Convertibles see more selling ahead of June redemptions; GM, Ford higher, but Calpine, Northwest sink

By Rebecca Melvin

Princeton, N.J., June 14 - Lots of selling marked the convertibles trading session Tuesday, with market players looking for bargains as they focused on existing positions ahead of June redemptions. Still, General Motors Corp. moved higher on favorable news, lending a boost to the overall automotive sector.

"People are looking at existing positions and picking through the merchandise looking at what's cheap," said a Connecticut-based buyside trader. "They're selling down to meet redemptions."

Already existing issues of Invitrogen convertibles slumped in the session that preceded pricing of the biotechnology company's new $300 million issue of senior convertible notes.

Meanwhile, Calpine Corp. bonds dropped after news that the power company intends to sell more generating plants, and Northwest Airlines extended its slide after bad press on Monday. In addition, Standard & Poor's downgraded the carrier's debt after the close Tuesday.

Invitrogen issues drop

Merrill Lynch analysts put Invitrogen senior convertible notes 1.1% cheap at the middle of guidance, using a credit spread of 300 basis points above U.S. Treasuries and a 22% stock volatility.

Another sellside analyst put the Invitrogen convertibles less than 1% cheap compared with the 3% midpoint of price talk, assuming a 300 basis point spread over Libor and a 27% stock volatility. The same analyst put the biotechnology issue at 1.5% to 2% cheap at the cheap end of price talk.

Yet another sellside analyst put the deal at 2.5% cheap at the lower end of price talk, using a credit spread of 300 basis points above Libor and a 23% stock volatility.

A buyside analyst said that at the cheap end of price talk, the issue "looked OK." He was using a credit spread of 275 basis points and a 20% stock volatility.

Several sources said that the deal looked pretty cheap but not cheap enough, however, given current market conditions.

But a buyside analyst said, "It looks decent. There will be outright interest." Traders and analysts at his Connecticut office debated whether to buy the issue. "We hemmed and hawed," the analyst said. "We won't buy a lot, and wait and see what happens to trade in the after market."

Invitrogen was selling $300 million of 20-year convertible notes, non-callable for six years, with price talk at 2.75% to 3.25% yield and an initial conversion premium of between 27.5% and 32.5%. Bookrunners are Banc of America Securities LLC and UBS Investment Bank. Final pricing wasn't available at press time.

Invitrogen shares closed down $3.05, or 3.81%, at $76.98.

Old Invitrogen convertibles

Meanwhile Invitrogen's existing convertible issues stumbled Tuesday. Invitrogen's 1.50% issue due 2024 traded down nearly 6 points to 90.875, from 95.562 bid, 96.062 offered on Monday, a trader said.

The Carlsbad, Calif.-based company's 2.25% convertible was down about a point to trade at 100.25 and was seen 100 bid, 101 offered, according to a New York-based desk analyst. Yesterday's close on the 2.25% issue was 101.831 bid, 102.831 offered.

The 2% convertible traded down about 4 points at 124.125 bid, 124.625 offered, according to a trader.

GM rides higher

General Motors bumped up after reports that its largest labor union, the United Autoworkers, may be willing to negotiate concessions on benefits earlier than previously expected. Also on Tuesday, Tracinda Corp., the investing vehicle of billionaire investor Kirk Kerkorian, announced that it boosted its holdings in GM to about 7.2%, up from 3.9%, after completing the purchase of 18.4 million shares. The amount was less than announced on June 8 because some shares weren't delivered.

One sellside trader said "a lot" of GM's 4.5% convertible issue traded Tuesday. The $25 convertible bonds closed up 0.14 at 24.14. Volume was at 1.17 million, compared with the three-month running average of 742,535 shares traded.

The automaker's 5.25% convertible was up 0.30, or 1.6%, at 19, in heavy volume of 2.264 million. The 6.25% convertible gained 0.85, or 3.89%, to 22.70. GM shares rose $1.42, or 4.1%, to $35.87.

Ford also rose a day after plans were announced for an initial public offering of its profitable subsidiary, Hertz Corp.

The second-largest U.S. automaker is floating the idea of an IPO for Hertz at a time when its core automotive operations are struggling to make money. Chairman and chief executive Bill Ford Jr. said in April that such a move was being considered to improve liquidity and move away from non-core businesses.

Ford said in its Securities and Exchange Commission filing that it intends to divest its remaining ownership interest in Hertz after the IPO.

Ford's 6.25% convertible preferreds rose 0.72, or 1.7%, to 42.90. Its share price gained 30 cents, or 2.9%, to $10.82.

Auto parts companies, including American Axle and Manufacturing Holdings, were also quoted higher. American Axle's 2% convertible traded at 80.5, according to a trader, up from a close on Monday of 77.294 bid, 78.294 offered. Its shares rose 76 cents, or 3.3%, to $23.76.

Calpine, Northwest lower

Calpine Corp. bonds slid 3 points on Tuesday, traders said, as further details of its strategy to reduce debt unfolded. The downturn reversed a two-day surge in Calpine convertible issues Thursday and Friday.

The San Jose, Calif.-based power company on Tuesday announced specific plans to sell four power plants, including three in Pennsylvania and one in Illinois, for $357 million.

The Pennsylvania plants have a combined capacity of 782 megawatts. The Illinois plant is a small, 156-megawatt generating facility.

The asset sales, including the already-agreed sale of a plant in England and four more as-yet unannounced plant sales, are being used to help reduce Calpine's outstanding debt of $18.1 billion.

Calpine's 4.75% convertibles due 2023 traded down 3 points from 68.25 bid, 69.25 offered on Monday. The 6% convertibles due 2014 were down from a 91.847 bid, 92.847 offered close, and the 4% convertibles were down from 100.50 bid, 101 offered on Monday.

Two convertible issues of Northwest Airlines also sank 3 points on Tuesday, a Connecticut-based trader said. The carrier continued to be pulled down by a report on Monday that the company may be close to bankruptcy.

After the close, Standard & Poors lowered Northwest's corporate debt two notches to CCC+ from B. Northwest's short-term rating was cut one notch to C from B-3.

The rating agency based its action on heavy losses that the nation's fourth-largest carrier faces and the fact that the airline's unions are not accepting cuts.

Northwest's 6.625% convertibles due in 2023 were down 3 points from 55.732 bid, 56.732 offered on Monday. Its 7.625% convertible, also due 2023, was off the same amount from yesterday's close at 53.542 bid, 53.542 offered, traders said. Northwest's stock price fell 24 cents, or 4.3%, to $5.34.

Biotechs remains hot

There was more activity in biotechnology convertibles Tuesday, with Cephalon Inc. issues halting Monday's slide to trade at 97.50 for the 2.5% convertible and 96.50 for the 2% convertible, levels identical to Monday's, traders said.

The issues had dipped on Monday after the drug development company announced it was buying the cancer drug Trisenox from Cell Therapeutics Inc. for as much as $170 million.

Issues that were hot yesterday continued to be quoted higher, including Viropharma Inc. and Durect Corp., a West Coast-based trader said Tuesday.

© 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.