El Paso at bat with sweeter terms; Nabi emerges; Ford plummets in wake of warning; Impax steadies

By Ronda Fears

Nashville, April 11 - With some sweetening added, El Paso Corp.'s $750 million convertible was at bat after Monday's close following a delay last week due to the Houston power firm's announcement of another restatement to earnings, which has dogged the company for more than a year.

Also after Monday's close, Nabi Biopharmaceuticals launched a $125 million deal for Wednesday's business, but otherwise the primary market remained quiet.

In secondary market action, traders reported a decent amount of flow and seemed to generally conclude that the session was a "wash," as one sellsider put it, suggesting there was little change overall. There were some stand-out moves, both negative and positive, however.

Ford Motor Co.'s convertible was pummeled, again, and harder on Monday following its warning about 2005 and 2006 results on Friday. General Motors Corp. again tracked Ford lower, with its three issues losing about a quarter-point Monday.

Impax Laboratories Inc. was steadying Monday, with just a half-point dip, after losing upwards of 3 points last week on the announcement that its stock might be delisted because of its previous delay in filing financial reports with the Securities and Exchange Commission - a more routine phenomena this year due to increased reporting requirements in regard to accounting matters under the Sarbanes-Oxley Act.

Among other health-related names, traders said it was a mixed bag as Standard & Poor's released a couple of reports Monday - one saying that Medicare reforms set to take effect in 2006 would be a benefit to many healthcare names and another citing high debt leverages in the group as a matter of concern.

Chiron Corp. was mentioned, with the 2.75% convertibles at 97.25 and the 1.625% convertibles at 93.25.

Elsewhere in secondary action there was a hodgepodge of names tossed about.

The Fortis NV mandatory exchangeable bond, which converts into Assurant Inc. shares, "traded a bunch" on Monday following Assurant's 14% boost to its common stock dividend on Friday. The 7.75% convertible added 5 points, while the underlying stock rose a quarter, or 0.75%, to $33.72.

El Paso bumps yield to 5%

El Paso was ponying up at least more yield to sell its $750 million of convertible perpetual preferred after Monday's close, sources said. With sweetened yield talk of a 5% dividend, market sources added it was also expected that the initial conversion premium might be sweetened from original guidance of 25% to 30%.

The dividend was boosted from original price talk of 4.375% to 4.875% when the deal launched last Tuesday.

The $750 million of convertible perpetual preferreds was rescheduled to price from Thursday last week when El Paso announced that day that it would be making another restatement to previous earnings reports made with the SEC.

There still was not any gray market activity in the issue, buyside traders said. A couple of sellside traders said the deal might even have to be cheapened further. And, a sellside analyst suggested that market expectations that El Paso will be needing more new capital soon was pressuring its shorter dated paper, but he thought the longer maturities were appealing on weakness.

"Waiting for some filings to be done, it is going to be priced cheap," a sellside trader said, referring to El Paso's pending new issue.

"They will need to come back again," he added, clarifying that he expects the company both to return to the capital markets to raise money and to have to cheapen the new deal.

El Paso shares closed Monday off by 14 cents, or 1.33 %, at $10.42.

Nabi launches for Wednesday

The forward calendar remains sparsely populated, however. The only other firm deal was one that surfaced after the close Monday from Nabi Biopharmaceuticals.

Boca Raton, Fla.-based Nabi Biopharma launched $125 million of 20-year convertible notes talked to yield 2.375% to 2.875% coupon and 30% to 35% initial conversion premium. The company said proceeds would be used for general corporate purposes and clinical trials, to fit out an expanded leased research and development facility, for acquisitions and for working capital.

Nabi Biopharma shares on Monday lost 18 cents, or 1.46%, to close at $12.17. In after-hours trading the stock was down 69 cents, or 5.35%.

Ford issue plummets 3 points

Without a skid mark suggesting that there was any attempt to stop, Ford's convertible was in "a freefall" Monday, as one dealer put it. The 6.5% issue plummeted 3 points to 39.75 and the sell-off volume was "massive," he said.

