Chiron boosted by lifting of U.K. flu vaccine ban; Charter slips further; Maurel & Prom trades up

By Ronda Fears

Nashville, March 2 - Chiron Corp. shot up 1.5 to 2 points Wednesday after United Kingdom officials lifted the bank on its influenza vaccine manufacturing plant, but then eased back as it still faces likely, yet not implicit, approval to market the shots in the United States.

Meanwhile, yield seekers were looking over the field of older biotech convertibles, such as Corixa Corp.'s 4.25% issue due 2008 and Durect Corp.'s 6.25% issue due 2008.

Heavy selling, however, was observed in both General Motors Corp. and Ford Motor Co. - a day after both automakers reported yet further declines in vehicles sales figures for February plus more production cuts. Congressional debates about whether to re-enact or extend foreign steel tariffs weighed on the automakers, which already had been hammered by their own industry fundamentals. A warning from Lear Corp., which makes seats for vehicles, added even more pressure.

Charter Communications Inc.'s convertibles continued to retreat, as well, following a big disappointment on its subscriber figures. Market sources said there was increased concern that additional refinancing activity might push the convertibles lower in the capital structure, but a credit analyst suggested the company will be focusing on ways to boost operating results.

As for firm deals, Allied Waste Industries Inc. will be pricing its new mandatory Thursday after the closing bell, and it was seen slightly higher in the gray market.

French oil concern Maurel & Prom SA sold an upsized €375 million convertible to yield 3.5% with a 32% initial conversion premium - at the tightest end of guidance - and a trader in London said the issue traded up about a quarter point in the immediate aftermarket. Maurel & Prom shares closed on the Paris Stock Exchange up €0.05, or 0.29%, at €17.02.

Chiquita seen in week or so

On the primary market horizon, a sellside source said Wednesday that it appears Cincinnati-based banana king Chiquita Brands International Inc.'s new convertible will be coming to market in the next week or two, noting that its new credit facility was "awhisper" in the markets.

Bank loan market sources told Prospect News on Wednesday that the new bank facility was expected to launch in mid-March at an estimated size of $600 million.

Chiquita's financing activity is to fund its $855 million cash acquisition of the Fresh Express fresh-cut produce segment of Performance Food Group Co., which was announced last week. The convertible, plus a new unsecured note issue, are expected to amount at least $350 million together.

On Wednesday, Chiquita shares closed off 24 cents, or 1%, at $23.70.

Allied Waste slightly over par

Scottsdale, Ariz.-based trash hauler Allied Waste is pitching a $500 million three-year mandatory talked with a dividend of 6.0% to 6.5% and initial conversion premium of 23% to 27%. Before midday Wednesday the issue was bid at par in the gray market, but in the afternoon the bid climbed to 3 points over par and then eased back to end the day around 2 points over, a buyside source said.

That wasn't as enthusiastic as it might seem, the source pointed out, since the issue will price with a par of 250.

Allied Waste shares closed Wednesday off 23 cents, or 2.71%, at $8.25.

Ahead of the new issue, traders saw the existing Allied Waste 6.25% mandatory with more sellers though buyers were seen for the 4.25% convertible bonds. The 6.25s closed on the New York Stock Exchange on Wednesday off by 0.59 point to 48.58. The 4.25s were quoted off a half-point at 86.5 bid, 87.5 offered, and a sellside trader said they were lifted at 87.25.

The new convertible is part of a refinancing package that also includes the sale of $100 million of common stock and $600 million of Rule 144A senior notes by subsidiary Allied Waste North America Inc., which also was slated to price Thursday, and a new bank facility.

Allied Waste's new $3.45 billion credit facility consists of a $1.55 billion five-year revolver talked at Libor plus 275 basis points, $1.45 billion seven-year term B talked at Libor plus 225 to 250 basis points and $450 million institutional letter-of-credit facility talked at Libor plus 225 to 250 basis points.

Allied at par to 1.6% cheap

At the middle of price talk for the new Allied Waste convertible, sellside analysts estimated it would be priced right at about fair value to 1.6% cheap.

Merrill Lynch analysts put it at fair value at the midpoint of guidance, with a range of 2.1% rich to 1.2% cheap at extreme ends of the price talk, using a credit spread of 500 basis points over the three-year Treasuries and 27% volatility with the stock at $8.35.

