Teva deal gets warm welcome in an otherwise tepid market

By Ronda Fears

Nashville, Nov. 13 - In an otherwise lukewarm market amid small stock gains, Teva Pharmaceutical's new deal got a very nice response. Also, Ligand Pharmaceuticals Inc. launched a $135 million deal for next week.

Outside of new deal activity, however, traders described the market as slow and virtually unchanged.

Teva's $375 million deal gained 3.25 points in the immediate aftermarket. That level was up about 2 points from where the paper was trading in the gray market just before pricing.

"We traded a ton of this [Teva] paper," said a dealer. "It was very well received."

Although the Teva deal was not universally thought of as cheap, it was over-subscribed by about six times, according to a source at one of the deal managers.

A buyside analyst put it about 1.5% cheap while sellside analysts estimated it between 0.5% cheap and 2.5% cheap.

The Teva deal priced at par with a 0.375% coupon, at the rich end of guidance, and 18% premium, at the cheap end of talk.

It was quoted closing at 103.25 bid, 103.75 asked.

Teva shares ended off $40c to $72.31.

Also during the session, price talk emerged on Ligand's deal, which is set to price Tuesday.

Ligand is pitching $135 million of five-year convertible subordinated notes with price talk of a 5.75% to 6.25% yield and 15% to 20% initial conversion premium.

Ligand shares closed down $1.89 to $5.25, but mostly due to the stock getting downgraded by three firms due to the company's earnings and outlook.

While sources noted the stock borrow is tough for Ligand, which will make it less likely many hedge funds will get involved with the new deal, it has piqued the interest of hedged and outright buyers.

Sellside analysts put the deal between 3.5% and 4% cheap.

Deutsche Bank Securities analysts noted, also, that demand for the new paper has pushed the stock borrow cost out to 425 basis points, versus the standard allowance of 50 basis points.

The overall dearth of new paper in the convertibles market gives players impetus to participate in practically every new deal these days.

But the Ligand deal also is appealing because of the cash-pay coupon being guaranteed for two years with Treasuries.

Elsewhere, there were just a few names on traders' lips.

"There's a little bit of trading going on, but most of the positioning has taken place and there's nothing left for people to do," said a dealer.

"That's why it's so good to get some new deals out there."

Federal Reserve Chairman Alan Greenspan's comments in Washington did nothing to really turn the market's mood to upbeat, the trader said, but it didn't cause a landslide either.

"The tone right now is probably still very hesitant, but mostly because no one knows what's going to happen in Iraq," the trader said.

"Once that settles down, or we know what's going to happen, if we're going to war, then maybe we can get a better grasp of everything else."

Concerns in the market still revolve around financing shortfalls and liquidity constraints.

Teco Energy was a name mentioned in that light, as it as was unable to renew its $350 million bank facility, which matured Wednesday, and had to convert it to a one-year term loan.

The Teco mandatory gained 0.375 point to 17.875 bid and the stock rose 50c to $12.66, however.

El Paso Corp. also continued to decline. Traders said the convertibles were down by another 1 point and the straight bonds by 1 to 2 points.

Ford Motor Co. weakened more, as well.

After the close, Moody's confirmed Ford's ratings but said the outlook remains negative.

"We are pleased with Moody's decision today. The fact that both Moody's and Fitch have confirmed our credit ratings is tangible, external evidence of the progress we are making under our Revitalization Plan," said Allan Gilmour, chief financial officer of Ford, in a news release.

"Moody's action today removes the remaining rating agency uncertainty in the capital markets."

Ford's 6.5% convertible preferred lost 0.375 point to 37.5 bid as the stock ended down 11c to $8.52.

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