Gilead trades mixed on data; Vertex in line; CEDC sinks in light trade; GT Advanced down

By Rebecca Melvin

New York, Nov. 13 - Trading in investment-grade convertible bonds was fairly active on Tuesday with generally small price movements, while the balance of trade in the lesser credits was dominated by negative sentiment that took those names lower and made the market "feel weaker," a Connecticut-based trader said.

The lion's share of volume was taken up by Gilead Sciences Inc. on Monday and Tuesday with concurrent volume in Gilead shares after the Foster City, Calif.-based biopharmaceutical company reported positive trial data of a hepatitis C regimen.

Vertex Pharmaceuticals Inc., which has an approved rival hepatitis C treatment, was little changed to down slightly.

Elsewhere, there were a few blow ups, the Connecticut trader said.

Central European Distribution Corp. saw its convertibles offered 10 points lower on the day with very few trades in the Vodka maker and beverage distributor as sentiment headed south in the name.

GT Advanced Technologies Inc. was down again Tuesday on an outright seller, according to one buysider, and amid continuing pressure for the solar equipment maker since it announced restructuring plans and said it is slashing its workforce by 25%.

Total trading volume looked to be pretty good, given action in the investment-grade names like Gilead, but negative news and sentiment was taking a toll on a number of key convertible bond issues.

"We're putting a lot of volume on the tape because investment grade is very active, but I would say there isn't anything better," a trader said.

He said that negative news has pressured a number of names, so that "things are quoted wide" even if there is not a lot trading actively.

The action on Tuesday was similar to Monday's when U.S. bond markets were closed in observance of Veterans Day.

Meanwhile, there was a deal launched Tuesday in the primary market with pricing seen after the market close on Wednesday. AK Steel Holding Corp. plans to price $125 million of seven-year exchangeable senior notes that were talked to yield 5.25% to 5.75% with an initial conversion premium of 27.5% to 32.5%.

West Chester, Ohio-based steel maker also plans to offer 25 million shares of common stock and $350 million of senior secured straight notes.

Gilead mixed

Gilead's 1% convertibles due 2014 were seen at 154 on Tuesday, which was down 1.3 points on the day, while the Gilead 1.625% convertibles due 2016 were seen around 169, which was up 1.8 points.

Shares hit an all-time high Tuesday after the company released overwhelmingly positive results for an experimental hepatitis C drug that analysts say could be a best-in-class medication.

But the Gilead shares ended the session down at $72.69, or down $1.24, or 1.7% in heavy action.

The Gilead convertibles are deep in-the-money and trade on about a 90% delta.

The company reported the results of a drug trial that produced a 100% cure rate in all 25patients who participated. In its late-stage trial, all patients showed sustained virological response after a 12-week course of treatment with standard oral treatment ribavirin along with Gilead's two drug candidates, GS-5885 and sofosbuvir.

Meanwhile, Vertex Pharmaceuticals' 3.35% convertibles due 2015 was last 116.722 on Tuesday, according to Trace data, and was seen at 116 375 bid, 116.875 offered versus a share price of $44.20 at the close, which compared to Friday's market right around 117 versus a share price of $44.67.

Central European plunges

Central European's 3% convertibles due 2013 were seen at 55 bid, 75 offered, which was down about 10 points on the offer side as sentiment surrounding the vodka maker and beverage distributor continued to head south.

CEDC shares sank 46 cents, or 22%, to $1.61 in heavy volume.

In early October, the company reported quarterly results along with the restatement of its financials for fiscal years 2010 and 2011.

The total cumulative impact of the restatements exceed certain thresholds as set out in the definitive amended agreements related to CEDC's strategic alliance with Russian Standard Corp., through Roust Trading Ltd. As a result, CEDC and Russian Standard have begun discussions.

GT Advanced slips further

GT Advanced's 3% convertibles due 2017 traded down more than 3 points on Tuesday, on top of other losses in recent days, to 78.278.

GT Advanced shares fell 5.9% to $3.51 on Tuesday.

"Those have come in a ton," a Connecticut-based trader said of the convertibles.

An East Coast-based buysider said that Tuesday's pressure was caused by a fundamental seller in the market.

A second source cited the company's bombshell at the end of October, when the Nashua, N.H.-based provider of equipment and services that support the growth of the solar and LED industries said that in anticipation of a "challenging" 2013 it was cutting its workforce by 25%. It also guided quarterly results lower.

Last week, the company also said revenue for the quarter ended Sept. 29 came in at the low end of guidance at $110.1 million (the forecasted range was $110 million to $140 million) and down compared to $167.3 million in the second quarter and $217.7 million in the year-earlier quarter.

Profit was $35 million for the period, compared to $60.2 million in the second quarter and $95.1 million of revenue in the year-earlier quarter.

Net income was only $2.3 million compared to $36.9 million in the year-earlier quarter.

The company will hold a separate conference call in mid-December once it has completed an assessment of recent market and economic developments. I t will provide guidance for the December quarter and updated commentary on calendar 2013.

AK Steel to price

AK Steel planned to price a registered, off-the-shelf offering of exchangeable notes for $125 million plus an $18.75 million greenshoe.

The paper was expected to be valued with a credit spread of 1,000 basis points over Libor or wider.

Many market players had not yet looked at it yet since the paper isn't pricing until after the market close on Wednesday.

Joint bookrunners are Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Citigroup Global Markets Inc., Wells Fargo Securities LLC, Morgan Stanley & Co. LLC and Bank of America Merrill Lynch.

The notes are non-callable for life. They have change-of-control and dividend protection. They also have net share settlement.

Proceeds will be used to repay borrowings under the company's credit facility and for general corporate purposes.

Mentioned in this article:

AK Steel Holding Corp. NYSE: AKS

Central European Distribution Corp. Nasdaq: CEDC

Gilead Sciences Inc. Nasdaq: GILD

GT Advanced Technologies Inc. Nasdaq: GTAT

Vertex Pharmaceuticals Inc. Nasdaq: VRTX

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