Calpine new convertible moves above par, falls back, trades actively at 99½ area

By Sara Rosenberg

New York, Nov. 7 - Calpine Corp.'s new 4.75% convertible was one of the primary focuses of the day on Friday as the issue was reported to be actively trading, managing to hit highs slightly above par before settling down to the slightly below par area.

"Calpine's been trading pretty actively at 991/2," a trader said. "It traded a little above par but settled back in to 99, 991/2."

After being announced on Thursday, the deal received mixed reactions as the paper was quoted as trading basically around par, or fair market value, in the gray market - but was also rejected by many potential investors as too risky with not enough coupon to compensate for the risk.

However, once priced, the book on the convertible offering was completely filled and the deal was said to be well received by the general market, a source close to the offering told Prospect News.

"It got done, but it's trading at 991/2," the trader continued. "I think people would rather see it trade above par."

The $600 million of senior unsecured convertible notes due 2023 priced Thursday after the close with a 38% initial conversion premium. It came at the cheap end of talk which put the yield at 4.25% to 4.75% with an initial conversion premium of 38% to 42%, market sources said.

Deutsche Bank Securities is the bookrunner on the Rule 144A deal.

Proceeds will be used by the San Jose, Calif. power company to repay or repurchase its existing 4% convertible notes.

ICN Pharmaceuticals Inc. continued to trade actively on Friday following a big run up in the company's stock on Thursday due to positive earnings and good news from the FDA regarding a hepatitis C drug, according to a sell-side source. But both the convertibles and the stock slipped back a little on Friday.

ICN's 6.5% convertible due 2008 was seen at 104.96 bid at one desk, down 0.19 on the session but still substantially higher than Wednesday's close of 100.72. At another shop it was seen closing Friday at 102.47 bid, down 0.11 on the day. The stock finished at $24.49, down $0.26 or 1.05%.

For the third quarter, ICN reported revenues of $167.5 million, compared with $171.7 million in the same period last year and a net loss of $82.4 million, or $0.99 per diluted share, compared with a loss of $74.9 million, or $0.90 per diluted share, in the year-ago period. Specialty pharmaceutical product sales were $131.3 million in the quarter, a 21% increase over the $108.3 million in product sales in the same period last year.

The loss from continuing operations was $98.5 million, or $1.18 per diluted share, primarily due to a $117.6 million write-off of the purchase price attributable to in-process research and development related to the Ribapharm acquisition in the quarter, according to a news release.

However, excluding the effect of the write-off of the purchase price associated with the acquired in-process research and development, ICN reported net income from continuing operations in the 2003 third quarter of $19.1 million, or $0.23 per diluted share.

Also on Thursday, ICN revealed that it has decided to initiate Phase 3 studies of its anti-viral compound, Viramidine, which will be used for the treatment of hepatitis C. The decision to initiate the studies followed a September meeting with the U.S. Food and Drug Administration at which time a number of topics, including the entire development program and an NDA for Viramidine, were discussed.

ICN is a Costa Mesa, Calif. research-based pharmaceutical company.

And, Gap Inc. was "moving up a little" on Friday, according to a trader.

Gap's 5.75% convertible due 2009 was seen ending the day at 139.67, up 1.5 points, at one desk while another put it at 140.05, up 1.7 points. The stock closed at $20.60, up $0.32 or 1.58%.

On Thursday the San Francisco specialty retailer reported net sales of $1.24 billion for the four-week period ended Nov. 1, a 4% increase compared with net sales of $1.19 billion for the same period ended Nov. 2, 2002. The company's comparable store sales for October 2003 increased 1%, compared with an 11% increase in October 2002.

For the third quarter, Gap expects to report on Nov. 20 earnings per share of $0.26 to $0.28, including the dilutive effect of convertible debt, compared to reported earnings per share of $0.15 for the prior year.

"For October, we moved the inventory we expected, achieving higher overall merchandise margins versus last year as each of our brands transitioned to the holiday season," said Sabrina Simmons, senior vice president, treasury and investor relations, in a news release. "For the third quarter, we're very pleased with the positive comp sales performance of each of our brands and the strong earnings growth we expect to report."

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