Dendreon drops back into 60s on restructuring; ADM flat; Standard Pacific offering on tap

By Rebecca Melvin

New York, July 31 - Dendreon Corp.'s convertibles were lower in active trade Tuesday after the Seattle-based biotechnology company reported a quarterly loss and restructuring plans as well as a workforce reduction amid weak Provenge sales.

The Dendreon convertibles fell by about 3 points to about 68, and there was at least one print lower late in the day at 66.25. Traders said it was bad, but it could have been worse for the bonds.

Archer-Daniels-Midland Co. was steady in active trade amid lower shares after the Decatur, Ill.-based agricultural company posted sharply lower earnings, which missed estimates, on steady revenue.

Also in headlines on Tuesday was Suntech Power Holdings Co., which saw its 3% convertibles trade at 46 ish with the underlying shares sinking 15%.

The Chinese solar panel maker said Monday that it may have been defrauded by an affiliate and will need government intervention to survive, reports said.

Meanwhile, an issuer jumped into the primary arena early Tuesday after a lull of about three weeks. Standard Pacific Corp. launched an offering of 20-year convertible senior notes that was initially $150 million in size, but it was upsized during marketing to $200 million, and the talked terms were tightened to 1.125% to 1.375% for the coupon and 42.5% for the initial conversion premium. That was tightened from 1.125% to 1.625% for the coupon and 37.5% to 42.5% for the premium, according to a syndicate source. Pricing was seen after the close Tuesday.

Stocks were slightly weaker ahead of comments and possibly policy moves from the U.S. Federal Reserve on Wednesday. In addition, the European Central Bank policy makers are slated to meet on Thursday with the widely watched U.S. jobs report set to be released on Friday.

Dendreon better bid

Dendreon's 2.875% convertibles due 2016 traded down Tuesday to 68.125 and 69.25, which was lower but performing better than the underlying shares. Prior to earnings the convertibles were at 70.625 bid, 71 offered.

Dendreon shares tanked by $1.415, or 23%, to $4.77.

"There were one or two buyers around - seemed to have multiple sellers," a New York-based trader said.

Earlier this month the convertibles had jumped about a point to that level on takeout rumors, including the possibility that Celgene Corp. might be bidding for the company.

That was after June 14 when the Dendreon convertibles added a point to 69 on rumors that Sanofi was mulling a bid for the Seattle-based biotech company.

Dendreon's latest quarterly loss was accompanied by restructuring plans including layoffs and a plant closing with the aim of reducing costs by $150 million per year.

Dendreon has struggled to launch its Provenge prostate drug therapy and faces competition issues.

Provenge, a prostate cancer treatment, faces increased competition from such drugs as Johnson & Johnson's Zytiga drug and Medication's enzalutamide.

Dendreon reported a loss of $96.1 million, or 65 cents per share, compared to a year-earlier loss of $116 million, or 79 cents a share. Revenue rose 66% to $80 million from the year-earlier period but was down 2.4% on a sequential basis.

As of June 30, Dendreon had about $509.7 million in cash, cash equivalents and short-term and long-term investments, compared to $617.7 million as of Dec. 31, 2011.

Full implementation of its restructuring plan is expected to take a year.

William Blair reduced its price target on Dendreon shares to $5 from $8.

ADM flat, boring

ADM's 0.875% convertibles due 2014 traded little changed right around par with somewhat weaker shares.

Shares of the Decatur, Ill.-based agricultural commodities company ended down about $1 at $26.13.

"They look like bonds here," an East Coast-based buysider said. Another buysider said they were "boring" and traded where they had been.

The company earned $284 million, or 43 cents per share, for the quarter, which missed expectations and was well below $381 million, or 58 cents per share, reported in the year-earlier quarter.

Revenue slipped less than a percent to $22.68 billion from $22.87 billion a year earlier.

Analysts expected a profit of 59 cents per share on revenue of $21.85 billion.

Standard Pacific on tap

The registered offering from Standard Pacific, the Irvine, Calif.-based builder of single-family attached and detached homes, was deemed to be "not that exciting," and looking about fair value, so convert arb players were discouraged from getting involved; but the deal was likely to be successful anyway due to the dearth of new issuance.

"I think I'll pass. I was thinking of getting involved if they priced at the cheaps at the original terms, but then they revised terms to the tight end," a buysider said.

A second buysider said he'd get involved "small," for "a flip."

The first buysider deemed the credit as "not great." Spreads on the credit were assumed to be 350 basis points to 375 bps over Libor by the underwriters, a trader said.

"It's a small deal, $6 stock, which is off 10%," one trader said. But on the other hand, "the market is starved for paper so I think it will do fine."

A third buysider, this one based in New York, said, "There's a shortage of new issues of convertibles, and other types of securities, and that has to pressure terms. Personally, I've always felt that the best opportunities in convertibles are in the aftermarket. I'd like to see our convertible market provide more new issues and I'd like to buy the new issues if and when they dip below par."

The buysider contrasted himself to other players who "may want to wait to buy if the stock rises and the premium gets lower.

Standard Pacific also planned to offer 12.5 million shares of its common stock, with an option for underwriters to purchase up to an additional 1,875,000 common shares.

J.P. Morgan Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC and Bank of America Merrill Lynch are the joint bookrunners of both offerings.

The convertible notes are non-callable until Aug. 5, 2017,with put dates in years five, 10 and 15. Upon conversion, the notes will be settled with shares.

There is a change-of-control make whole and anti-dilution adjustments and dividend protection.

Proceeds will be used for general corporate purposes, including land acquisition and development, home construction, and other related purposes. The stock and convertibles offerings are not conditioned on each other.

Mentioned in this article:

Archer-Daniels-Midland Co. NYSE: ADM

Dendreon Corp. Nasdaq: DNDN

Standard Pacific Corp. NYSE: SPF

Suntech Power Holdings Co. NYSE: STP

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