GM up on GMAC financing; Ford, DaimlerChrysler mixed; Manor Care, Barnes at bat; Fairmont Hotels falls

By Ronda Fears

Nashville, July 26 - General Motors Corp.'s convertibles traded up on the auto giant's finance arm, General Motors Acceptance Corp., procuring a $55 billion financing agreement with Banc of America. Ford Motor Co. gained and DaimlerChrysler AG was slightly off as analysts surmised they could make similar arrangements.

Airline paper was another transport area seeing some action on Northwest Airlines Corp.'s earnings, but traders noted that even pension reform measures did little to move other troubled carriers like Delta Air Lines Inc.

In primary market activity, CSK Auto Corp. sold $110 million of 20-year convertible notes at par that will pay 3.375% for five years and then 3.125%, and with a 30% initial conversion premium - at the aggressive end of price talk for a coupon of 3.25% to 3.75% and at the midpoint of premium guidance of 27.5% to 32.5%.

On tap after Tuesday's close were Manor Care Inc.'s $400 million 30-year convertible talked with a coupon of 1.875% to 2.375% and initial conversion premium of 20% to 25% and Barnes Group Inc.'s small $85 million issue.

Coming up for Wednesday's business is a $500 million convertible from L-3 Communications Holdings Inc. in addition to a $1 billion junk bond with that 10-year paper talked to yield 6.5% to 6.625%. The proceeds will go toward its $2 billion acquisition of The Titan Corp. On Tuesday, the defense contractor also reported quarterly profit rose a better-than-expected 36% on growing military demand for its secure communications equipment.

On Thursday the market is looking for FTI Consulting Inc.'s $125 million convertible bonds. A coupon range is expected to emerge early Wednesday on the deal, which has been talked since last week to price with an initial conversion premium of 27.5% to 32.5%. The convertible is scheduled to price concurrently with $175 million of straight junk bonds.

GM rides GMAC wave higher

GMAC, the financial services arm of GM, has agreed to sell up to $55 billion of asset-backed type securities over five years to Bank of America, the companies said Tuesday. Bank of America will make an initial purchase of $5 billion, and in each of the five fiscal years it will purchase up to $10 billion of GMAC U.S. retail auto finance contracts. GMAC will continue to service the contracts.

"This agreement allows GMAC to fulfill its strategic mission to finance more GM vehicles, without undue strain on the balance sheet," said GMAC chief executive Sanjiv Khattri.

GMAC is holding a conference call at 9:30 a.m. ET on Wednesday.

GM shares rose $1.09, or 3%, to $36.96 on the event, and the three $25 convertible bonds followed suit. The 6.25% issue added 0.34 point to 22.29, the 5.25% issue rose 0.27 point to 19.60 and the 4.5% issue edged up 0.11 point to 24.61.

Ford, Daimler mixed on GMAC

The GMAC deal was smart for Bank of America and it was a nice arrangement for GM, analysts said, and there should be no problem for Ford and/or DaimlerChrysler to get similar deals.

It's a good deal for the bank because it will increase the yield on the loan portfolio and boost its loan-to-deposit ratio, one sellside analyst said, plus it is another means for traditional banks to recapture auto financing business, albeit by proxy. Thus, more banks will probably look at similar deals with Ford and DaimlerChrysler.

Ford's 6.5% convertible trust preferred rose 0.30 point on the day to 41.70, and the underlying stock added 25 cents, or 2.36%, to $10.86.

DaimlerChrysler shares in the United States slipped 18 cents, or 0.42%, to $42.98 while on the Xetra the stock lost €0.14, or 0.39%, to €35.81. The UBS 4.35% exchangeable bond due 2010, a euro-denominated issue linked to the Xetra listed shares, was quoted unchanged at 99.25 bid, 99.625 offered by a convert trader in London.

Fairmont off on lower estimates

Fairmont Hotels reported a higher quarterly profit on Tuesday but lowered its outlook for the year, citing softer travel to Canada from the U.S. Fairmont chief executive William Fatt said the company expected weakness to persist, blaming it in part on the stronger Canadian dollar as well as border issues that have discouraged travel to Canada.

As a result, the Toronto-based company cut its 2005 EBITDA forecast to $192 million from an earlier outlook for $185 million to $195 million.

Fairmont's 3.75% convertible due 2023 lost 2.625 points on the day to 105 bid, 105.5 offered while the news sent the underlying shares lower by $1.43, or 4.14%, ending at $33.12.

A sellside trader said he expected to see some buyers emerge on the dive, saying, "the panic sell is over now."

A buyside trader, who sold on the company's announcement, said that he thinks the Fairmont securities are still expensive, as he fears the company will not make the lower figures.

"I think there is a good chance they will not make numbers because of weakness in Canada. There has been a big time drought of U.S. visitors to Canada," the buysider said. "The weak U.S. dollar is a big factor. It looks like a strong short idea to me, but if Starwood, Hilton, and everyone else takes up their numbers and these guys [Fairmont] lower them, then watch out."

He also noted that on the company's conference call Fairmont CEO Fatt said the company is not for sale and will instead focus on its strategy of trimming its hotel portfolio where appropriate, while at the same time reporting that during second quarter the company unsuccessfully bid for "a major acquisition."

Glaxo deal boosts Human Genome

In other news, Human Genome Sciences Inc. narrowed its second-quarter net loss and posted sharply higher revenue, which was directly attributed to getting a milestone payment from GlaxoSmithKline plc as part of the licensing agreement for its diabetes drug Albugon.

Glaxo acquired exclusive rights to develop and sell Albugon in 2004, and Human Genome estimates milestone payments from the agreement could be worth as much as $183 million.

In addition, earlier this month, Glaxo agreed to co-develop LymphoStat-B, a drug being tested for treatment of rheumatoid arthritis and lupus, with Human Genome. The two companies will split costs for clinical trials and development and split any profits from sales of a drug that makes it to market. Human Genome expects to complete phase II clinical trials of LymphoStat-B in patients with lupus this year.

Rockville, Md.-based Human Genome reported a second-quarter net loss of $56.0 million, down from $58.5 million in the same quarter a year ago. Revenue was $2.9 million, compared with $600,000 a year earlier.

Human Genome shares rose 73 cents, or 5.16%, to $14.88 and the sellside convertible trader said its 2.25% convertible due 2011 traded up 3.5 points to 113 bid, 113.5 offered on the stock move.

ImClone's Erbitux disappoints

The market was less pleased with ImClone Systems Inc.'s earnings report and, more specifically, the numbers for its colon cancer drug Erbitux as biotech heavyweight Amgen Inc. is in the wings with a competing cancer drug.

ImClone reported second-quarter net income of $26 million, or 30 cents a share, up from $24 million, or 29 cents a share, a year ago. Revenue rose to $92.4 million, but Wall Street analysts were expecting $95.8 million. U.S. sales of Erbitux were up 37% to $98 million, but analysts were looking for $100 million. ImClone receives 39% of U.S. Erbitux revenue as part of a marketing deal with Bristol-Myers Squibb Co.

ImClone is seeking broader regulatory approval of Erbitux, expanding its use for colon cancer to other cancers, specifically head and neck cancer and perhaps later to include lung cancer as well as pancreatic cancer.

On the results, ImClone shares fell 85 cents, or 2.42%, to $34.23, and the company's 1.375% convertible bonds due 2025 were said to be off 0.25 point on swap, trading down to 82.5 bid, 83 offered.

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