Amgen gains on dispute news; Ford rises before results; XM ignores stock slide; Lexington launches deal

By Kenneth Lim

Boston, Jan. 22 - Amgen Inc.'s convertibles improved outright on Monday amid optimism over an ongoing patent lawsuit, while the rest of the market got off to a slow start.

Ford Motor Co. continued to improve, riding a rising stock ahead of the company's expected earnings announcement on Thursday.

XM Satellite Radio Holdings Inc. was quiet, despite a fall in the stock after the company suffered a setback in a lawsuit filed by music recording companies.

Meanwhile, Lexington Realty Trust announced a $250 million offering of 20-year exchangeables.

The convertible market in general was lackluster, with activity dulled by modest declines in the equity markets.

"There's not a hell of a lot going on, with the markets all lower today," a sellside convertible trader said.

Amgen rises with stock

Amgen's two newest convertible series improved about 1.5 points outright on Monday, pulled higher by its stock amid hopes that the company will prevail in a lawsuit against Roche Holding.

Amgen's 0.125% convertible due 2011 traded at 105 against a stock price of $74.25, while its 0.375% convertible changed hands at 105.6 versus a stock price of $76.40. Amgen stock (Nasdaq: AMGN) rose 2.15% or $1.60 to close at $75.85.

"The Amgens were active this morning," a sellside convertible trader said. "They were up, in line with the stock."

Court documents filed late Friday provided details related to the lawsuit, in which Thousand Oaks, Calif.-based is alleging that Roche's anemia drug Mircera infringes on patents related to Amgen's own anemia treatment, Epogen.

The documents suggest that the key EPO hormone used in Mircera was made through recombinant technology, which would bolster Amgen's case, Credit Suisse equity analyst Michael Aberman wrote in a report on Monday. Although many investors were already expecting this to be the case, the stock likely traded up on the confirmation, Aberman wrote.

But Aberman maintained his underperform rating on the stock, saying that he continues to believe Roche will win in the suit and that investors are "underestimating the impact of a Mircera launch following its May PDUFA [prescription drug user fee act] date."

"Roche's amended counterclaims provide details about the inequitable conduct argument and suggest to us that they could prevail," Aberman wrote. "This would not only put all of Amgen's existing EPO patents at risk but also put Roche's anti-trust arguments into play. The net result is we are not changing our probability of Amgen's success in the case."

Ford gains before earnings

Ford's 6.5% convertible preferred and its 4.25% convertible note due 2036 also rose with the stock on Monday, ahead of the company's expected earnings release on Thursday.

The convertible preferred traded at 37.25 against a stock price of $8.30, up by about an eighth-point, while the convertible note traded at 115.5 against the same stock price, up by about one point. Ford stock (NYSE: F) closed at $8.41, a gain of 1.33% or 11 cents.

"The new Fords continue to be active," a sellside convertible trader said. "The stock's been running up for the past month, and the converts are just going along for the ride."

Dearborn, Mich.-based Ford, an auto maker, is expected to announce its quarterly results on Thursday. Credit Suisse equity analyst Christopher Ceraso expects the sector's fourth-quarter earnings to "resemble a 10-car pile up, with most companies expected to report steep year-to-year earnings declines, including a number of outright losses."

While Ceraso said most investors have already "buckled up" for the poor quarter and are now focusing on possible profit improvement in 2007 and 2008, he predicts that the U.S. Big 3 automakers - Ford, General Motors and Daimler-Chrysler - will slash output by double digits year-on-year in the first half of 2007. At the same time, stock valuations are already "increasingly lofty," Ceraso wrote in a note.

"Thus, we would caution investors not to take their eyes off the road," Ceraso wrote. "With two difficult quarters still ahead of us, valuations getting richer, and the Fed likely to disappoint the market by NOT cutting rates in 2007, the stocks may be due for a correction after all."

A sellside convertible analyst agreed that some of the optimism behind Ford's stock run-up may not be justified.

"Ford's managed to win some investors over with its new management, its improved liquidity and taking aggressive cost cutting measures," the analyst said. "But I'm not sure if they'll have great news to report on Thursday, in terms of their fourth quarter results and more details about their restructuring plans. And the way the stock's gained the past few weeks, you have to wonder if further upside can be justified."

The analyst said the convertibles are likely to track the stock.

"I'm not expecting any news that will lead to a big change in their credit," the analyst said. "You might get a bit of volatility with the results, but I think that's already priced into the converts."

XM quiet as stock slides

XM Satellite Radio's 1.75% convertible due 2009 was silent on Monday, as convertible holders brushed off news of a setback in a lawsuit by music recording companies.

The convertible closed at 86.125 the previous week, when the stock was around $15.63. XM stock (Nasdaq: XMSR) closed at $14.73, lower by 6.3% or 99 cents.

"Didn't hear a peep in the XMs," a sellside convertible trader said.

A judge on Friday ruled that a lawsuit by record companies against Washington-based XM, a satellite radio provider, can go to trial. The suit alleges that XM is infringing on their distribution rights with its XM + MP3 players, which allow listeners to record songs. XM says the suit is without merit.

A sellside convertible analyst said the ruling was a setback, but thought that it was not a surprise.

"It's really not that big of a surprise," the analyst said. "I think a lot of people already realize that there was always a chance that XM may have to pay something to the record companies. They may settle this out of court, XM may have to pay some licensing or distribution fees, they may have to recall or change the players. The record companies have been very aggressive in these kinds of issues."

Lexington plans deal

Lexington on Monday launched a $250 million offering of 20-year exchangeable senior notes, talked at a coupon of 4.95% to 5.45% and an initial exchange premium of 17.5%-22.5%.

Pricing is expected Tuesday after the market closes.

The notes will be offered at par. They will be issued by Lexington subsidiary Lexington Master LP, and guaranteed by the listed entity.

There is an over-allotment option for a further $50 million.

Lehman Brothers is the bookrunner of the Rule 144A offering.

Lexington, a real estate investment trust that focuses on non-residential properties, said the proceeds of the offering will be used to repay its secured debt.

© 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.