutical company priced $3.7 billion of straight notes in four tranches. The company is using loans, notes and cash to pay for the Pharmasset acquisition, which was unveiled in November.

Pharmasset said Friday it will modify its hepatitis C trial after one of its drugs was linked to liver-function abnormalities.

About $30 million of the Gilead convertibles traded, a market source said, citing Trace data.

AmTrust slips below par

AmTrust's newly priced 5.5% convertibles due 2021 were last seen in the market at 99.25 bid, 100 offered versus an underlying share price of $23.00, according to a market source.

Other sources said they hadn't seen any of the new AmTrust convertibles trading, and syndicate sources declined to comment on the paper's debut.

Goldman Sachs & Co. and J.P. Morgan Securities LLC were the bookrunners of the new deal, which launched and priced late Thursday.

Shares, which didn't have an opportunity to react to news of the deal prior to pricing, fell about 10% on Friday, ending at $23.11, which was down $2.35, or 9.2%.

The property and casualty insurer priced $175 million of the 10-year convertible senior notes at par to yield 5.5% with an initial conversion premium of 25%, according to a syndicate source.

The Rule 144A offering has a $25 million greenshoe and is expected to close Dec. 21.

There are no calls and it has a change-of-control put at par plus interest.

Proceeds will be used for general corporate purposes, which may include working capital, repayment of debt, capital expenditures and/or strategic acquisitions.

FiberTower at 8

FiberTower's 9% convertibles due 2012 traded at 8 and at 8.69 on Friday with those notes now in default since 30 days have passed since it missed a $1.3 million interest payment.

A market source said that the price level on the 9% convertibles was unchanged on the day and that there are only $30 million of the bonds left outstanding.

FiberTower transports voice, video and data traffic from a cell tower to an exchange where it joins a traditional wire network. Chairman John Kelly and two directors Phil Kelley and Randall Hack quit in mid-November when the company chose to not to pay the coupon when it was due Nov. 15.

On Friday, the company reduced its workforce by about 40% and halted all capital and project-related spending to conserve liquidity.

The company said remaining staff will focus on maintaining its network and daily operations while management determines future actions.

Mentioned in this article:

AmTrust Financial Services Inc. Nasdaq: AFSI

FiberTower Corp. Nasdaq: FTWR

Gilead Sciences Inc. Nasdaq: GILD

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