Wyeth holds up; Ford drops, but GM bonds move higher; Schlumberger off

By Rebecca Melvin

Princeton, N.J., Oct. 21 - Convertibles trading was relatively quiet on Friday with focus concentrated for the most part on the paper of companies reporting corporate earnings.

New issues were also a focus of trading, with the new bonds of PMC-Sierra Inc. reportedly trading more actively than those of EnPro Industries Inc., according to trading sources. But the closing price of EnPro was higher at 101.625, compared with PMC-Sierra's close of 99 bid, 100 offered, according to syndicate sources.

Wyeth's floating-rate convertible bonds held up although the pharmaceutical company's equity softened after the Madison, N.J.-based company reported earnings revealing that sales of its top-selling antidepression drugs Effexor and Effexor XR were off 4% during the quarter.

"There was good two way flow. The credit held up," a New York-based sellside trader said of the Wyeth convertibles. "I looked at the earnings. It might have been a little disappointing on the equity side. But it wasn't that big a deal; the credit is fine."

There was a bit of a comeback in some biotechnology names that suffered weakness in recent days. MGI Pharma Inc. saw its 1.6821% convertible bonds move lower, but they were better dollar neutral as its shares sank 3.1%. There was good two-way flow in Nektar Therapeutics Inc; but Chiron Corp. continued to compress in the absence of a new offer from Novartis AG, a trader said.

In the automotive sector, Ford Motor Co. saw its preferreds drop again as its shares came down a day after the No. 2 automaker reported earnings. But General Motors Corp.'s three convertible bond issues gained, even though their underlying shares ended slightly lower.

Schlumberger Ltd. saw its convertibles trade lower in line with their shares after reporting earnings, and although the bonds were under pressure on Friday, they still looked better by 0.25 point to 0.50 point for the week during which they had picked up dollar neutral.

Advanced Micro Devices Inc. shares gained 4% and its bonds were indicated higher after the semiconductor company's memory products group filed information that provided favorable guidance on its third quarter. No convertible bond trades were reported, however.

In the primary arena, investors gave a fairly warm initial reception to two new issues. PMC-Sierra's $225 million of 20-year convertibles traded up early to 101 or more, according to a syndicate source. But trades before midday were also reported at 99.5, so enthusiasm cooled quickly, and the 2.5% senior convertible notes closed on their first day of trading at 99 bid, 100 offered.

The notes, sold via Merrill Lynch & Co., priced in the middle of talk, which was for a coupon of 2.0% to 2.5% and an initial conversion premium of 25% to 30%.

There is a $25 million greenshoe. The deal was originally seen as $215 million with a greenshoe of $35 million.

The Rule 144A notes are non-callable for seven years, with puts in years seven, 10 and 15.

Santa Clara, Calif.-based PMC-Sierra, a maker of semiconductors for the wireline communications sector, will use proceeds for general corporate purposes, including a possible acquisition of a semiconductor business.

EnPro Industries priced at par $172.5 million of 10-year convertibles to yield 3.9375%, with an initial conversion premium of 30%.

The deal size was originally planned as $150 million but the $22.5 million greenshoe was immediately exercised.

The Rule 144A notes via bookrunner Banc of America Securities have dividend and takeover protection, and there is contingent conversion if the closing price of EnPro common stock is more than 130% of the current conversion price for 20 trading days of a 30 consecutive trading-day period.

Proceeds will be used, together with available cash, to fund the redemption of its $145 million in outstanding Tides securities, and for general corporate purposes.

EnPro is a diversified company that makes sealing products, metal polymer bearings, compressor systems and other engineered products. It is based in Charlotte, N.C.

Wyeth bonds hold up

The 3.32% floating-rate convertibles of Wyeth traded flat to slightly lower after the pharmaceutical company reported earnings that were in line with expectations. However, among the company's best-selling drugs, the antidepressants Effexor and Effexor XR, sales were down 4% from the year earlier third quarter at $861 million. The company said sales reflect the impact of generic competition as well as a "slowdown" for all depression medications.

Top-performing products for the third quarter included Enbrel, which is prescribed for several inflammatory diseases, including rheumatoid arthritis and psoriasis.

The company earned $869.9 million, or 64 cents per share, compared with $1.42 billion, or $1.05 per share, a year earlier. Excluding special items, profit was a better-than-expected 81 cents per share.

Worldwide Wyeth pharmaceuticals revenue rose 7% in the third quarter due primarily to higher sales of Prevnar, Enbrel, Zosyn, Protonix and Premarin. But the gains were offset, in part, by lower sales of Synvisc, which was divested in the first quarter.

Increases in net revenue were also attributed to higher sales of Effexor for the first nine months of 2005. Additionally, alliance revenue increased 35% to $321.1 million for the third quarter.

Consumer health care revenue fell 2% for the quarter due to a number of factors, including lower sales of Solgar products, which were divested during the quarter, offset, in part, by higher sales of Centrum brands. Wyeth also has an animal health division that saw 5% higher revenue for the quarter due primarily to higher sales of livestock, poultry and companion animal products.

The company said it expects full year pro forma earnings to reach or exceed the upper end of its guidance range of $2.80 to $2.90 pro forma diluted earnings per share.

Its 3.32% convertibles traded between 103 and 103.875, compared with trades around 103.25 on Thursday. Its shares fell $1.23, or 2.66%, to $45.00.

Ford slides lower again

The preferred shares of Ford lost ground again on Friday along with its common shares as investors digested its third-quarter results and outlook released Thursday.

The No. 2 U.S. automaker, based in Dearborn, Mich., said it lost $1.2 billion for the quarter in its North American division. It also said that significant plant closing and staff reductions are in its future.

The preferred shares have been steadily losing ground for several weeks as challenging current environment and uncertainty about the future plagues the auto industry.

On Friday the preferreds closed down 0.65, or 2.04%, at 31.20 versus a share price close of $8.25, also down 2%.

Three weeks ago, on Sept. 30, the preferred traded at 36.75 versus a share price of $9.90.

GM's $25 convertible bonds, popular with retail investors, were in positive territory however, with the 5.25% bonds up nearly 2.5% at 17.09. GM shares bounced around ending slightly lower but off their lows at $28.26, down 12 cents, or 0.42%.

Advanced Micro memory group sees uptick

Advanced Micro's memory products group, Spansion, reported that its gross margin increased in the third quarter by 7% year over year due to a 15% increase in unit shipments, partially offset by a 3% decrease in average selling prices.

Spansion said gross margin was also favorably impacted by three factors: a greater percentage of MirrorBit products shipped, a greater percentage of higher density products shipped and increased use of Spansion manufacturing facilities.

The company expects these trends to continue in the fourth fiscal quarter resulting in continued improvement in gross margins for the memory products group.

Advanced Micro's 4.75% convertibles were indicated up 1.625 points and its 4.75% convertibles were seen higher by 11.5 points, according to the Deutsche Bank convertibles web site. But no trades were reported.

© 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.