Amylin at 102 bid before pricing aggressively; Caesars dips below par; Kerzner bets push past 101

By Ronda Fears

Nashville, March 31 - Convertible traders were busy again Wednesday with marking books, following what many participants referred to as heavy window dressing activity earlier this week. Besides that, there were more than a half dozen of new deals to digest.

While lots of buyside sources were nothing like elated with the new deal terms, the fresh paper was welcomed for a variety of reasons - bringing demand and supply closer into alignment and market expansion, to name a couple.

"I don't care how bad the deals are, bring 'em on," said one fund manager in New York who is involved is several convertible strategies.

"Everything trades cheap someday, and the bigger the market, the bigger the opportunities."

New issue tallies for purposes of underwriting league tables were one measure that shows convertible issuance is, at worst, running neck-and-neck with year-ago levels, or, at best, much better. (See full story elsewhere in this edition.)

For March, the total was $6.8 billion, or $6.6 billion excluding investment bank deals, according to Prospect News data. The total will be revised upward, though, as greenshoes for the most recent deals are exercised. It compares to a total of $6.7 billion, or $6.6 billion excluding investment bank deals, for March 2003.

For convertible issuance in first quarter, Prospect News data shows a total of $18.8 billion, or $17.3 billion excluding investment bank deals, versus a total of $17.2 billion, or $15.8 billion excluding investment bank deals, in first quarter 2003.

A manager at an outright convertible fund in Connecticut said that terms on new deals are not very appealing, but he hopes there is a "slew of new supply, to soak up some of the excess demand we have right now."

Amylin bid 102, ON not seen

Amylin Pharmaceuticals Inc. was trading in the gray market like it was priced to sell, and it was upsized on very healthy demand, so it was no surprise to participants that it priced at the tight end of indicative terms.

In late afternoon, the new Amylin convertible was seen at 2 points over issue price on the bid side, and 4 points over on the offer side.

With orders running so well, final terms on the deal were ready shortly after the close.

The San Diego biotech firm sold $175 million, upped from $150 million, of the seven-year noncallable convertible senior unsecured notes printed with a 2.5% coupon and 45% initial conversion premium - at the aggressive end of guidance for a 2.5% to 3.0%, up 40% to 45%.

Sellside analysts had put it around 3.5 points cheap at the middle of price talk, based on a par issue price.

Amylin shares on Wednesday closed down 66 cents, or 2.74%. Amylin also has a 2.25% convertible due 2008 outstanding; it was quoted Wednesday off about 0.625 point to 104.125 bid, 104.625 offered.

ON Semiconductor Corp. also was at bat with $260 million of 20-year convertible notes talked to yield 0% with a 25% to 35% initial conversion premium but was not seen with any gray market activity, according to buyside market sources.

ON Semicon shares on Wednesday dropped 88 cents, or 10.44%, to $755.

Caesars dips, Kerzner flies

Convertible players were more than willing to bet on new gaming paper, parlaying returns made thus far in 2004, though slimmer than last year, market sources said.

"Hey, we are all natural gamblers anyway, right," said a convertible trader at one of the biggest hedge funds based in New York.

"Everything is roses for the casinos, anyway, if they have any sense of good management or fiscal responsibility. They aren't recession-free but they have made a decent show during the downturn and now, supposedly - although the jury is still out on the economy - were headed into a recovery cycle.

"So, really, we're really excited about the Caesars and Kerzner deals. I don't even care how they did right out of the gate; that means nothing to me."

Caesars Entertainment Inc. raked in $300 million from the sale of 20-year convertible senior unsecured floating-rate notes that will pay the three-month Libor. The issue sold with a 70% initial conversion premium - at the cheap end of guidance for a yield of the three-month Libor minus 50 basis points to flat, up 70% to 75%. Sellside analysts had put the issue about 1.5% rich at the midpoint of talk.

Deutsche Bank Securities, stabilization agent and joint bookrunner, closed the Caesars convert at 99.75 bid, 100.125 offered. The underlying stock ended off 7 cents, or 0.53%, to $13.04. The convert had been seen Tuesday after noon offered at 1.75 points over issue price in the gray market.

Kerzner International Ltd. Inc. boosted its deal, pricing at the midrange of talk, and thus upsized it. It also shot up right out of the gate.

Kerzner sold $200 million, boosted from $150 million, of 20-year convertible senior subordinated notes with a 2.375% coupon and 33% initial conversion premium - in the middle of guidance of 2.125% to 2.625%, up 30% to 35%. Analysts had put it roughly 1.5% cheap at the midrange of price talk.

Bookrunner Deutsche Bank Securities closed the Kerzner convert at 101.25 bid, 101.5 offered. The stock added 56 cents, or 1.28%, to close Wednesday at $44.35.

Impax soars despite tight terms

Impax Laboratories Inc. was upsized while tightening the guidance range and it still soared 5 points in the immediate aftermarket. The deals raging success, according to a buyside source, is because of the upbeat outlook for generic drugmakers.

"There are all these new drugs coming on and that's good, but generic drugs have new cycles of products coming along at about the same pace, when the patents run out for the Big Pharma guys," the buyside convert trader said.

Impax sold $82 million, upped from $75 million, of 20-year convertible notes with a 1.25% coupon and 30% initial conversion premium - in the midrange of revised price talk for a 1.0% to 1.5% coupon, up 27% to 32%. The guidance was tightened from 1.25% to 1.75%, up 25% to 30%.

Sellside analysts had put the Impax convertible about 1% rich at the middle of revised guidance, versus roughly 3.5% cheap at the middle of original price talk.

Bookrunner Citigroup Global Markets Inc. closed the new Impax convert at 105 bid, 106 offered. Impax shares closed Wednesday up 77 cents, or 3.56%, to $22.37.

Regal-Beloit rises to 101

Finally, as one buyside trader put it, Regal-Beloit Corp., a "boring" little company, sold $100 million of 20-year convertibles notes to yield 2.75% with a 27.5% initial conversion premium - smack in the middle of price talk for 2.5% to 3.0%, up 25% to 30%.

That issue was as popular for its boringness as much as the fatter coupon, at least relative to other new issues lately, another buyside trader said. Beloit, Wis.-based Regal-Beloit makes industrial electric motors and tools.

Regal-Beloit's new issue closed at 101 bid, 101.5 offered, while the stock closed off 7 cents, or 0.35%, to $19.98.

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