Convertibles quiet; National Health lags dollar neutral; Navistar 'holds in;' Sterlite gains

By Rebecca Melvin

New York, March 21 - The convertibles market was mostly quiet Friday, but volume picked up around midsession as the equity markets reversed early strength to end lower for the day. Equities notched gains for the week, however.

The primary market, which was busy earlier in the week, went offline Friday. The secondary market was quiet much of the week and even before that, with action suppressed by a continuing trend higher in equities, a New York-based trader said.

"The market has been grinding up and there really is nothing to do," the trader said.

Early Friday, National Health Investors Inc.'s 3.25% convertibles, which debuted in the market on Thursday, remained active and little changed on an outright basis, but lower by about 0.25 point on a dollar-neutral, or hedged, basis, a New York-based trader said.

He attributed the lackluster performance to pricing that was "a little rich" to begin with.

Also among new issues, the Navistar International Corp. 4.75% convertibles remained pretty close to par following their debut Wednesday despite weakness in the company's stock.

In the biotech sector, a decline in the underlying shares was not really translating into action in convertibles, a trader said.

Gilead Sciences Inc.'s convertibles showed up among the day's top-volume names, according to Trace data. But there were not many other biotech convertibles trading despite pressure on biotech equities following news that U.S. lawmakers have asked Gilead to defend the high price tag of its solvaldi hepatitis C drug as some health insurers and state Medicaid programs are avoiding using it.

In a letter to Gilead, Democrats on the House Energy & Commerce Committee made the point that the treatment will not cure patients if the patients cannot afford it. The inquiry sparked concern among biotech investors.

Gilead's 1.625% convertibles due 2016 printed late Friday at 318.29, which was down 13 points on the day, and Gilead 1% convertibles due 2014 traded down about 21 points to 310, on lighter volume, according to Trace.

Shares of Foster City, Calif.-based Gilead ended down $3.46, or 4.6%, at $72.07.

"The biotech index has been pretty volatile, and some warrants got pulled down," a New York-based trader conceded, but it hasn't affected many converts. In fact, MannKind Corp. was a little stronger, the trader noted.

Elsewhere, Sterlite Industries (India) Ltd.'s 4% convertibles due in October traded up as buyers stepped into the short-dated notes.

In the broader markets, equities reversed early gains, sending the S&P 500 index into negative territory after it touched a record high intraday. The S&P closed down 5.49 points, or 0.3%, at 1,866.52. Meanwhile, the Dow Jones industrial average closed down 28.28 points, or 0.2%, to 16,302.77. But the Nasdaq stock market closed down by a greater amount, or about 1%, to 4,276.79.

Encouraging economic data on Thursday buoyed equities after they sank on Wednesday on concerns the Federal Reserve may begin raising interest rates sooner than expected in about a year.

National Health lags

National Health's new 3.25% convertibles were seen at 99.875 bid, 100.125 offered with the stock around $60.70 early Friday.

That was flat to lower on an outright basis compared to 99.875 bid, 100.625 offered on Thursday. The stock was up nearly 1% at that point but ended the day better by 0.6%.

"It didn't look that cheap to me, so I'm not that surprised," a New York-based trader said about the convertibles.

Pricing for the registered deal came at the rich end of 3.25% to 3.75% coupon talk and at the midpoint of 17.5% to 22.5% premium talk.

Joint bookrunners were BofA Merrill Lynch and J.P. Morgan Securities LLC.

Sterlite improves

Sterlite's 4% convertibles due in October traded up to more than par, with odd lots at 101, compared to a previous range of 99.375 to 99.625, a trader said.

There were buyers of the paper, which is a decent yield name, the trader said.

Sterlite is a diversified metals and mining company in India.

Mentioned in this article:

Gilead Sciences Inc. Nasdaq: GILD

MannKind Corp. Nasdaq: MNKD

National Health Investors Inc. NYSE: NHI

Navistar International Corp. NYSE: NAV

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