King Pharma converts better as stock hurt by FDA ruling; Placer Dome bid up by volatility players

By Ronda Fears

Nashville, March 12 - Convertibles generally were better bid Friday on valuations that had slid far enough throughout the week to entice buyers, traders said. But, there was still a strong vein of taking defensive positions visible, particularly in zeros and floaters.

Dealers said bond floors continued to flex with some slightly moderate spread widening across the credit spectrum, as Treasury prices rose in the wake of the train bombings in Spain. A dip in the University of Michigan consumer sentiment index also contributed to the flight to quality.

Trading flow also picked up - at least through early afternoon - with virtually all the active convertible market better bid, one trader said.

Several biotech issues were active like King Pharmaceuticals Inc. when the applications of generic versions of its muscle relaxer got a U.S. Food & Drug Administration ruling that appears to make it an easier process. The converts were holding up against the news, though, while the stock was crushed.

Also noteworthy, a dealer said Placer Dome Inc. was better by about 0.75 point on swap at 117 bid, 118 offered. He said it was "one of the few values out there on a volatility basis." The underlying stock also was lower on the day, ending down 20 cents, or 1.21%, to $16.35.

The Walt Disney Co. issues were active again, or still, moving up about 1 point on swap or 2.5 points outright, although a dealer noted headlines suggested it was doubtful that Comcast Corp. would bump up its bid for the media and entertainment giant this early in the process.

King Pharma finds believers

King Pharma, based in Bristol, Tenn., was racing against the clock insofar as the encroachment of generic marketers for its muscle relaxant drug. A decision by the FDA appears to have made the process of generic versions of the drug more hassle-free, which also may have a sweeping affect in the pharmaceutical industry.

But King Pharma's upwind battle was restricted to the stock market, whereas a selloff sent the shares lower by almost 6%.

In convertibles, traders said there were still bidders for the 2.75% bonds due 2021, noting the $345 million issue has more than 2.5 years of call protection remaining.

"The King Pharma bonds are holding up," said a dealer.

"The credit affect of the FDA decision is still to be determined. The stock was taking the brunt [of the negative news], although the equity actually bounced back a little in the afternoon."

The FDA told parties seeking approval for a generic equivalent of King Pharma's Skelaxin muscle relaxant product that they could delete language referring to interaction with foods from their abbreviated new drug applications. To have to include that, the generic drugmakers would have to run additional tests.

King Pharma, which had Skelaxin sales of $239.3 million in 2003, called the ruling "arbitrary, capricious, and inconsistent."

"This action is extraordinary and unprecedented under these circumstances," said King Pharma president Kyle Macione, in a statement, adding that the "FDA should recognize the safety and efficacy issues surrounding its decision and reinstate its previous policy."

Charming Shoppes gets boost

Charming Shoppes issued guidance for fiscal 2004 and fiscal first quarter Friday that was in line or better than analysts' estimates, plus said it sees March and April comparable sales higher by low single digits.

Dealers said they traded a bunch of Charming Shoppes convertibles, pegging the 4.75% issue at 110 bid, 111 offered, up more than 3 points outright and 0.5 point on a dollar neutral hedge from Thursday. The stock ended Friday up 55 cents, or 7.8%, to $7.60.

Charming Shoppes, which specializes in women's plus-size apparel, forecast diluted earnings per share of 44-46 cents for fiscal 2005 ending Jan. 29 with total sales of an estimated $2.4 billion, which would be a 3.5% gain from the previous year.

For fiscal first quarter, the company projects diluted earnings per share in the range of 11-12 cents with total sales of around $585 million.

Charming Shoppes is scheduled to report earnings next Thursday.

Yellow Roadway in the green

Yellow Roadway Corp. convertibles kept moving on an upward path Friday, buyside traders said, tracking the company's higher guidance from earlier this week.

There had been sellers in the newest Yellow Roadway convertible, the 3.375s, on Thursday, one buyside trader said, but on Friday there were only buyers for that issue as well as the older 5% converts.

"They [the 3.375s] looked pretty good to buy at 109.5 but they just kept trucking on and the last I saw them was at about 111 bid," one buyside trader said.

The Yellow Roadway 3.375% convertible was quoted by a dealer closing Friday at 111.625 bid, 112.125 offered and the 5% convertible at 128.75 bid, 129.25 offered. Both were said to be up about 1 point outright and about 0.25 point on swap.

Yellow Roadway shares ended up 63 cents, or 1.93%, to $33.24.

Following Yellow's acquisition of Roadway late last year, the first quarterly report for the combined trucking firm will be first quarter, and company officials said it is looking like a smooth ride.

"The overall economic environment and business volumes are sound, with February improving over January. Through February, all our operating companies met targeted levels of profitability," said Bill Zollars, CEO of Yellow Roadway, in a statement.

"March is the critical month of the first quarter, and we are maintaining our sharp focus on cost management and pricing discipline to deliver a solid quarter."

Midweek, Yellow Roadway said it sees first quarter profits at 30-35 cents, the upper half of its previous guidance for 25-35 cents. For the year, the company stood pat on its EPS guidance for $3, give or take 10%.

© 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.