CV Therapeutics gets hit; Ford gains on upgrade; Calgon borrow uncertain; Tanger climbs further

By Kenneth Lim

Boston, Aug. 14 - The convertible bond market started the week on a quiet note on Monday, with CV Therapeutics Inc. falling in line with its stock after the company announced a shelf offering of its common stock.

Meanwhile, Ford Motor Co.'s convertible preferreds sped ahead after the company's stock was upgraded by Bear Stearns, which expressed greater confidence in the auto maker's turnaround efforts than in its U.S. rival, General Motors Corp.

From the primary market, Calgon Carbon Corp.'s planned $65 million offering of 30-year convertibles saw little action in the gray market with the deal perceived as cheap but potentially hampered by borrow limitations.

Also trading on Monday were the new Tanger Factory Outlet Centers Inc. 3.75% exchangeables due 2026, which climbed for the second straight session after its Friday debut. The convertible was up about 2 points outright and in line with its stock on Monday at 102 against a share price of $32.125. Tanger stock (NYSE: SKT) closed at $32.33, up by 3.79% or $1.18.

"They continued to do well today," a sellside convertible bond trader said. "They priced OK, and the stock was up a little."

Tanger, a Greensboro, N.C.-based real estate investment trust that owns 29 factory outlet retail malls in the United States, priced the exchangeables late Aug. 10 in an upsized $130 million deal within talk. Price talk was for a coupon 3.45% to 3.95% and an initial exchange premium of 17.5% to 22.5%. The initial exchange premium was set at 18%.

The market in general had a lackluster session on Monday, with early rallies in the equity markets putting a damper on volatility for convertible players, a buyside convertible bond trader said.

"It's very quiet," the trader said. "Equity is strong, there's not a whole lot going on."

A sellside convertible bond trader said the convertible market did not do too well on Monday with cautious investors frozen by macroeconomic uncertainties such as conflicts in the Middle East and recent terrorism scares.

"It's not very good," the sellsider said. "Airlines are still selling off, and people are really afraid to put money to work here. There's not a lot of buyers out here."

CV Therapeutics slips

CV Therapeutics was lower outright but in line with the stock after the company said it was selling 75 million shares of its common stock in a public shelf offering.

The company's 2.75% convertible due 2012 traded at 86 against a stock price of $10 early Monday, about 5 points lower outright, but slipped further later in the day. The 3.25% convertible due 2013 declined about 2 points outright and changed hands at 78 versus $10. CV Therapeutics stock (Nasdaq: CVTX) lost 10.05% or $1.09 on Monday to close at $9.76.

"Those [the 2.75% convertibles] traded around 85.75 by the end of the day," a sellside convertible bond trader said.

CV Therapeutics on Monday said it was offering 7.5 million shares of its common stock in an off-the-shelf offering, and bookrunners Lehman Brothers and Merrill Lynch have a greenshoe option for a further 1.125 million shares.

"I'm not sure how this is going to affect the credit right now," a sellside convertible bond analyst said. "They're going to be raising about $75 million in cash, but they didn't really say how they were going to use it. They could spend it on one of their new drugs or use it to reduce debt."

CV Therapeutics said in the prospectus of its stock offering that the proceeds of the deal would be used for general corporate purposes, which may include funding the development and commercialization of its products, reducing debt, paying for acquisitions and capital expenditures.

CV Therapeutics is a Palo Alto, Calif.-based drug maker focusing on treatments for cardiovascular diseases.

Ford rides stock upgrade

Ford's 6.5% convertible preferreds gained about a point outright on Monday after the company's stock was upgraded a couple of notches by Bear Stearns.

The convertible changed hands at 31.75 versus a stock price of $7.70 on Monday, and closed at 32.15, up by 2.98% or 0.93 point. Ford stock (NYSE: F) rose 6.24% or 46 cents to close at $7.83.

"Those were pretty active in the morning after the upgrade," a convertible bond trader said.

Bear Stearns equity analyst Peter Nesvold on Monday upgraded Ford's stock to outperform from underperform in a research note, citing confidence that the company will pursue a more aggressive turnaround plan.

Nesvold said the Dearborn, Mich.-based company's recent hiring of restructuring experts suggest that the company may announce new and bolder measures in its restructuring efforts, which would rouse better interest among investors.

"We believe most of the good news is behind GM but ahead of Ford," Nesvold wrote in the note.

Nesvold downgraded rival auto maker General Motors to underperform from peer perform, saying that the recent gains in Detroit-based General Motors' stock came largely from investors who were positive about the company's restructuring efforts. Investors who believe that Ford could adopt and benefit from similar measures are likely to shift their attention to Ford, Nesvold wrote.

Calgon quiet on borrow questions

Calgon's planned $65 million of 30-year convertible senior unsecured notes were not sighted in the gray market on Monday with the deal seen as attractively priced but marred by worries about the quality of the stock borrow.

Calgon planned to price the deal Monday after the market closed, with talk for a coupon of 4.5% to 5% and an initial conversion premium of 20% to 25%. Calgon stock (NYSE: CCC) fell 14.55% or 85 cents to end at $4.99.

There was a greenshoe option for a further $10 million.

JP Morgan was the bookrunner of the Rule 144A offering.

Calgon is a Pittsburgh, Pa.-based supplier of products and solutions for water and air purification. It plans to use the proceeds of the deal to repay its outstanding debt under an existing revolving loan.

"It's certainly cheap enough, but the issues could be the borrow," said a buyside convertible bond trader who was assessing the deal from a hedged perspective. "Apparently there are some shares around, but ...it's likely that the top rating could go negative."

The trader said the terms were very attractive, and Calgon had an interesting story. "You could hedge it up pretty big" if you were a hedge fund, provided you could get the right borrow. But there were indications that there were about 5 million shares available for the borrow, of which only about 1 million was "top grade," or stock with the top rebates, the trader said.

As for valuations, the trader said it was "tough to arrive at a credit spread" for the company because it has a number of lawsuits pending that could affect its credit quality. So while the company is seen as a risky stock, the extent of the risk was tough to determine, the trader said.

A sellside convertible bond analyst agreed that the deal looked "pretty cheap," describing Calgon as a company in a "turnaround situation."

The industry, which has been suffering from excess capacity and an inability to pass higher costs on to customers, will benefit from any positive news. Current sentiment also suggests that the lawsuits that Calgon faces are not going in the company's favor, which means there is potential upside on that front, the analyst said.

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