Affordable Residential issue rises; Human Genome loses ground; LifePoint prices after the close

By Rebecca Melvin

Princeton, N.J., Aug. 4 - Convertibles players focused mostly on the primary market in Thursday's trading session, which saw the new issue of a real estate investment trust close well above par, while that of biotechnology company, Human Genome Sciences Inc., closed well below par.

LifePoint Hospitals Inc. also priced $200 million of 20-year notes after the close Thursday.

In the secondary market, the paper of Electronic Data Systems Corp. and Omnicare Inc. traded along with Fisher Scientific International Inc. and Delta Air Lines Inc.

General Motors Corp. also got play later in the session. But overall activity in the secondary market was muted, traders said.

Affordable Residential Communities Inc., a Denver-based REIT, priced an upsized $87 million of 20-year convertible bonds to yield 7.5%, with an initial conversion premium of 17.5%.

The new 7.5s closed at 103.125 bid, 103.625 offered, according to a syndicate source.

The issue came in with a coupon at the middle of price talk of between 7.25% and 7.75% and with an initial conversion premium that was at the high end of price talk of between 12.5% and 17.5%.

Merrill Lynch was sole bookrunner for the Rule 144A deal of senior exchangeable notes, which were originally expected to total $70 million. A greenshoe of $13 million accompanies the upsized deal, up from $10.5 million.

REIT deals generally don't attract a high level of arbitrage interest because the common stock dividend of such companies is high, making it expensive to short the stock.

In this case, the deal, albeit small, was attractive. "It's a turnaround situation and it's a better credit than many gave it credit for," a buyside source said.

According to the source, the company, which acquires, renovates, repositions and operates manufactured homes, made a bad acquisition to get up and running, and rolled up several properties in a deal that gave it a bad name in terms of investor sentiment.

Shares of Affordable Residential Communities traded up 13 cents, or 1.1%, to $12.31 on Thursday.

Stock tumble hurts Human Genome

Human Genome Sciences sold $230 million of seven-year convertibles with a 2.25% coupon and a 20% initial conversion premium through bookrunners Merrill Lynch and Citigroup, which reoffered the bonds at 98.5.

The new 2.25% bonds traded up toward 99 but then tumbled back toward the 96 plus level, where they closed at 96.5 as investors favored the company's older paper.

The new notes are non-callable for life, and there are no puts. The subordinated notes include takeover and dividend protection.

"The older bonds with a shorter maturity looked cheaper and had terms that were significantly similar," a New York-based buyside source said of the 2.25% convertibles due 2011.

Human Genome Sciences' 2.25s traded Thursday at 105.625.

The Rockville, Md.-based drug-discovery company also has a 3.75% convertible due 2007, which traded at 98.50 on Thursday, and a 5% convertible due 2007, which traded at 99. With the proceeds of the new issue, the company intends to repurchase parts of these two issues from time to time.

Another reason the newer bonds suffered was that the company's share price dropped nearly 9% on Thursday.

"The stock fell out of bed, and the bonds are getting hit as the old 2.25s look more attractive," said another buyside source. "The stock was under pressure and there was no way to hedge it."

The stock was on a tear through July, starting the month at $11.68 and trading as high as $15.50 on July 22. On Thursday, the stock ended down $1.29, or 8.71%, at $13.52.

Last week, Human Genome Sciences narrowed its second-quarter net loss and posted sharply higher revenue, which was attributed to it getting a milestone payment from GlaxoSmithKline plc as part of the licensing agreement for its diabetes drug Albugon.

Glaxo acquired exclusive rights to develop and sell Albugon in 2004, and Human Genome estimates milestone payments from the agreement could be worth as much as $183 million.

In addition, Glaxo agreed earlier in the month to co-develop LymphoStat-B, a drug being tested for treatment of rheumatoid arthritis and lupus, with Human Genome. The two companies will split costs for clinical trials and development and split any profits from sales of a drug that makes it to market.

LifePoint prices after close

After the close Thursday, LifePoint sold $200 million of 20-year convertible bonds at par to yield 3.25% with an initial conversion premium of 35% via joint bookrunners Citigroup, Banc of America Securities and UBS Investment Bank.

The Rule 144A notes priced at the middle of price talk for the coupon and at the cheap end of talk for the initial conversion premium.

Price talk on the breakfast deal of senior subordinated debentures was for a coupon of 3.0% to 3.5% and for an initial conversion premium of 35% to 40%.

There was a gray market during the session Thursday with offers up 1.5 point to 2 points over issue, but no bids, according to a New York-based sellside trader.

The issue has a $25 million greenshoe.

The 3.25% convertibles are callable at year 7.5, with puts at years 7.5, 9.5 and 14.5, according to a syndicate source.

LifePoint plans to use proceeds to repay borrowings under the company's senior subordinated credit facility. The remainder of the proceeds will be used for general corporate purposes.

Based in Brentwood, Tenn., LifePoint Hospitals is a provider of health care services in non-urban communities.

Lower guidance pressures Fisher Scientific

The convertibles of Fisher Scientific traded lower on Thursday after the Hampton, N.H.-based medical device maker posted better-than-expected second-quarter net income but "narrowed" its second-half forecast.

"It was trading a bit, with people swapping out of the 3.25s into the floaters," a sellside trader said.

The 3.25% convertible due 2024 traded down to 101.5 from 105.185 bid, 105.685 on Wednesday.

Its 2.50% convertible due 2023 traded down to 139.7 from a level seen Wednesday at 148.723 bid, 149.223 offered.

The company lowered guidance due to slower-than-expected growth in its European sales of scientific products and soft sales of safety-related products.

The company also cited startup problems of a manufacturing facility for laboratory workstations in Mexico.

The guidance for 2005 was narrowed to a range of $3.47 a share to $3.52 a share from $3.45 a share to $3.60 a share.

The average estimate of analysts surveyed by First Call called for earnings of $3.58 a share. Fisher also projected third-quarter earnings of 87 cents a share to 89 cents a share.

Second-quarter performance was strong, however, and included a 31% increase in sales. Following the results, investors sent shares of Fisher Scientific down and Robert W. Baird cut its rating on the stock to "neutral" from "buy."

Shares of the company ended down $4.72, or 7.16%, at $61.20.

EDS up, but Delta extends losses

Among other movers in the secondary market was Electronic Data Systems Corp., which saw its convertibles trade higher as its stock pushed up 8.6% after the Plano, Texas, computer-services company gave an upbeat forecast for the next 18 months.

EDS officials said they were managing money-losing contracts that have dogged the company for several years and were seeing improved productivity from a scaled-back work force.

EDS's 3.875% convertible due 2023 traded at 98.98, compared to 96.2 bid. 96.5 offered on Wednesday. Its shares added $1.83, or 8.6%, to $23.12.

Delta Air Lines' convertible paper lost further ground as its shares traded down in heavy volume fueled by speculation regarding an imminent Chapter 11 filing and high oil prices.

The Atlanta-based airline's 8% convertibles traded down to 20.5 bid, 21.5 offered, from 21.5 on Wednesday, according to a Connecticut-based sellside trader. Delta shares shed another $3.45% to $2.24.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.