Market watches Fed; Allscripts, General Mills and Watson Pharmaceuticals trade

By Sara Rosenberg

New York, June 30 - Overall the convertible market was pretty tame Wednesday as participants waited with bated breath for the Fed's decision on interest rates - which didn't disappoint expectations - but there was some trading activity seen in Allscripts Healthcare Solutions Inc.'s new issue, General Mills Inc. on earnings news and Watson Pharmaceuticals Inc.

"There's noise but nothing happening. Everyone was just waiting for the Fed. People were just paralyzed until it happened. [And] it's month end so everybody is cleaning things up," an analyst said.

"In this case, sort of being half year-end, waiting on Fed decision and holiday coming up, it was particularly quiet."

The Federal Open Market Committee decided on Wednesday to raise rates by 25 basis points, a move that was largely expected.

"At least it was consistent with expectations," the analyst said regarding the rate hike. "There's a little bit of comfort that we're kind of back in business and the economy is moving along."

The FOMC went on to say that indications show output continuing to expand at a solid pace and labor market conditions improving. "Although incoming inflation data are somewhat elevated, a portion of the increase in recent months appears to have been due to transitory factors," the new release said.

"With underlying inflation still expected to be relatively low, the committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability," the release added.

Allscripts trades above par

Allscripts' new 3.5% convertible senior notes due 2024, which priced after the close Tuesday, were seen trading "a little", according to a trader, with the paper quoted around mid-day in the 101¼ bid, 101¾ offered area.

"It was cheap so people liked it," an analyst said regarding the new deal.

"I had it 2½ points cheap before the stock went down," another analyst added.

The stock closed at $7.84, down $0.20 or 2.49% on the day.

The $75 million Rule 144A deal came at the cheap end of yield talk for a 3.0% to 3.5% coupon and at the mid-point of initial conversion premium talk of 38% to 42%.

Bank of America Securities was lead manager.

Proceeds will be used to repurchase $11.25 million of Allscripts' common stock that it expects will be sold by purchasers of the debentures and for general corporate purposes, which may include future additional share repurchases, acquisitions or other strategic investments.

Allscripts is a Libertyville, Ill. provider of clinical software, connectivity and information solutions for physicians.

General Mills trades on earnings

"A bunch" of General Mills convertible debt traded Wednesday after the company released fourth quarter and full 2004 fiscal year results and announced an increase in its dividend, according to a trader.

The 0% convertible closed at 70 3/8 bid, 70½ offered, the trader said, adding that "the stock was up so it's in-line dollar neutral".

The stock closed at $47.53, up $1.41 or 3.06%.

For the fourth quarter net sales were up 10% to $2.79 billion, net earnings totaled $278 million, a 24% increase from $225 million last year, and earnings per share rose 22% to 72 cents.

For the full year net sales increased 5% to $11.07 billion, net earnings grew 15% to $1.055 billion and diluted earnings per share totaled $2.75, up 13% from $2.43 in fiscal 2003.

In addition, the company quarterly dividend rate has been increased 13% to $0.31, effective with the dividend payable August 2.

Watson Pharmaceuticals bounces back

Watson Pharmaceuticals Inc.'s 1.75% convertible due 2023 was active on Wednesday for the second straight day in a row, with the paper seen "improving a little bit from the bottom they hit yesterday" after Monday's financial revisions, according to a trader.

The convertible was quoted at 94.31 bid, 94.81 offered, up 0.22 on the day, according to another trader. On Tuesday the trader quoted the paper at 94.09 bid, 94.59 offered, down 0.77 on the day.

Watson's stock closed at $26.90, down $0.03 or 0.11%.

On Monday, the company revised its forecast second quarter total net revenue to $400 million and earnings estimates to $0.39 to $0.41 per diluted share. The revised earnings estimates do not take into account a $3.0 million charge ($0.02 per diluted share) related to the repurchase of a portion of the company's 7 1/8% senior notes due 2008 and a $10.0 million milestone payment ($0.06 per diluted share) related to a transaction with Kissei Pharmaceutical Co., Ltd.

Previously, the Corona, Calif. pharmaceutical company estimated that second quarter 2004 total net revenue would be $410 million and earnings per diluted share would be $0.50 to $0.52.

The revision is due to lower than anticipated Women's Health and General Products revenues, partially offset by stronger than estimated Generic division revenue, according to a company news release.

The company also revised its predicted total net revenue to $1.6 billion and earnings estimates to $1.85 to $1.90 per diluted share for the full year 2004.

Previously, the company had estimated that total net revenue would be $1.7 billion and earnings per diluted share would be $2.10 to $2.20 for the full year of 2004.

CapitalSource new deal

Late day Wednesday, CapitalSource Inc. announced plans to sell $300 million senior unsecured convertible debentures due 2034 in a Rule 144A offering.

A $30 million greenshoe is available, according to a company news release.

Proceeds from the Rule 144A deal will be used to repay outstanding indebtedness and for general corporate purposes, the Chevy Chase, Md. commercial finance company said.

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