Deals from Teva, AAR draw attention to new issues; Nektar in play on product rumors; GM up

By Kenneth Lim and Ronda Fears

Boston, Jan. 27 - New issues dominated the convertibles market on Friday as a large offering from Teva Pharmaceutical Industries Ltd. and a smaller sale by AAR Corp. enjoyed positive debuts.

Teva, a Petach Tikva, Israel-based generic drug maker, saw both tranches of its $1.25 billion of new 20-year convertible senior bonds open above par after having been priced within talk early Friday.

The bonds were sold in two tranches and were mostly allocated to outright investors, said syndicate sources.

"The outright guys had a lot of demand for it," said a sell-side analyst.

Aerospace services provider AAR's upsized $125 million of 1.75% convertibles also took off, changing hands around two points above par by mid-day and catching the attention of investors.

"[AAR] was trading pretty actively," said a New York-based analyst.

While the new Teva and AAR convertibles hit the market for the first time yesterday, Princeton, N.J.-based NRG Energy Inc.'s day-old mandatories continued to stay above their issue price.

"I'm very comfortable with the credit," commented a buy-side analyst.

In the biotechnology sector, Nektar Therapeutics came into play as rumors and confusion emerged over the regulatory status of one of its products. Positive news was expected, and the stock and the convertible ended up.

"Monday should be positive...the bond should see more activity," an analyst said.

General Motors Corp.'s convertibles continued to roll along with below-average volumes, largely untouched by the automaker's report of a huge loss for the fourth quarter and 2005 as a whole.

Its 6.25% convertible ended higher by 0.12 point, or 0.68%, at $17.86, while the 5.25% convertible closed at $16.33, up 0.80% or 0.13 point. The 4.5% bond slid 0.05 point or 0.22%. General Motors stock rose $0.75, or 3.25%, to end the week at $23.80 (NYSE: GM).

In the chip sector, ON Semiconductor also saw action after it said it was opening two new engineering centers, one in Taipei, Taiwan, and the other in Portland, Ore. ON's stock (Nasdaq: ONNN) rose to as high as $7.68 during the session Friday, but by the closing bell had retreated $0.04, or 0.53%. The company's zero-coupon convertible, which is due 2024, traded around 92¾ Friday, sell-side sources said, about the same as the previous session.

Positive dose for Teva

Teva's large offering kept traders busy yesterday. Through a financing subsidiary, the company issued $750 million of bonds at a 1.75% yield and a 25% initial conversion premium, and through another subsidiary it sold a $500 million tranche at a 0.25% yield with a 15% premium.

A syndicate source said the 1.75% note was at par and 3/8 around mid-day, while the 0.25% note opened up around 3/8, and was around par and a quarter bid, par and a half offered around mid-day. The stock (Nasdaq: TEVA) rose $0.29, or 0.71%, to reach $41.30.

"[Teva] has historically been an attractive name to outright funds as a high quality credit in the healthcare and pharma space, and the company has delivered in terms of earnings growth, stock price performance," the source said. "Overall, an attractive company."

Outright investors took the bulk of the issue.

One sell-side analyst reckoned that it was not "a cheap deal from the hedge point of view...the premium levels didn't make it cheap enough [for hedge funds]."

The deal, along with AAR, helped revive a primary that has been languishing so far in 2006. At $1.25 billion, Teva's convertibles more than double the year-to-date total of $1.05 billion (excluding investment bank exchangeables) through Thursday's close.

AAR flies north

Wood Dale, Ill.-based AAR Corp.'s upsized 1.75% convertible senior notes had a good start, trading around 2 points above par near midday.

The $125 million offering, which was priced late Thursday and matures in 20 years, had an initial conversion premium of 21.5%. It was upsized from a planned amount of $100 million.

A syndicate source said the offering had substantial outright interest.

A trader said trading was active in the morning, with the bonds changing hands around 2 points above par against a share price of $24. The stock (NYSE:AIR) actually closed lower at $23.95, down 1.11% from Thursday.

A sell-side analyst noted that elsewhere in the aerospace sector, Frontier Airlines Inc.'s 5% convertible stayed about the same, changing hands midday at about 93½ against a $7.10 stock price (Nasdaq: FRNT). The stock closed at that $7.10 level, down $0.69 on the session.

Continental Airlines Inc.'s 4.5% convertibles traded around 96½ versus a stock price of about $18.50, according to sell-side sources.

Its stock (NYSE: CAL) went home at $18.49, lower by $0.84.

But the analyst does not believe AAR's convertibles affected the airlines' bonds, saying that AAR is not comparable because it is not a carrier and is too small to have an impact on the sector.

Lights still on for NRG

NRG, which priced its offer on Thursday, managed to keep its convertibles above their issue price. The 5.75% convertibles, which had a par of 250, traded at around 251½ against a stock price of $48.75 a sell-side source said. The stock (NYSE: NRG) was down $0.07 on the day at $48.61.

A buy-side analyst said that even though NRG was priced richer than expected, the analyst still believes that convertible is trading at a slight discount to fair value.

The analyst is also "very comfortable" with the company's credit.

Nektar rumors: May cause dizziness

Nektar convertibles held strong yesterday amid early rumors that its inhaled insulin drug Exubera, which is jointly developed with Pfizer, would receive Food and Drug Administration approval. There was some confusion midday about when the official announcement would be made, but by then many investors were already expecting good news.

The company's 3.25% issue due 2012 reached as high as 122, up five points from the day before, as the stock (Nasdaq: NKTR) rose almost 6%. The convertibles were known to have last traded around 118.25 while the stock finished the day just $0.13 (0.63%) higher at $20.75.

But investors who missed the action on Friday may have another chance on Monday, with convertible traders anticipating more action in the new week.

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