BioMed debuts at 101; Beazer's older convertibles gain 2 points; Sirius, AMD, Ford rise

By Rebecca Melvin

New York, Jan. 6 - The market for BioMed Realty Trust Inc.'s newly priced 3.75% convertibles Wednesday was said to be about 101, although sources said they hadn't seen the paper in trade. The convertibles priced at the cheap end of talk after the close on Tuesday.

The existing convertibles of Beazer Homes USA Inc. traded up a couple of points to 96.25 after the Atlanta-based homebuilder launched a $50 million offering of mandatories late Tuesday.

Final pricing on the Beazer mandatories was moved up to after the close Wednesday from after the close Thursday due to strong demand, a syndicate source said.

In general, the convertibles market was stronger on Wednesday with tight pricing and more activity spread over a wider range of issues, sources said.

Sirius XM Radio Inc. convertibles were called "a lot stronger" Wednesday amid no particular news but along with the overall market, a Connecticut-based sellside trader said.

The Sirius 3.75% convertibles due 2011 were up to 91.5 from 90.25 and continued to be bid. The Sirius 7% exchangeable bonds due 2014 traded into the high 80s Wednesday from the low to mid-80s, the sellsider said.

Advanced Micro Devices Inc.'s convertibles have been "grinding higher," adding another couple of points in recent sessions, the sellsider also said.

Ford Motor Co. convertible paper was also in trade again as its underlying shares barreled past $11.00, and extending gains notched Tuesday after the Dearborn, Mich.-based automaker reported December sales numbers that were better than expected.

The convertibles market's strong performance came against a backdrop of more or less flat stocks on Wednesday. The broader equity markets lacked direction amid several pieces of economic data.

ADP showed December job losses dropped to 84,000, which was below the 90,000 estimate and well below the revised November decline of 145,000.

Meanwhile, the Institute for Supply Management said its services index rose to 50.1 in December from 48.7 in November. A reading above 50 signals growth. The gauge was expected to come in at 50.5, compared to the November reading of 48.7.

And minutes of the Federal Reserve policymakers' meeting Dec. 15-16 revealed that members are conflicted about its program aimed at boosting the housing market by buying mortgage securities from Fannie Mae and Freddie Mac.

The Federal Open Market Committee members also remained concerned about the economy's ability to mount a self-sustaining recovery once government supports are removed.

BioMed market seen at 101

The market for BioMed's newly priced 3.75% convertibles was right around 101, according to a New York-based sellside desk analyst.

Shares of the San Diego-based real estate investment trust actually added 20 cents, or 1.3%, to $15.33.

The paper priced at the cheap end of talk, which was for a coupon of 3.25% to 3.75% and a 20% to 25% initial conversion premium. But it wasn't seen as cheap by players.

"The company is fine, but the convert just isn't priced right," a New York-based sellside trader said.

There is little yield advantage over the common, and the bond floor is too low to afford enough downside protection for outright players, he said.

Spread and vol. assumptions varied. One player said his credit spread was 515 basis points over Libor with a 30% vol. Another source had a 500 bps spread over Libor and a 30% vol. Both fostered valuations at about fair value.

"The lower vol. assumption is crucial," the sellsider said. "I don't think customers will pay up for vol. that they don't think they can realize through trading, plus there is concern that vol. is going to come in this year, so who's going to pay up for it?"

Another source put the paper's value at about 102 using 650 bps over Libor and a 38% vol. at the midpoint of talk.

The deal was upsized to $150 million from $125 million of exchangeables.

BioMed recently tendered for its older 4.25% convertibles, and there is only about $46 million of an original $150 million left outstanding.

Ford extends gains

The new Ford Motor 4.25% convertibles due 2016 traded at 140.25 versus a share price of $11.35 on Wednesday and were seen at the end of the session at 140.415, which was up 6 points on the day, on top of a 6-point rise on Tuesday.

Ford Motor's 6.5% convertible trust preferred due 2032 traded at 43.60 versus a share price of $11.25, compared to 43 versus a share price of $11.00 on Tuesday.

The old Ford Motor 4.25% convertibles due 2036 traded at 138.625, which was up not even a point outright from 136.5 during Tuesday's session.

Ford shares, which are on a tear, added 41 cents, or nearly 4%, to $11.27 in very heavy volume Wednesday, which was up on top of a 6.6% surge on Tuesday.

The latest surge is on the heels of Ford's December sales report, which shows the company moved 33% more automobiles, and more than its competitors.

But there are some taking a contrarian view on the name and shorting Ford stock and/or convertibles in favor of General Motors Corp.

Akanthos Capital Management's Michael Kao dismisses the market giving Ford a winner's premium and says instead that the automaker should have a winner's curse.

Ford retains legacy costs that GM was able to shed through bankruptcy, he says to back his position.

GM emerged from bankruptcy but still doesn't have a new equity, and it won't until the latter part of the year. That means that while Ford is getting a lot of exposure from equity analysts, GM is not.

Another point in favor of his bet, Kao said, is that the people who read GM corporate bond research are not the same ones that read Ford's.

GM convertibles trade at a 3-point discount to the GM straight bonds, or at 23, 24 for the convertibles versus 26 for the straights as of earlier this week.

Akanthos switched its short from Ford equity to the Ford convertibles at year-end for tax reasons.

"This trade goes back to March when Chrysler senior secured creditors were getting shafted by the government in favor of the unions. The convert market place puked GM, with GM senior unsecured going down to 4 cents on the dollar. We took a contrarian view, betting that the $27 billion GM senior unsecured creditor class was so large that the government would revise its offer.

"At first the government's offer was egregious," he said, referring to the original offer to give less recovery to creditors with a larger stake and more to the union, which had a smaller stake.

He said the fund always assumed recovery of 30 to 40 cents.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Beazer Homes USA Inc. NYSE: BZH

BioMed Realty Trust Inc. NYSE: BMR

Ford Motor Co. NYSE: F

Sirius XM Radio Inc. Nasdaq: SIRI

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