That plunge followed a 1-point dive on Friday as the automaker lowered its earnings forecast for this year in addition to ditching its goal of making $7 billion in pre-tax profits by 2006. GM's warning less than a month ago made the Ford warning "like nailing the coffin shut," the trader said.

It was the magnitude of Ford's warning that shocked most onlookers, he added. Ford now expects 2005 earnings per share of only $1.25 to $1.50 before special items, down from its previous guidance of $1.75 to $1.95. Management also said automotive operations this year will likely be no better than breakeven before taxes and special items, in contrast to the previous goal of $1.5 billion. Ford reports earnings April 20.

Ford shares Monday dropped 59 cents, or 5.35%, to $10.44, and the convert trader also pointed out that Ford spreads were blowing out in dramatic fashion. At noon Monday, he said Ford's 7.45% due 2031 widened 35 bps, or 90 bps over the last week, while the 7% note due 2013 had widened similarly.

CreditSights credit analysts said in a report Monday that a wildcard for the auto industry paper will be the timing and magnitude of more production cuts, which many believe are coming, and what restructuring steps will be proposed to the United Auto Workers contract by GM, and whether Ford will look to piggyback on any union concessions.

Impax labs convertible steadying

After delaying its financial filings and getting a notice of possible delisting from Nasdaq last week, market sources said Impax Labs appeared to be steadying.

Impax's 1.25% convertible due 2024 lost a half-point on Monday with the stock off 62.5 cents, or 3.3%, at $18.315. But that followed a 3-point drop last week on Nasdaq's notice to the company that delaying its 10-K annual report for 2004 put its stock subject to delisting.

On March 31, Impax announced the 10-K delay and notified Nasdaq. In justifying the delay, Impax in part specifically blamed the extensive Sarbanes-Oxley internal controls requirements, necessary for the first time with 2004 results, and additional time required to make the internal control evaluation. Impax said it could not predict when the 2004 form 10-K would be filed, though.

But, as far as bondholders go, a sellside convertible analyst said it had been generally determined that the delay in the 10-K filing would not result in a default on the convertible. The convertible was largely reacting to the pressure in the stock related to the Nasdaq event, he said.

Genesis drops sharply with stock

Nursing home names were down sharply Monday on a downgrade to Genesis HealthCare Corp. by Jefferies & Co, although a sellside trader said there could be some buying interest stirred by the declines because of a general view that Medicare reform will be a boon for nursing homes because of higher prescription drug benefits.

Genesis HealthCare's 2.5% convertible fell 4.25 points to 94.25 bid, 94.75, while the stock plunged $3.71 on the day, or 9.5%, to end at $35.50.

Another nursing home operator, Beverly Enterprises Inc., was lower in sympathy, but not by much, as the company remains embroiled in an effort to fend off a hostile takeover by a private equity group. Beverly's 2.75% convertible was described as a half-point lower, with the underlying stock down 13 cents on the day, or 1%, to $12.25.

Analyst: Paxson bonds worth par

Whether bidders duke it out for Paxson Communications Corp., or it's sold off in bankruptcy, some onlookers say that its straight debt and preferreds are worth par. A convertible sellsider, though, who witnessed a sell-off in the Paxson convertible Friday on the buzz, even as the stock skyrocketed 20%, said such an evaluation on Paxson debt is bunk.

Paxson shares gave back nearly half the gains chalked up on Friday, another sellside trader pointed out. And, he pegged the 9.75% convertible preferred due 2006 in the 43 context, essentially unchanged from a trade on Friday.

GimmeCredit analyst Shelly Lombard, however, said in a report Monday that "news that one and possibly two buyers are interested in acquiring Paxson is music to investors' ears" after Paxson last month abandoned efforts to sell the company.

"Although we always knew Paxson's stations were valuable, we didn't think anyone would step up to buy the whole company. We thought it was more likely that Paxson would end up selling off its stations in Chapter 11," Lombard said.

"But even in that downside scenario, we believe Paxson's bonds and [non-convertible 14.25%] preferred stock are worth par."

Rumors were circulating Friday that, in addition to reports that Hollywood talent agency The Firm has been negotiating to purchase the troubled Paxson, television celebrity and businessman Byron Allen was working to make a bid for Paxson.

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