Three-year credit default swaps were recently quoted at 275 to 305 basis points over Libor, Merrill convertible analysts Tatyana Hube noted, and the senior subordinated convertible notes at a recent price of 87.625 showed an implied spread of 330 basis points. Given their junior ranking of the mandatory, the spread was widened to 500 basis points.

Accounting for the significant size of the deal and lack of new paper supply in the market, counterbalanced by the low credit quality of Allied Waste, Hube said the issue will likely price at the midpoint to cheap end of guidance.

Another sellside convertible analyst put the new Allied Waste convertible 1.6% cheap at the midpoint of price talk when the stock was $8.62, but noted that estimate had not been re-adjusted for the move in the stock at $8.24.

Chiron gets nod from U.K.

Chiron stock and the convertibles spiked big initially on the news that British authorities had reopened the company's vaccine manufacturing plant in Liverpool, which had been shut down since October. The U.K. plant accounted for around half of Chiron's flu supply, and the news was a big shot in the arm.

The stock, which did not begin trading until 11 a.m. ET due to the pending news, was up as much as 16% at one point of the session and the convertibles better by 1.5 to 2 points before both eased back. "There was a lot of shorting [in Chiron stock] this afternoon and it was able to weaken the price, playing the fall-off after the gap up," explained a sellside trader.

"But this is a sea change for CHIR because they needed approval for the plant by the end of March 2005 to produce vaccine for this year," the trader said. "They burned investors last year and interest waned. This is the first day of the CHIR rebirth and interest. I was a bit perplexed that this much shorting would go on given that this move means a $200 million dollar swing in CHIR's profit, and that should portend plenty of upgrades.

"It [shorting] may be overdone. Those shorts who want to say the FDA hasn't approved the plant, yet they should consider what the stock price should do when the FDA gives its blessing also."

Chiron still needs U.S. OK

Standard & Poor's kept Chiron's ratings on negative watch, however, specifically noting that Chiron still needs approval in the United States to market its flu vaccine.

"This is only a first step toward Chiron's return to the U.S. influenza vaccine market, as the company still requires U.S. Food and Drug Administration approval," S&P credit analyst David Lugg said. "Given the high level of cooperation between the FDA and the U.K. body, this approval is now much more likely, even if by no means certain."

The sellside trader said, however, that most onlookers expect Chiron to get U.S. FDA approval, which basically translates to higher revenue and earnings potential than the reduced forecasts immediately following the plant shutdown in October.

"In 2003 the [flu] vaccine brought in $70 million in profit, versus a net loss on the business of $150 million in 2004 due to all of the write-offs. That $220 million swing in profits will look pretty nice on CHIR's book," the trader said, adding that the company is showing sharp growth in revenues from other areas, such as blood testing and oncology therapeutics.

"Earnings [per share] estimates dropped from $1.87 to $1.42 for 2005 over the last 90 days, but with vaccine revenue coming back those estimates need to climb back up to where they were before the plant debacle. Thus, earnings estimates need to move north of $2.00 for this year and $2.40 to $2.60 for next year."

Charter debt conjecture weighs

Charter continued to slide Wednesday in reaction to its loss of both basic and digital cable subscribers, but a buyside convertible analyst said there also were lots of players exiting the Charter convertibles out of concern that further debt refinancing activity would push those bonds lower in the capital structure.

The Charter 5.875% convertible lost about another point Wednesday to end at 94 bid, 95 offered while the stock closed out lower by 4 cents, or 2.33%, at $1.68. The stock was seen in after-hours trading lower by another 2 cents, or 1%.

On Charter's earnings conference call Tuesday, executives said the company was looking to improve the $19.5 billion debt figure on its balance sheet but did not elaborate.

Gimme Credit analyst Shelly Lombard, however, said in a report Wednesday that "Charter seems to have put asset sales and deleveraging on the back burner while it focuses on improving operations."

"Despite the company's attempts to improve customer retention and operating results, however, we believe financial constraints and satellite competition will limit what management can accomplish," Lombard said, adding, "Unless [majority equity stakeholder Paul Allen, co-founder of Microsoft Corp.] steps in, it appears that Charter will run out of liquidity in late 2006 or early 2007, and that some type of restructuring is inevitable."

Lombard said the only Charter bonds she would buy without some type of hedge would be the 8% second-lien senior notes due 2012.

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