Transocean gains as oil well leak stopped; AMD up ahead of results; Mylan merger raises prices

By Kenneth Lim

Boston, July 15 - Transocean Ltd. enjoyed a late surge near the close after BP plc said it managed to stop a leaking oil well in the Gulf of Mexico during tests of a new containment cap.

Advanced Micro Devices Inc. gained slightly on optimism about its second-quarter results, which were announced after the close and turned out to beat estimates.

Mylan Inc. also gained with its stock after the company announced a $550 million acquisition.

General Growth Properties, Inc. announced a $2.15 billion offering of six-month mandatory exchangeables as part of its bankruptcy reorganization plan.

The convertible market in general had a lackluster session on Thursday, a sellside trader said.

"Stocks were down for most of the day," the trader said. "JPMorgan had very good results, but the market took a hit from economic data and the finance bill that they're pushing through in Washington."

Most of the activity on Thursday was driven by earnings, the trader added.

"There's no real major theme to carry the market right now," the trader said. "People are just positioning themselves for earnings, but beyond that there's nothing for the market to really latch on to."

Transocean up

Transocean's 1.5% series A convertible due 2037 gained a half point to trade at 98.5 late Thursday, while its 1.5% series C convertible due 2037 was up by a quarter point at 88.75 after crews reported success in stopping the leak in the gulf.

Transocean common stock jumped 4.47%, or $2.34, mostly in the last half-hour of trading, to close at $54.70.

The Vernier, Switzerland-based company is an offshore drilling contractor.

"Lots of Transocean today, a lot of interest near the close after they said they stopped the leak," a convertible trader said.

BP said Thursday that a new containment cap over the leaking well managed to stop the flow of oil during tests earlier in the day.

Crews will have to continue capturing oil at the surface until relief wells can be dug to permanently stop the leak, but Thursday marked the most success so far in solving the leak since April 20, when an explosion on a rig damaged the well.

"Obviously it's a positive piece of news," the trader said. "It was creating a huge overhang on the stock, nobody knew how long this was going to go on for. The longer it went on, the more the potential liabilities for all the companies involved."

The trader said there will still be some uncertainty about the extent of any liabilities that Transocean could face from the leak, but at least the liabilities have stopped growing.

"That's pretty important," the trader said.

But the Transocean convertibles are not going to enjoy as much of the upside as the common stock, the trader said.

"They're kind of trading at the bond floors right now, so they're not going to go up as much as the stock recovers," the trader said. "They were great to hold when the leak started. The bonds really held up when the stock crashed. But now if you want the upside, you have to go for the stock."

AMD rises ahead of results

Advanced Micro Devices' 6% convertible due 2015 added about 0.125 point on Thursday before the company announced a narrower second-quarter loss after the market closed.

The convertible traded at 96.125 versus the closing stock price of $7.41. The common stock slipped 0.4%, or $0.03, to close at $7.41.

AMD is a Sunnyvale, Calif.-based semiconductor chip maker.

"AMD has earnings later today, so I think there's a bit of positioning ahead of that," a sellside trader said. "Expectations are high after Intel's earnings, but of course you have to worry about how much of Intel's growth came at the expense of AMD."

AMD reported late Thursday that it lost $43 million in the second quarter, or 6 cents per share, less than the year-ago loss of $330 million, or 49 cents per share. Excluding items, the company had a net income of 11 cents per share, more than the Street estimate of 6 cents per share.

The company expects third-quarter revenue to improve.

Mylan improves on deal

Mylan's 3.75% convertible due 2015 was seen higher by about 4 points at 151.25 versus a common stock price of $18.32.

Mylan common stock closed at $18.32, up by 2.63% or $0.47.

The generic drug maker is based in Canonsburg, Pa.

The company said late Wednesday that it was buying Ireland-based injectable drugs maker Bioniche Pharma Holdings Ltd. for $550 million in cash.

Bioniche sold $130 million of products in the year ended May 31, Mylan said. The deal will not involve Mylan taking on any of Bioniche's cash or debt.

On Thursday, Moody's Investors Service reaffirmed its Ba3 rating and a positive outlook on Mylan.

A sellside convertible analyst said the acquisition looked like a decent piece to add for Mylan.

"It's a way to gain a foothold in injectable drugs, which is supposedly more difficult to make, so it sounds like a complementary kind of acquisition," the analyst said. "They're not taking on any debt, so they're basically using cash on hand, which is fine. They're cash flow positive anyways."

The analyst said one difficulty in assessing the purchase is knowing how much money Bioniche is actually making.

"Is it profitable?" the analyst said. "I guess they're paying about 4.2 times revenues, but what I'd like to know is the profit."

GGP launches deal

General Growth Properties plans to price $2.15 billion of new six-month mandatorily exchangeable senior unsecured notes through a subsidiary, according to a press release.

No price talk was available late Thursday.

The notes will be offered through subsidiary New GGP, Inc. and mature on Jan. 31, 2011. New GGP will eventually become the parent company after General Growth Properties emerges from bankruptcy reorganization.

The coupon will be 0.5% for the first three months and step up to 1% thereafter.

Proceeds of the offering will be used to reduce the equity investment by restructuring plan sponsors Fairholme Fund and Pershing Square Capital Management and by Teacher Retirement System of Texas.

General Growth Properties is a Chicago-based real estate investment trust that focuses on shopping malls. The company filed for Chapter 11 bankruptcy protection in April 2009.

Details of the deal were not readily available Thursday, and a number of sources had not seen marketing for the offering. But one sellsider said the deal could be sold to a limited number of investors.

"It looks like a deal for outrights who want to be shareholders in the new GGP," the sellsider said. "Basically they're trying to sell shares at a higher price in order to reduce the investments of some of these people in the Chapter 11. I don't think the attractiveness is as widespread as usual. Although it is a very large deal."

It was too early to say if the notes look attractive, the sellsider said.

"I haven't seen price talk, so it all depends on how they price it," the sellsider said.

For a convertible market that is starved of new paper, the General Growth Properties offering is not exactly what investors were hoping for, the sellsider added.

"It's a huge offering, but it's only going to be with us for six months, and you're probably never going to see any of it once they're sold," the sellsider said. "It's like a devil's bargain. Yes, we wanted a large deal, but this isn't quite what we asked for."

Mentioned in this article

Advanced Micro Devices Inc. NYSE: AMD

General Growth Properties, Inc. NYSE: GGP

Mylan Inc. Nasdaq: MYL

Transocean Ltd. NYSE: RIG

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