AMR adds in gray, then upsizes; MannKind gains more: Goodrich, ATP, Incyte, Gaylord to price

By Rebecca Melvin

New York, Sept. 22 -AMR Corp. priced an upsized $400 million of convertibles after the close of markets Tuesday in the wake of strong gains for the proposed paper in the gray market ahead of assignment of final terms. Originally, the deal was going to be $250 million in size.

MannKind Corp. convertibles were bid higher following gains Monday, and Trace reported a trade at 83, up 3 points from the previous session, when the convertibles and underlying shares gained on positive comments about commercialization of the Valencia, Calif.-based biopharmaceutical company's products.

But Amgen Inc. convertibles, which also rose Monday, slipped back in strong volume as its shares dropped back following a positive move Monday on successful phase 3 trial results of its denosumab bone drug.

Higher gold prices helped buoy trades in Newmont Mining Corp. But another popular gold play, Freeport-McMoRan Copper & Gold Inc., redeemed 99.9% of its 5.5% convertible perpetual preferred shares, leaving very little convertible paper in the market except its 6.75% mandatory convertibles due May 2010.

Overall, there was little change in secondary market levels, with pricing that now stands at the rich end of things on many names creating an impasse of sorts, with few buyers or sellers.

"Prices have reached a point where they can't improve unless stock prices start to come in significantly," a New York-based sellside trader said.

The sellsider estimated that a sell off of 5% to 10% in equities would help the convertible market.

The primary market was bustling after the Tuesday's close, with four new issues launched, including Goodrich Petroleum Corp.'s $150 million of 20-year convertible senior notes, seen pricing before the market open Wednesday; ATP Oil & Gas Corp.'s $125 million of convertible perpetual preferred stock and Gaylord Entertainment Co.'s $200 million of five-year convertibles, both seen pricing after Wednesday's close; and Incyte Corp.'s $250 million of six-year convertible senior notes, expected to price Thursday after the close.

In addition, news that a new convertible bond index and associated equity hedge index, designed by independent index provider Markit, will be launched Wednesday, was met with tepid enthusiasm.

One source was skeptical of the tradable index, fearing that outright accounts with big inflows would be buyers and hedge funds looking to lock in current performance would sell.

Another source thought that convertible preferred shares and convertible bonds shouldn't be included together in one index.

Markit couldn't be reached to respond for comment by Prospect News' deadline.

AMR upsizes deal

AMR priced an upsized $400 million of five-year convertible senior notes after the close Tuesday to yield 6.25% with an initial conversion premium of 20%.

The bonds priced beyond the rich end of talk for the coupon, which was 6.5% to 7%, and at the rich end of talk for the initial conversion premium, which was 15% to 20%.

The deal was seen appealing to convertible hedge players rather than outrights, and borrow was said to be "top rate."

"This sets up very nicely and carry is positive," a Connecticut-based sellside analyst said. "I don't know why anyone would own this outright. The most you're going to get out of this is the 5% dividend."

AMR also priced a concurrent offering of $400 million of common stock at $8.25 per share.

Citigroup Global Markets Inc., Morgan Stanley & Co. Inc. and UBS Investment Bank were joint bookrunners of both offerings.

Fort Worth-based AMR, is the parent company of American Airlines. The new paper was bid up to 105 to 108 in the gray market. But no trades were seen as has been typical of the gray market recently.

The gray didn't line up perfectly with analyst valuations, who put the paper at about 10% cheap.

Credit spreads applied to the valuation ranged from 1,250 basis points over Libor to as much as 1,000 bps higher than that.

Deutsche Bank was reported to have used a 50% vol. for its valuation, contrary to most firms which cap their vol. at 45%.

AMR also priced a concurrent offering of common stock for another $400 million raised.

Citigroup Global Markets Inc., Morgan Stanley & Co. Inc. and UBS Investment Bank are joint bookrunners of the deal, proceeds of which will be used for general corporate purposes.

CreditSights noted in research published Tuesday that, with the exception of Southwest Airlines, the airlines have tapped out most of their unencumbered assets.

Some still have mileage and vendor supply options, but now the liquidity options phase into converts, CreditSights said.

Amgen steady to lower

Amgen's 0.125% convertibles due 2011 traded last at 99.625, which was off from 100 on Monday.

Amgen's 0.375% convertibles due 2013 were last at 99.25.

Shares of the Thousand Oaks, Calif.-based biotech were down $1.48, or 2.4%, at $60.83.

The 2011 paper was the more actively traded despite the fact that the 2013 paper has more sensitivity to the stock, a sellsider noted.

"On the way down the As will outperform, with the shorter maturity," a sellsider said.

MannKind extends gains

MannKind's 3.75% convertibles due 2013 were bid up another 1.5 points to 81.5, according to a sellside trader. And Trace data put up a trade at 83, which represented a 3 point climb over Monday's 80 levels.

Shares of the biotech, which focuses on therapeutics for diseases such as diabetes and cancer, added another 34 cents, or 3%, after surging 12% on Monday.

The company presented at a UBS conference, a sellsider noted. "They held the gains from yesterday."

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

AMR Corp. NYSE: AMR

ATP Oil & Gas Corp. Nasdaq: ATPG

Incyte Corp. Nasdaq: INCY

Freeport-McMoRan Copper & Gold Inc. NYSE: FCX

Gaylord Entertainment Co. NYSE: GET

Goodrich Petroleum Corp. NYSE: GDP

MannKind Corp. Nasdaq: MNKD

Newmont Mining Corp. NYSE: NEM

© 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.