GM, Ford convertibles trade mixed; Amylin rises; new Emdeon issue remains flat

By Rebecca Melvin

Princeton, N.J., Aug. 25 - Reaction in the convertibles market remained muted Thursday to the Moody's Investors Service downgrade to junk of General Motors Corp. and Ford Motor Co. debt a day earlier, with the convertibles bouncing around a bit but ending mixed.

Meanwhile, the convertibles of Amylin Pharmaceuticals Inc. rose on an outright basis but slipped on a delta neutral basis on ongoing takeover chatter.

Charter Communications Inc. traded back to its comfort zone a day after the company announced a debt tender. And Six Flags Inc. gained after news that the theme park operator put itself on the auction block.

In the primary market, a new $300 million convertible from Emdeon Corp. made a debut that lacked luster despite its 97 reoffer price.

GM, Ford flag

The convertibles of GM and Ford ended mixed after toggling between positive and negative territory much of the day following the 4 p.m. move Wednesday by Moody's to lower the GM and GMAC ratings and outlook. Moody's also lowered the ratings and outlook of Ford and Ford Motor Credit Co.

The credit default swaps of GM, GMAC and Ford were virtually unchanged Thursday, a trader said. There was activity in the derivatives late Wednesday but no price movement then either, he said.

"It was just a great big yawn," a New York-based convertibles research director said. "It's been priced in forever. These bonds have been trading as junk for three months."

The real meltdown happened in May when first Standard & Poor's and then Fitch Ratings downgraded to junk the two big automakers, he said. And "that was an issue of timing. The conventional wisdom, at that time, was that Ford and GM would be downgraded - but that it wouldn't happen until later in the year or early '06."

When the downgrades came ahead of expectations there was a huge dislocation in the market, he said.

On Thursday, GM's 5.25% $25 bonds closed up 0.10 point to 18.95. But the GM 6.25% convertible dropped almost a percentage point, or 0.21 point to 21.50. The GM 4.5% convertible shed 0.01 point to 24.16. Meanwhile, GM shares came off 18 cents on the day, or 0.53%, to settle at $34.09.

Ford's 6.5% convertible preferreds, with a par of 50, dropped 0.10 point to 38.80 on Thursday, while Ford shares lost 10 cents, or 1%, to $9.82. Earlier the Ford preferred was weaker, trading at 38.5 versus a stock price of $9.85.

Amylin moves on takeover chatter

The convertibles of Amylin Pharmaceuticals gained 1.75 point to 3 points on an outright basis as renewed rumors circulated late in the session about a possible takeover by Eli Lilly & Co., which is one of its partners in developing a long-acting type 2 diabetes treatment.

The upward move comes three days after the San Diego, Calif.-based drugmaker announced positive preliminary results of a mid-stage clinical trial of the drug. That news sent the convertibles up 12 to 13 points outright.

On Thursday, Amylin's 2.25% issue gained 3 points to 109, and the 2.5% convertible added 1.75 points to 105. On a delta neutral basis, the bonds were down by 1 point to 1.5 points, traders said. On Tuesday after the drug trial news, the 2.25s traded at 105.75 and the 2.50s traded at 102.125.

Amylin shares closed Thursday up $1.48, or 5.13%, at $30.34.

Emdeon closes flat on open

Emdeon's $300 million of 3.125% convertibles were reoffered Thursday at 97, where they traded virtually flat all day. The 97 reoffer was below initial guidance of 97.75 to 98.25.

The 20-year notes were sold via bookrunner Citigroup and had an initial conversion premium of 35%.

One of the things that detracted from the bond, according to one sellside analyst, was that its first put was two years behind the first call. Based on his calculations, the bonds would have sold at least two points higher if they had had a five year put/call.

But given its call/put schedule of a five-year call with puts in years seven, 10 and 15, it priced 3 points below par, which, the analyst said, is just about the standard bookrunning fee.

He said that using a volatility of 32% and a credit spread of Libor plus 350 basis points, the issue valued out at 97.375.

But a buysider said that his firm's valuation of 96.5, using a volatility of 30% and a credit spread of Libor plus 300 bps, had kept him from participating in the Emdeon paper Thursday.

Elmwood Park, N.J.-based Emdeon, formerly WebMD Corp., plans to use proceeds for general corporate purposes.

Possible sale boosts Six Flags

The convertibles of Six Flags jumped about 9 points outright after the Oklahoma City-based theme park operator announced that its board voted to seek proposals from third parties regarding a possible sale of the company.

The decision followed news last week that Red Zone LLC's Daniel Snyder wanted to gain a controlling interest in the company to exert his will on the direction of the company going forward.

Six Flags said it will "pursue a prompt and orderly auction process" and will "invite Red Zone LLC to participate in the process, should Mr. Snyder have a serious interest in pursuing an acquisition of the entire company."

Six Flags said the board "unanimously determined to oppose Red Zone's attempt to gain effective control of the company" and urged shareholders not to sign any consent if and when Red Zone's consent solicitation begins.

Earlier this month, Six Flags swung to a second-quarter profit, boosted by higher attendance at its theme parks. Net income for the quarter was $11.1 million, or six cents a share, compared with a loss of $6.83 million, or 13 cents a share, in the year-earlier period. Second-quarter revenue jumped 8.4%, as attendance increased 753,000, or 6.6%.

Nevertheless, the company was also saddled with $2.3 billion in long-term debt at the end of that quarter.

Six Flags' 4.5% convertible rose Thursday to 127, compared to trades at 118 earlier this week. Six Flags stock closed up 72 cents, or 11%, at $7.26.

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