YRC jumps on exchange; Vornado up on tender; Human Genome surges on lupus drug; Ford to price

By Rebecca Melvin

New York, Nov. 2 - A busy news tape, with several big items from convertible issuers, kept market players busy on Monday.

YRC Worldwide Inc.'s 5% convertibles and 3.375% convertibles jumped 26% and 40%, respectively, after the Overland Park, Kan.-based transportation company announced details of an exchange offer for its contingent convertibles and 8.5% notes, which together total about $536.8 million of notes.

Holders would exchange their debt for stock and new class A convertible preferred stock, which would represent 95% of the company's common stock.

Vornado Realty Trust's 2.85% convertibles and 3.625% convertibles also traded up in active trade after the real estate investment trust announced a cash tender for those convertibles, which together total more than $2 billion.

Human Genome Sciences Inc. also zoomed higher along with their underlying shares after the company and GlaxoSmithKline said their experimental lupus drug successfully passed another key landmark. Its Bliss-76 study data confirmed positive results from a prior late-stage study.

Incyte Corp., a Wilmington, Del.-based drug company, saw its 4.75% convertibles due 2015 in trade at about 100 versus a $6 share price.

Ford Motor Co. convertibles were better after the Dearborn, Mich.-automaker posted early Monday an unexpected profit of $997 million for the third quarter - its first profitable quarter in more than four years - and said it now expects to be solidly profitable in 2011, excluding special items with positive operating-related cash flow.

After the close, the carmaker launched an eye popping $2 billion offering of seven-year convertibles that were seen pricing after the close on Tuesday.

The Ford offering's $300 million greenshoe alone is as large as many average-size deals that have come to market of late.

Elsewhere, CIT Group Inc.'s convertibles were acting "as expected" after the New York commercial lender filed for Chapter 11 bankruptcy protection Sunday in New York. The company has struggled for months to avoid collapse.

YRC jumps on exchange

The convertibles of YRC, formerly known as Yellow Roadway Corp., traded up.

The YRC 5% convertibles due 2023 traded at 67, which was up 14 points, and the YRC 3.375% convertibles, which generally trade at a small discount to the 5s, traded up to 66, which was a 19-point jump.

Shares of the shipping and transportation company plunged $2.33, or 64%, to $1.32.

After the offer for YRC's outstanding USF 8.5% notes and contingent convertible notes, the convertibles and straight debt prices began to converge.

"We expect this convergence to continue," a New York-based sellside trader said.

The company needs at least 95% of its bondholders to convert by Dec. 16 or it must seek further lender agreements as a range of the extensions and credit arrangements depend on a successful exchange.

Officials said no cash outlays to bondholders are expected, even if the vote falls shy of the needed 95%.

Moody's Investors Service said the plan was likely to be viewed as a "distressed exchange," as holders would receive well below the face value of the notes.

Fitch Ratings called the plan a "coercive debt exchange." Fitch cut YRC's issuer default rating to C from CC and downgraded its secured credit facilities, though its senior secured notes were affirmed.

On Friday, YRC said a completed exchange would allow the company to have access to a $106 million revolver reserve under an amended credit agreement.

Human Genome zooms on positive study

Human Genome's 2.25% convertible subordinated notes due 2011 traded at 174 versus a share price of $25, which compared to 147 versus $20 on Friday.

Human Genome's 2.25% convertible subordinated notes due 2012 traded at 157 versus $25 on Monday.

Shares of the Rockville, Md.-based company surged to as high as $26.21, which was a 40% climb. But they finished the session better by $6.59, or 35%, at $25.28 in response to results that showed a 10-milligram dose of the drug plus steroids helped 43% of patients improve, compared to only 33% of patients showing improvement on placebo.

"The Bliss-76 results confirm our view that Benlysta has the potential to become the first new approved drug in decades for people living with systemic lupus," said Human Genome president and chief executive officer H. Thomas Watkins, in a statement. "We take great pride in the innovation and scientific rigor that has made it possible to bring Benlysta to this point.

Human Genome and GlaxoSmithKline, based in the United Kingdom, plan to seek Food and Drug Administration regulatory approval in the first half of 2010.

Bliss-76 involved 865 patients and took place over 52 weeks. Last month, Human Genome reported positive results from Bliss-52, which involved more than 860 patients in Asia, South America and Eastern Europe.

Ford converts add, $2 billion offering launched

Ford's 4.25% ended the day at 104.968 versus $7.58, which was better on the day, a New York-based sellside trader said.

Shares of the Dearborn, Mich.-based carmaker added 58 cents, or 8%.

Ford reported a net profit of $997 million, or 29 cents per share, for the third quarter, compared with a net loss of $161 million, for the same period a year ago. Revenue fell $800 million to $30.9 billion.

Analysts had been expecting a per share loss for the quarter.

The carmaker also announced that it planned to price $2 billion of convertibles that were talked to yield 4% to 4.8%, with an initial conversion price of 22.5% to 27.5%.

Joint bookrunners are Citigroup, Bank of America-Merrill Lynch, J.P. Morgan, Barclays Capital, Deutsche Bank, Goldman Sachs, Morgan Stanley and RBS.

Ford also plans to sell up to $1 billion of common stock under an equity distribution agreement. These sales are expected to begin in December and will be conducted over a several-month period.

The convertibles are non-callable for five years, and after that Ford may terminate conversion rights or call the bonds if its stock price is more than 130% of the conversion price.

There are no puts.

There is standard dividend protection, contingent conversion at a 130% stock price trigger and standard takeover protection. Conversion will be settled via, cash, stock or a combination.

Proceeds from the convertible offering will be used for general corporate purposes.

CIT trade mixed

The CIT 8.75% preferred C series convertibles traded down to 1.29 over parity, which was off 1.6 points. The CIT 7.75% mandatory series Z convertibles, which are now effectively sub debt traded up to 16.01, up 1.3 point.

There convertibles weren't that active, sources said, after the New York-based lender to small and medium-sized businesses filed for bankruptcy.

CIT stressed that its lending operations will continue to operate as it proceeds through bankruptcy with the hope of shedding $10 billion in debt. Chairman and CEO Jeffrey M. Peek said the company's prepackaged reorganization plan "will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy."

Fitch Ratings said it has downgraded the long-term issuer default ratings of CIT to D from RD, following the company's filing.

Mentioned in this article:

CIT Group Inc. NYSE: CIT

Ford Motor Co NYSE: F

Human Genome Sciences Inc. Nasdaq: HGSI

Incyte Corp. Nasdaq INCY

Vornado Realty Trust NYSE: VNO

YRC Worldwide Inc. Nasdaq: YRCW

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