Revised price talk makes planned Affymetrix cheaper; DryShips expands; K-V Pharma drops

By Rebecca Melvin

New York, June 19 - Price talk on the planned Affymetrix Inc. $105 million of senior convertible notes was revised during marketing Tuesday to make the deal even cheaper compared to pricing that was already viewed as moderately cheap by some.

Talk was revised to 3.75% to 4% for the coupon and 25% for the initial conversion premium, according to a syndicate source. Initially, the registered deal was talked at a more expensive 3.25% to 3.75% coupon and 27.5% to 32.5% premium range.

Prior to the pricing revisions, the deal was viewed as 2.4% cheap by one trader, who was using a credit spread of 900 basis points over Libor and a 40% vol. Another source said he would use a higher spread of 1,000 bps over Libor.

There was no gray market heard in the Affymetrix deal. There was no trading action in an existing Affymetrix convertible of which there is only $3 million to $4 million left outstanding.

Back in established issues, several distressed names were moving up, and the assets looked to be mixed to higher. It wasn't clear what was behind the boost, but equities underlying some of those names were posting gains.

DryShips Inc. traded a point better on a dollar-neutral, or hedged, basis as the underlying shares of the Athens-based shipping company jumped 7%.

Cemex SAB de CV was also better, as were bankrupt AMR Corp. and Eastman Kodak Co.

But K-V Pharmaceutical Co. was down. It traded down to 13.375 bid, 13.75 offered from Monday's offer level of 18.5. The paper had recently traded in the low 20s.

Equities gained on average 1%, with the S&P 500 stock index settling higher by 13.20 points, or 0.9%, at 1,357.98; the Nasdaq Stock Market rose 34.43 points, or 1.2%, to 2,929.76; and the Dow Jones industrial average gained 95.66 points, or 0.8%, to 12,837.48.

Among the day's economic data points, the Commerce Department reported that the annual rate of total housing starts dropped 4.8% in May, but there was a gain in single-family home construction in contrast to a drop in apartment construction.

Work began on 516,000 one-family homes at an annual rate last month, which is up 3.2% from April. Meanwhile, building permits increased nearly 8% to a 780,000 annual rate, reflecting gains in single family and multifamily homes.

Affymetrix pricing revised

Market sources were not crazy about the pricing of the Affymetrix deal early Tuesday and were heartened to see pricing revised in the afternoon.

"I'm happy to see the market pushing back some on this one," a West Coast-based trader said.

The planned $105 million deal of seven-year convertible senior notes was seen pricing with a coupon of 3.75% to 4% instead of 3.25% to 3.75%, and the initial conversion premium of 25%, reset from 27.5% to 32.5%.

Ahead of the revision, the deal was viewed at 2% to 2.5% cheap depending on inputs, and it was still not seen cheap enough.

"I think it's an OK, not a great company, not a great credit....I think it has to come on the 'cheaps' if it is to do well," an East Coast-based buysider said.

The lead underwriter was going out with a credit spread of 700 bps over Libor and a 35% vol., according to a Connecticut-based analyst.

"I'm wider on spread and at the same vol., and getting 2.5% cheap at the mids," the analyst said.

Another source said his spread was 1,000 bps.

The planned deal's seven-year term was seen as a detraction for the deal that could cut into valuation, the analyst said. Investors favor shorter durations.

The notes will be non-callable for five years and provisionally callable thereafter at a price hurdle of 130%.

Proceeds are expected to be used to fund a portion of the purchase price for the company's pending acquisition of eBioscience Holding Co. Inc.

Affymetrix is a Santa Clara, Calif.-based provider of technology used by pharmaceutical, diagnostic and biotechnology companies, as well as by academic, government and nonprofit research organizations.

eBioscience is a San Diego, Calif.-based immunology and oncology research and diagnostics company.

K-V Pharmaceutical drops

K-V Pharmaceutical's 2.5% convertibles due 2033 traded down to 13.375 bid, 13.75 offered on Tuesday. Previous trades were notched in the low 20s.

Shares of the Bridgeton, Mo.-based generic and branded specialty pharmaceutical company fell another 3.5 cents on Tuesday, or 4.7%, to $0.7151, after plunging 29% to under $1 on Monday.

"They had news that at first seemed positive as the stock ticked up, but then rethought and it went lower," a New York-based trader said.

The company announced Monday that the U.S. Food and Drug Administration and the Centers for Medicare & Medicaid Services issued updated statements on its Makena drug, the only FDA-approved treatment for women with a history of preterm birth.

The announcement appeared to reverse an earlier FDA decision not to enforce KV-A's exclusivity for the drug.

The updated FDA statement regarding the compounded versions of Makena's active ingredient hydroxyprogesterone caproate, included the agency's response to KV-A's independent testing of compounded versions. It said that it found they passed potency and purity tests.

Mentioned in this article:

Affymetrix Inc. Nasdaq: AFFX

AMR Corp. Pink sheets: AAMR

Cemex SAB de CV NYSE: CX

Eastman Kodak Co. Pink Sheets: EKDKQ

DryShps Inc Nasdaq: DRYS

K-V Pharmaceutical Co. NYSE: KV-A

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