Northwest, AMR higher as oil declines; Genzyme eases but Cephalon edges higher

By Rebecca Melvin

Princeton, N.J., Nov. 7 - The convertibles of several air carriers traded mostly higher on Monday, with sources citing short covering and lower oil prices for the upward move.

Carriers under bankruptcy court protection, including Northwest Airlines Inc. and Delta Air Lines Inc. were higher, with gains of two points and one to two points, respectively although their underlying shares closed lower. The convertibles of AMR Corp., parent of American Airlines, were also higher by two points.

A new bankruptcy filing, this time from Dulles, Va.-based FLYi Inc., which operates a low-fare carrier with scheduled flights to East Coast destinations, and which has a 6% convertible bond, wasn't seen playing a role in convertible market action, sources said.

"That bond has been trading at about seven cents on the dollar for months. Depending on how the reorganization goes, these [bonds] will be trading on recovery value. But I don't know anyone who owns these things," a New York-based sellside analyst said.

A few biotechnology names were mentioned in trade, with the sector mixed as Genzyme Inc. traded down about 0.25 point on a dollar-neutral basis after a downgrade, and Imclone Inc. also weaker, but Cephalon Inc. gained.

Sepracor Inc., which reported results of a study that showed improved lung function in patients treated with its Xopenex HFA inhalation aerosol, an asthma drug, wasn't reported in trade.

Overall activity was muted, sources said.

"There was some trading out there, but nothing was driving the market. It was kind of aimless, with nothing driving it," a New York-based sellside trader said.

Northwest, Delta, AMR catch updraft

The convertibles of many airlines were higher in trading on Monday, helped mostly by a continuing sell off in oil, which left prices nearing a three-month low as warmer-than-normal temperatures in the U.S. northeast reduced demand for heating fuels.

Crude oil for December delivery closed below $60 a barrel on the New York Mercantile Exchange. The futures contract peaked above $70 on Aug. 30, a few days after Hurricane Katrina struck the U.S. Gulf coast.

After falling as low as $58.60, light sweet crude for December delivery settled down $1.11 at $59.47 a barrel on the Nymex. Nymex natural gas futures sank to as low as $11 per 1,000 cubic feet on Monday, before finishing higher at $11.873, an increase of 45.8 cents on the day.

Northwest Airlines saw its 6.625% convertibles trade at 32.50 and its 7.625% convertibles are 32.175, both up about two points.

AMR's 4.25% convertibles were at 99.4, up a point, and JetBlue Airlines Inc. saw its 3.5% convertibles trade at 88, up about a point from last Monday.

A notable exception among convertibles names was Continental Airlines Inc., which saw its 4.5% convertibles and 5% convertibles little changed on Monday.

Shares of AMR were up 51 cents, or 3.55%, at $14.89. Jetblue added 20 cents, or 1.1%, at $18.52, and Continental added nine cents, or 0.68%, to $13.34. But Northwest Airlines shares lost 3.7 cents, or 6.29%, to $0.551.

Downgrade pressures Genzyme

Genzyme convertibles were weaker after a Bear Stearns equity downgrade to "peer perform" from "outperform." The analyst, Mark Schoenebaum, made the reduction after discovering Medicare plans, which would cut reimbursement for Genzyme's Synvisc drug in 2006 and lead to lower pricing of the joint-lubricating treatment.

The Medicare changes will cut reimbursement for Synvisc by more than 40%, removing an advantage it had over certain competing products, Schoenebaum said.

The 1.25% convertibles of Genzyme were seen in by about 0.25 point, with an early market at 113.75 bid, 114.125 offered, versus a stock price of $71, and a late trade at 112.50.

Shares of the Cambridge, Mass.-based biotechnology company closed down 4.3%, $3.22, at $71.60.

The weaker price for Genzyme's 1.25% convertible compares with trades at 114.25, versus a shares price of $70.75, on Oct. 18; and at 112.125, versus a share price of $70.30, on July 15.

Cephalon strengthens in fairly active trade

Cephalon's convertibles were stronger on Monday amid no particular news. Last week, the Frazer, Pa.-based biotechnology company offered a mixed outlook in its third-quarter report, however, it eyed potential, with a possible five new drugs on the horizon.

In its earnings report, the company reiterated a previously reduced prediction for full year 2005, but lowered guidance for 2006, saying that it "will be a transitional year" as the company seeks to market five new drugs in the next 18 months.

The new drugs include Sparlon, a treatment for attention deficit hyperactivity disorder, or ADHD; Vivitrex, a treatment for alcoholism that Cephalon is marketing with the drug's developer Alkermes Inc.; Accelanyl, which is now under review by the FDA as a treatment for breakthrough cancer pain; and Gabitril, which is sold as a treatment for epileptic seizures and is undergoing clinical trials for anxiety disorder. A fifth drug is Nuvigil, which is related to Cephalon's successful sleep-disorder drug Provigil.

Cephalon's 2% convertible due 2015 traded at 112, versus a share price of $46.40. The company's shares actually closed six cents higher Monday, representing a 0.39% increase, at $46.46. Last week the 2s were at 109.5 bid, 110 offered.

"There's been decent trading," a New York-based sellside convertibles trader said of Cephalon. The trader also mentioned Amgen Inc. as trading on Monday, but in line with its shares.

Amgen 0s traded Monday at 78.5 versus $79.20.

Imclone Systems was weaker, with its 1.375% convertibles trading at 82.25, which was below an early market at 82.50 bid, 82.75 offered, versus a stock price of $32.65. Imclone shares closed higher Monday, but off that trade's level, at $32.20, a gain of $1.35, or 4.38%.

Meanwhile no trades were reported of Sepracor convertibles after the Marlborough, Mass.-based presented results of its study that assessed the treatment with Xopenex HFA Inhalation Aerosol, which showed a "significantly greater mean peak percent change in FEV (1) from pre-dose levels compared with a placebo."

The drug was administered in a metered-dose inhaler versus a placebo in pediatric patients from age four to 11 who experience bronchospasm associated with asthma.

Sepracor, which focuses primarily on treatments for respiratory and central nervous system disorders, said it is targeting commercial launch by the end of 2005.

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