Ford, Amgen eyed before earnings; Continental lower, but AMR higher; Mercury Interactive gains

By Rebecca Melvin

Princeton, N.J., Oct. 19 - Convertibles players ended the session Wednesday thinking about the next one, with Amgen Inc. mentioned as a focus following its post-close earnings report that showed revenue was a little lower than expected.

Amgen convertibles weren't mentioned in trade on Wednesday, but they were expected to be active Thursday, with Amgen stock lower in after-hours trading, convertibles sources said.

Also seen changing hands Thursday were the convertible preferreds of Ford Motor Co., which will present third-quarter earnings in a conference call Thursday morning. On Wednesday, the Ford preferred shares closed down, but off their lows of the session at 31.90, off 0.19, or 0.69%.

JetBlue Airways Corp. will also report earnings Thursday. The discount airline has reported higher traffic in each of the previous three months, but it has also had to contend with the sharp increase in fuel oil prices that has hampered the industry in general.

The 4.5% convertibles of Continental Airlines Inc. were off by about a point, while its other convertible issues were seen trading in line with their underlying shares in light trading volume.

Continental shares ended 1.85% lower, but significantly better compared with intraday losses. The company posted earnings that showed the airline returned to profit in the third quarter but also announced a secondary offering of common stock that weighed on investors.

"They were heavily quoted, but not necessarily heavily traded," a New York-based sellside trader said of Continental.

AMR Corp., the parent of American Airlines, also saw its convertibles trade after it reported a loss on Wednesday.

"It's funny AMR was higher after reporting a loss, and Continental was down after posting an unexpected profit," said a convertibles desk analyst, referring to the equities of those companies.

Another source, remarking on the low volume in airline convertibles, said, "Players in airlines are a very select group of investors." He added that the earnings of these companies were unlikely to spur new plays from them.

Also on Wednesday, Mercury Interactive Corp.'s 0% convertibles traded higher after the company came back with a revised consent solicitation in the form of an optional put next year that pleased holders, sources said.

Eastman Kodak Co. convertibles appeared to hold firm as its shares declined after the Rochester, N.Y.-based photography company missed estimates.

In the primary market, an upsized $525 million issue of perpetual preferreds from Interpublic Group of Cos. Inc. traded in a tight range above par after pricing at the rich end of talk.

Continental, AMR get another once over

The 4.5% convertibles of Continental dropped about a point as its shares suffered after the company announced plans for a public offering of stock late Tuesday on the heels of its earnings announcement.

The company warned again it may not be able to pay its bills in 2007 and beyond if its struggles with low fares and high costs continue.

The airline said it would offer 18 million shares of class B common stock at $11.35 per share. It also granted the underwriter, UBS Investment Bank, a 30-day option to buy another 2.7 million shares.

A little earlier, the No. 5 U.S. airline announced that it earned third-quarter profit of $61 million, or 80 cents a share, despite sharply higher fuel bills.

Its outlook was less rosy that the third-quarter report, however. It warned that it expects to post a "significant loss" for the fourth quarter and full year.

Continental ended the quarter with nearly $2 billion in cash and said it expects to have enough liquidity to get through the end of 2006.

In 2007, the airline has significant financial obligations coming due and it may not be able to fund those obligations unless business conditions change.

Continental's 4.5s traded at 86, versus a stock price of $11.90. Its 5% convertibles traded at 81.875, compared to the same stock price, and its 6% preferreds traded at 18.75, versus a stock price of $11.40. Continental shares closed at $11.67, or off 22 cents.

AMR Corp. reported a narrower $153 million third-quarter loss, swinging to a loss after managing a profit for the first time since 2000 for its second quarter. But the largest U.S. carrier saw revenue trends improve amid higher demand.

AMR's 4.5% convertibles traded early at 71.25 versus a stock price of $12.00. Later the 4.5s were seen higher at 74 bid, 75 offered. AMR shares closed up 40 cents, or 3.33%, at $12.40.

Mercury Interactive rises

The 0% convertibles of Mercury Interactive Corp. traded up to nearly 101 after the Mountain View, Calif.-based software company amended its previously announced solicitation of consents from the holders of its $300 million principal amount of 4.75% convertibles due in 2007 and from the holders of its $500 million principal amount of 0% convertibles due 2008.

Instead of the 7.5 points of sweetener, which didn't appear to be enough for holders, the company offered a put at 107.25 effective Nov. 30, 2007.

"It was a smart move by the company. The holders were happy and they have enough people to get the deal done," a New York-based sellside trader said.

"It changes the whole way you're going to trade this thing," the trader said, referring to the fact that probably more yield players will be interested in the paper now as opposed to hedge players.

He said "it also gets rid of all that confusion" regarding holders of record during the last two trading days ahead of the consent solicitation.

Some expected the 0% to trade higher, up to 102, for example, due to the fact that the yield to put is 6.5% to 7%, and the company is a good credit that is in all probability going to have enough funds to pay for the bonds if they have to in a little more than a year.

"It might be a little cheap, but it sounds about right," said a buyside source regarding the price, figuring yield to put to be 6% to 6.5%.

The stock, which closed Thursday at $31.19, up slightly, would have to be up a lot to get the bond much higher, he said, after all "you still have to wait a year."

The 4.75% convertibles got an enhanced sweetener of 2.5 points, up from 1.5 points. But fewer trades were seen in this paper as it's due in 2007 and many investors had already decided to hold it to maturity.

Regarding the amendments, Mercury is requesting a limited waiver, until March 31, 2006, of any default or event of default arising from its failure to file with the Securities and Exchange Commission and furnish holders with the reports required.

The company said that holders of 72.2% of the total outstanding principal amount of 2007 notes have either submitted letters of consent or said that agreed to deliver letters of consent; while holders of 59.5% of the total outstanding principal amount of 2008 notes have done the same.

Interpublic new issue lifts slightly

The new 5.25% convertible preferreds of Interpublic Group traded in a tight range, but not below par on its first day of trading, and closed at 100.375 bid, 100.625 offered. Its common stock closed down six cents, or 0.57%, at $10.45.

The Rule 144A offering priced late Tuesday at the rich end of talk, which put the dividend at 5.25% to 5.75% and the initial conversion premium at 25% to 30%. The initial conversion premium of the shares is 30%.

The deal was upsized by $25 million to $525 million and includes an over-allotment option for up to $75 million of additional shares.

Joint bookrunners for the issue were UBS Investment, Citigroup Global, JP Morgan and Morgan Stanley.

The shares will be subject to mandatory conversion at the company's option from Oct. 15, 2010 onwards if the closing price of Interpublic's common stock exceeds 130% of the conversion price for 20 out of 30 trading days.

New York-based Interpublic Group, an advertising group, intends to use proceeds for general corporate purposes and to pay down debt, a syndicate source said.

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