U.S. Steel lower; Medtronic mixed; some health care names lower; Lexington Realty to price

By Rebecca Melvin

New York, Jan. 20 - Convertibles players were mostly sellers again of high-priced issues Wednesday, continuing Tuesday's trend. United States Steel Corp., which was an exception Tuesday, rising after an analyst upgrade, reversed course on Wednesday.

U.S. Steel's 4% convertibles due 2014 traded at 209 versus a share price of $63.00 on Wednesday, compared to 211.25 versus a share price of $63.60 on Tuesday.

"The stuff coming in for sale was already over priced," a New York-based sellsider commented.

Several health care names weakened Wednesday in reaction to the Massachusetts Senate race Republican upset, which signals passage of sweeping health care reform legislation is unlikely.

A pared down version of the bill has already emerged as an alternative after Scott Brown won the Massachusetts seat giving Republicans the 41 votes necessary to block Democratic proposals.

Managed health care companies Amerigroup Corp. and Molina Healthcare Inc. were weaker as was health care provider LifePoint Hospitals Inc. Medical-device maker Medtronic Inc. was flat early in the session, but mixed later, as its shares weakened, a New York-based sellside trader said.

Alliant Techsystems Inc. was active and trading in line, with the Alliant 2.75% convertibles due 2011 trading at 105.57 versus a share price of $87.45.

"That name becomes interesting with a little volatility," the sellsider said.

Meanwhile, AMR Corp. convertibles gained 3 points on a 5% stock jump after the Fort Worth, Texas-based air carrier reported a narrower fourth-quarter loss that missed expectations but reported revenue that was in line with estimates.

In the primary market, Lexington Realty Trust launched a $100 million Rule 144A offering of 20-year convertible bonds that were seen pricing after the close.

There was no gray market in the paper, and one sellsider said he didn't like the seven years to the first call and put.

Health care names weaker

Virginia Beach, Va.-based Amerigroup, which is a multi-state managed health care company focused on serving people who receive health care benefits through publicly sponsored programs, saw its convertibles down slightly. The paper traded last at 96.75 versus a closing share price that was down $1.43, or 5%. Previously, the Amerigroup's 2% convertibles were at about 97.

Shares of Long Beach, Calif.-based Molina Healthcare were off just over $1, or 4.4%, and the company's 3.75% convertibles due 2014 were seen last at 87.4 compared to 88.7 previously. That company also operates as a multi-state managed care organization participating in government-sponsored health care programs.

"These managed care companies that arrange delivery of health care started moving up on expectation of sweeping health care legislation, and now they're coming off," a New York-based sellsider said.

Lifepoint Hospitals, which owns and operates acute care hospitals, was also lower. The Brentwood, Tenn.-based company's 3.5% convertibles due 2014 traded last at 92.375, down from 93.735 on Tuesday. Its shares settled lower by 84 cents, or 2.6%, at $31.95 on Wednesday.

Medtronic saw its convertibles initially flat, but end mixed. The Medtronic 1.5% convertibles due 2011 were down 1.125 points to 100.75, while the shares of the Minneapolis-based medical device maker strengthened.

AMR convertibles at 110

AMR's 6.25% convertibles due 2014 traded at 110.25 versus a share price of $8.40, according to a New York-based sellside desk analyst. Previously the convertibles were at 107.

The air carrier's fourth-quarter loss narrowed to $344 million, or $1.03 a share, versus a loss of $347 million, or $1.25 a share, a year earlier.

On an adjusted basis, the Fort Worth, Texas-based carrier said it lost $415 million, or $1.25 a share. Analysts expected a loss of $1.18 a share. Shares of AMR gained 41 cents, or 5%, to $8.49.

Lexington Realty sees no gray

There was no gray market in Lexington Realty, which saw an at-issue bid only prior to pricing after the close Wednesday.

One syndicate source said final pricing included a premium of 17.5%, but he said he didn't know what the coupon was.

The New York-based real estate investment trust launched a Rule 144A offering ahead of the market open. The $100 million issue of 20-year convertible bonds was talked to yield 5.5% to 6% with an initial conversion premium of 22.5%.

The notes will be non-callable for seven years, with puts in years seven, 10 and 15, and it will rank pari passu with Lexington's 5.45% exchangeable notes due 2027, of which there is less than $100 million outstanding.

"I am not a fan of the new issue," a New York-based sellside trader said, adding that he didn't like the seven-year term.

"It probably gets done because it's so small, but I will not be supporting it," he said.

The existing Lexington 5.45% convertibles weren't heard in the market but were last seen at 99.25 bid, 100 offered, or higher, the sellsider said.

Bank of America Merrill Lynch and J.P. Morgan Securities Inc. were joint bookrunners of the sale.

Mentioned in this article:

Alliant Techsystems Inc. NYSE: ATK

Amerigroup Corp. NYSE: AGP

AMR Corp. NYSE: AMR

Lexington Realty Trust NYSE: LXP

LifePoint Hospitals Inc. Nasdaq: LPNT

Medtronic Inc. NYSE: MDT

Molina Healthcare Inc. NYSE: MOH

United States Steel Corp. NYSE: X

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