Ford careens higher; Webster boosted by PIPE investment; Mylan mostly firm as shares drop

By Rebecca Melvin

New York, July 27 - Ford Motor Co. convertibles jumped on good volume Monday as the company's credit tightened and underlying shares gained, market sources said.

Webster Financial Corp.'s convertible preferreds also jumped on news of a private-equity investment in the bank holding company.

Mylan Inc. convertibles remained firm as its underlying shares sank amid quality control concerns that surfaced after a newspaper reported on alleged malpractice at a plant in Morgantown, W.Va.

The Pittsburgh-based generic drug maker refuted the report in a statement late Sunday that the report was based on improperly obtained documents, uninformed third-party commentary and anonymous sources, and that its quality control procedures are working.

A handful of other healthcare names featured in trading in the convertibles market including Watson Pharmaceuticals Inc., another generic drug maker, and PDL BioParma Inc., a biotech company.

Amgen Inc. traded mixed and ended flat to higher ahead of its earnings announcement after the market close that revealed the Thousand Oaks, Calif.-based biotech giant topped profit estimates.

But "it's not an earnings thing with the biotechs," a Connecticut-based sellside analyst said of convertibles' performance in those names. "It has to do only with how many drugs the company has, and not on sales volume numbers so much."

But earnings news should feature in market coverage this week as there is a heavy results schedule for the convertibles market, with reports expected from the likes of United States Steel Corp., AGCO Corp., Health Management Associates Inc., Massey Energy Co. and Ceradyne Inc., among others.

Ford continues to careen higher

Ford Motor's 4.25% convertible due 2036 jumped about 4 points to 98 on Monday versus a closing share price of $7.27, amid "a lot tighter credit" and higher stock, a New York-based sellside trader said.

The paper has been strengthening steadily this month, with prices moving through the 70s and 80s into the upper 90s, and up from about 30 versus a share price of $2.58 at the beginning of the year.

At one point last year, the Ford 4.25% convertible bonds were in the single digits.

Standard & Poor's said Monday it has revised its outlook on the Dearborn, Mich.-based car maker and related entities to developing from negative.

S&P's also said it affirmed its ratings, including the CCC+ issuer credit ratings on Ford and Ford Motor Credit Co. LLC, as well as the B- ratings on FCE Bank plc, Ford Credit's European bank, maintaining the one-notch rating differential between FCE and its parent, Ford Credit.

"The outlook revision reflects early signs of progress by Ford in reducing cash use from its automotive operations and stabilizing, if not improving, its U.S. market share," said S&P credit analyst Robert Schulz.

In its view, the agency said there is now potential for us to raise Ford's ratings in the next year or so, although the possibility for a downgrade remains significant.

Webster gains on private equity investment

Webster Financial's 8.5% convertible perpetual preferred shares jumped to 700 from 625 on Monday on word that private equity firm Warburg Pincus has agreed to invest $115 million in the holding company through a direct purchase of newly issued common stock at $10 per share, junior non-voting preferred stock, and warrants.

"Warburg Pincus' investment further strengthens Webster's capital base which already significantly exceeded regulatory requirements for well-capitalized banks. The additional capital will enable us to capitalize on the extraordinary banking opportunities in the market as we pursue our vision to be New England's bank," Webster chairman and chief executive James Smith said in a release.

Webster's tangible common equity has increased by more than $285 million on a pro forma basis with minimal tangible book value dilution.

Warburg Pincus director David Coulter commented on Webster Financial's strong capital base, deep regional bank core deposit franchise and critical mass in its home markets, saying it is "well positioned" to drive value.

Terms of Warburg Pincus' investment include: Warburg Pincus is acquiring 11.5 million common shares from Webster at $10.00 per share (a 12.1% premium to Webster's trailing 10-day average closing price) for an aggregate investment of $115 million, upon receipt of all necessary approvals.

Webster Financial, headquartered in Farmington, Conn., is the holding company of Webster Bank.

Mylan steady as shares sink

Mylan's 1.25% due 2012 traded at 89.75 versus a share price of $12.15 on Monday, compared to 87 versus a share price $12 on July 13.

The Mylan 3.75% due 2015 and its 6.5% mandatory due 2010 weren't heard in trade.

The company refuted a newspaper article that alleged Mylan staff overrode government quality controls, saying those violations were "pervasive."

For its part, Mylan said its systems allow it to effectively address quality issues.

"I read the news. The company says it was two rogue guys that are to blame," a sellside analyst said. "I tell my traders it's difficult to cover generics. You remember the Tylenol tainted pill story. Everyone is at risk for quality control."

The analyst said the last market he had on Mylan's 1.25% convertibles was 88.5 bid versus $12.45 on July 17. There was also an 88 swap at $12 recently, he said.

"There is some stock sensitivity," the analyst said. "There is no reason the convertibles would go up unless there was a credit improvement."

Shares of the Pittsburgh-based generic and branded drug maker lost $1.75, or 12.6%, to settle at $12.10.on Monday.

Amgen mostly mixed ahead of earnings

Amgen's 0.125% convertible due 2011, or the Amgen A paper, ended unchanged for the session, after earlier trading up a little outright, according to a sellside analyst.

The Amgen 0.375% convertibles due 2013, or the Amgen Bs, settled up 0.625 at 100.375, after earlier trading lower.

After the market close, Amgen reported second-quarter earnings jumped a better-than-expect 40%, marking a turnaround from a weaker first quarter.

The profit was attributed to a tax benefit and lower costs, but there was a continued decline in sales of its anemia drug Aranesp.

The company earned $1.27 billion, or $1.25 per share, for the quarter, which was up from $906 million, or 84 cents per share, earned for the same period a year earlier.

Revenue eased 1% to $3.71 billion from $3.76 billion.

In addition, the company raised its outlook, putting its full-year profit expectation up to $4.80 and $4.95 per share, up from $4.55 to $4.75 per share.

Revenue was boosted to the upper end of its prior guidance of $14.4 billion to $14.8 billion.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Ford Motor Co. NYSE: F

Mylan Inc. NYSE: MYL

PDL BioPharma Inc. Nasdaq: PDLI

Watson Pharmaceuticals Inc. NYSE: WPI

Webster Financial Corp. NYSE: WBS

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