Convertibles firm; Gilead slips on hedge; DryShips gains outright, little changed on hedge

By Rebecca Melvin

New York, Feb. 6 - The bulk of Monday's action in the convertible bond market was in its larger, higher-grade issues, and although some of those names were lower with a slip in the underlying equities, most of the market was still firm and essentially unchanged.

"You had some stocks down the entire day, so as far as valuations go, things wanted to feel heavier, but looking at it now, I don't really see it," a New York-based sellside trader said. "But things were quoted down today."

Gilead Sciences Inc. was very active again in follow-through action from last week's news of favorable trial data for a hepatitis C drug that the Foster City, Calif.-based biopharmaceutical company acquired when it bought Pharmasset Inc. last month for $10.8 billion.

Two to the Gilead sister issues were lower by about 0.25 point on a dollar-neutral, or hedged, basis on Monday, and one was called unchanged.

Aside from the larger, investment-grade names, there were a few other convertibles names trading like DryShips Inc., the Athens-based shipping and oil services company, which saw its common stock jump 16% on news that a subsidiary won a $653 million contract for one of its rigs to drill 15 wells on the Norwegian Continental Shelf.

DryShips' convertibles rose outright, but were unchanged to slightly higher on a hedged basis, depending on the delta, sources said.

Another company that saw a common share jump was GMX Resources Inc., and the convertibles of the Oklahoma City-based oil and natural gas exploration and development company were pulled into their first significant trade of the year.

"It doesn't trade very often; it looks like the first round lot of the year," a New York-based trader said of the GMX 5% convertibles due 2013, which were quoted in trade at 60.50 bid, 61 offered.

On the whole, the convert market was fairly quiet, sources said, with no recognizable sector or pricing trends as stocks took a breather following five straight weeks of gains.

Reasons cited for the inactivity ranged from a Super Bowl hangover, to questions on Greek debt, to typically quiet Mondays.

"It was probably a combination of all three," a New York-based trader said. New York was indeed celebrating the Giants' hard-fought victory over the New England Patriots in a 21-17 nail biter that was Super Bowl XLVI on Sunday, he said, and it wouldn't be unusual to sit on the sidelines ahead of news about whether Greece is going to affirm fiscal-austerity measures needed to keep that nation from defaulting on its sovereign debt.

Gilead remains active

There was a seller of the Gilead's 0.625% convertibles due 2013, or B convertibles, which were seen down 0.25 point on a hedged basis.

Gilead's 1% convertibles due 2014, or the C convertibles, were also seen down 0.25 point on a dollar-neutral basis, a New York-based trader said.

Meanwhile, Gilead's 1.625% convertibles due 2016, or the D convertibles, were seen trading unchanged on a hedged basis.

Shares of the Foster City, Calif.-based company added $1.33, or 2.4%, to $56.03 in active trade.

"I don't know why the Bs are lower," the trader said, adding that it appeared that a big seller was rotating into one of the longer dated Gilead issues.

"Someone is trying to sell the Bs. The Cs are also lower and the Ds are unchanged, which is as it should be because the Ds are the cheapest," the trader said.

Gilead said Thursday that in a clinical trial two groups of patients who were treated with a hepatitis C treatment called GS-7977 had undetectable levels of the hepatitis C virus after four weeks. The patients took GSI-7977 and ribavirin, an older treatment for the virus, and they had either failed to respond to previous therapies or had not been treated before. In November, Pharmasset Inc., which developed the drug and was acquired by Gilead in January, said 100% of patients in a study responded to the drug.

DryShips jumps on news

DryShips' 5% convertibles due 2014 were seen in trade at 77.75 during the session, which was up 3 points. At the end of the day, they were quoted 79.375 versus the closing share price of $2.80.

The DryShips shares surged 40 cents, or 16.6%, to $2.80 on Monday.

One trader said the paper was unchanged on the day on swap and that it had been trading up for a few days, notching a point-better gain on Friday.

"That's a ballpark. It's been quiet," the trader said.

The paper may have expanded some, said another trader, who wasn't active in the name on Monday.

The drilling unit of DryShips, Ocean Rig UDW Inc., said it won a three-year drilling contract for its Leiv Eiriksson semi-submersible rig. The Athens-based shipping company reported earnings, and management talked about purchasing bonds back.

Mentioned in this article:

DryShips Inc. Nasdaq: DRYS

Gilead Sciences Inc. Nasdaq: GILD

GMX Resources Inc. Nasdaq: GMXR

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