Freeport higher on upbeat outlook; Mylan, Hologic, Allergan mixed; Alcoa, Newell unchanged

By Kenneth Lim

Boston, Aug. 21 - Convertibles gained outright on Friday as equity markets rallied on Federal Reserve chairman Ben Bernanke's bullish outlook on the economy.

Freeport-McMoRan Copper & Gold Inc. gained as metal prices rose with the buoyant sentiment.

Biotechs were mixed, with Mylan Inc., Hologic, Inc. and Allergan Inc. hovering flat.

Trading volume was thin with little on the news front to spark interest, market sources said.

"I think guys were basically following stocks higher," a sellside convertible trader said. "Not much else going on."

Even comments by Bernanke, who said "prospects for a return to growth in the near term appear good," failed to spur buyers.

"I don't think it caught anybody by surprise," the trader said. "Everybody knows the economy's not doing as bad as it was. If he had said we're going to raise interest rates next quarter or there's no recovery, forget it, then we would have something to do."

A desk analyst described the session as "a very quiet summer Friday" and predicted light volumes for the coming week as well.

"I'd expect next week would be real quiet too," the analyst said. "You have to wait until September for things to pick up."

Names that were seen trading included UAL Corp.'s 5% convertible due 2021 at 55 versus a common stock price of $5.80. UAL is the Chicago-based parent of United Airlines. UAL stock closed at $6, up by 3.63% or $0.21.

"Don't see that name too much," the trader said. "Airlines in general have been an underweight sector for most investors for quite a while. They have some structural issues in the industry which until they fix those issues is going to keep a lot of investors away."

Freeport-McMoRan up with metals

The upbeat tone set by the Fed helped to drive Freeport-McMoran's convertible preferreds higher as metal prices rallied.

The Freeport-McMoRan 6.75% mandatory convertible preferreds traded at 96.75 against a common stock of $64.35 on Friday, up by about 2.5 points. The common stock closed at $65.06, up by 4.55% or $2.83.

Freeport-McMoRan is a Phoenix, Ariz.-based copper and gold mining company.

"FCX is always quite an active name," a trader said. "Good volatility, relatively stable credit."

The company's shares climbed on Friday as copper prices climbed about 5% on Friday, while gold prices advanced about 1.5%.

Biotechs mixed

The biotech and medical devices space saw uneven performances on Friday as the economic news was not seen as especially relevant to the space.

"Unless there's some major change to Medicare or something like that, most of the time it's company-specific stuff that matters more," a convertible trader said.

Allergan's 1.5% convertible due 2026 was flat at 110 versus a $55.50 stock price, while its common stock eased by 0.25%, or $0.14, to close at $55.43.

Allergan is an Irvine, Calif.-based drug and medical device company that specializes in aesthetic treatments.

Hologic's 2% convertible due 2037 changed hands at 81 against a stock price of $16, up by about 2 points outright.

Shares of Hologic, a Bedford, Mass.-based maker of medical devices focused on women's healthcare needs, closed at $15.87, higher by 1.02% or $0.16.

Mylan, which was under pressure earlier in the month after a newspaper report about its manufacturing processes prompted an investigation, although the company subsequently said the Food and Drug Administration had found no problems, saw its 1.25% convertibles due 2012 unchanged at 92.25 against a $14.30 stock price.

Mylan common stock closed at $14.39, up by 0.42% or $0.06.

Mylan is a Canonsburg, Pa.-based generic drug maker.

Alcoa, Newell stay put

Convertibles of Alcoa Inc. and Newell Rubbermaid Inc. were mostly unchanged Friday after speculation the day earlier that their paper could be taken out by the companies.

Newell's 5.5% convertibles due 2014 were seen at 174 versus a common stock price of $13.45, while Alcoa's 5.25% convertibles due 2014 were marked at 209.5 versus a $12.45 stock price.

Newell, an Atlanta-based maker of consumer and commercial products, saw its common stock close at $13.69, up by 1.71% or $0.23.

Alcoa is a Pittsburgh-based aluminum producer. Its shares ended Friday at $12.56, up by 1.05% or $0.13.

The convertibles of both names had been mentioned as possible takeout targets, with their common stocks running up significantly since the convertibles were issued. Both convertibles are far in the money at current levels.

A convertible analyst said taking out the convertibles could be a "real easy way" for the companies to reduce debt, but cautioned that companies may not have much that much incentive to do so.

"You could make the trade work, certainly, but I'm not sure the companies will be lining up to do it," the analyst said. "It's actually inconsequential to them."

Mentioned in this article

Alcoa Inc. NYSE: AA

Allergan Inc. NYSE: AGN

Freeport-McMoRan Copper & Gold Inc. NYSE: FCX

Hologic, Inc. Nasdaq: HOLX

Mylan Inc. Nasdaq: MYL

Newell Rubbermaid Inc. NYSE: NWL

UAL Corp. Nasdaq: UAUA

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