Covanta takes off on debut; Halliburton drops on results, confusion; Amgen lower on earnings, drug data

By Kenneth Lim

Boston, Jan. 26 - Covanta Holding Corp. got off to a strong start on its first day of trading Friday amid keen interest from outright buyers.

Halliburton Co. slipped outright after the company reported a fourth-quarter profit decline, while investors already wary of weak demand got spooked further by confusion over the company's plans to spin off its KBR Inc. unit.

Amgen Inc. fell in the wake of lackluster earnings and disappointing news on its Vectibix cancer treatment and Aranesp anemia drug.

Meanwhile, Anworth Mortgage Asset Corp. priced its $25 million offering of perpetual convertible preferred stock.

Covanta rises early

Covanta's new 1% convertible senior debenture due 2027 was at 102.25 bid versus its previous closing stock price of $23.77 early Friday, but reached as high as 103 in its secondary market debut.

The convertible was offered at par. Covanta stock (NYSE: CVA) closed at $23.40, down by 1.56% or 37 cents.

"It traded up early on today," a buyside convertible trader said. "People were taking bets that the stock would trade up. It went as high as 103, but I think it has since come back down a little bit. I got some, sold them out. At these levels you can get fair value and then some."

The convertibles priced Thursday after the market closed, with an initial conversion premium of 20%. They were talked at a coupon of 1% to 1.5% and an initial conversion premium of 17.5% to 22.5%.

There is an over-allotment option for a further $48.75 million.

Lehman Brothers, JP Morgan and Merrill Lynch were the bookrunners of the registered off-the-shelf offering.

Covanta concurrently offered $125 million of its common stock at $23.50 per common share. It is also seeking a $300 million revolving credit facility, a $320 million funded letter of credit facility and a $680 million first lien term loan facility as part of a recapitalization plan.

Covanta, a Fairfield, N.J.-based waste disposal, energy and specialty services company, plans to use the proceeds of the deals and cash on hand to buy back its outstanding notes. Covanta is concurrently tendering for $195.8 million of 8.5% senior secured notes due 2010 of MSW Energy, $224.1 million of 7.375% senior secured notes due 2010 of MSW Energy, and $211.6 million of 6.26% senior notes due 2015 of subsidiary ARC Holdings.

The buysider said the convertibles priced attractively enough, but added that hedge investors could not get as much of the new deal as they wanted.

"Allocations were not that good," the buysider said. "It went to a lot of outright guys."

Halliburton falls with earnings, confusion

Halliburton's 3.125% convertible due 2023 retreated about 5 points outright, and came in about a half-point on a dollar-neutral basis after the company announced its fourth-quarter results.

The convertible traded at 159.75 against a stock price of $29.40. Halliburton stock (NYSE: HAL) slipped 1.98% or 59 cents and ended at $29.15.

Halliburton reported fourth-quarter earnings of $658 million, or 64 cents per share, a 40% drop from the $1.1 billion, or $1.04 per share, profit in the year-ago period. But the previous results included $540 million, or 51 cents per share, of income from a tax benefit. Analysts were expecting about 61 cents per share for the quarter.

Halliburton offered a positive outlook for 2007, citing strong demand for field services. It also expects to complete the spin-off of KBR in the next three months. Halliburton, a Houston-based oil field services provider, began its detachment from KBR in November 2006 through an initial public offering and still holds about 81% of the engineering, construction and government-services arm.

A buyside convertible trader said the convertible declined slightly on a dollar-neutral basis because of the results and initial confusion about the possible impact of the KBR spin-off.

"It caused a little bit of confusion in terms of how it's going to affect the convertibles," the trader said. "I personally think it's a non-event. Most people I spoke to think it's going to be a non-event. If they spin off the division, it's going to be an adjustment to the conversion ratio, so it won't make a difference."

A buyside convertible analyst also noted concern about the energy sector going into the first half of 2007.

"There's still concern about North America, and whether we're going to get a big rebound [in demand] in the first and second quarter," the analyst said. "It's largely going to be weather-driven, so it's certainly a high risk. To some degree there are more defensive sectors to be in."

Amgen slides with stock

Amgen's 0.125% convertible due 2011 slipped 2 points while its 0.375% convertible due 2013 lost almost 3 points outright after the company reported flat earnings and weaker-than-expected trial data.

The 0.125% convertible traded at 100.75 against a stock price of $71.50 on Friday, while the 0.375% convertible changed hands at 100.875 versus a stock price of $71.20. Amgen stock (Nasdaq: AMGN) eased 4.48% or $3.35 to close at $71.50.

"The Amgens were active this morning," a sellside convertible trader said. "The stock was down after their earnings came out. It looks in line."

Thousand Oaks, Calif.-based Amgen, a biotech company, reported fourth-quarter earnings of $833 million, or 71 cents per share, from profit of $824 million, or 66 cents per share, in the same period a year ago. Excluding items, the company earned 90 cents per share in the quarter, short of Street expectations of 94 cents per share.

Amgen also said clinical trials of Vectibix showed that patients taking the colon cancer drug showed no significant improvement compared to patients taking an existing first-line treatment. Amgen's anemia drug Aranesp also had troubling results in trials, with patients undergoing treatment failing to demonstrate effectiveness compared to placebos but suffering higher death rates.

"The story for this quarter, in our opinion, is a series of setbacks with Amgen's marketed products," Credit Suisse equity analyst Michael Aberman wrote in a report.

Aberman said the bad news on Aranesp adds to the risk profile of Amgen's "key franchise in anemia" even if rival Roche's Mircera drug does not come to market. Aberman maintained his underperform rating on the stock and has a target price of $63 for the common stock.

A sellside convertible analyst said Amgen's troubles with Aranesp and Vectibix were likely to weigh on the company's stock price, but the company's credit profile will not change significantly.

"Of course there's a slight negative if both the drugs don't turn out to be as successful as they hoped," the analyst said. "It's going to be very disappointing in terms of revenue and earnings going forward. But in terms of the credit it's not going to matter very much. Amgen is still a very strong credit with a strong balance sheet and cash flow."

Anworth prices deal

Anworth on Thursday priced $25 million of perpetual convertible preferred stock, at a dividend rate of 6.25% and an initial conversion premium of 17.845%, but the new security was not seen trading actively in the secondary market.

The preferreds were offered at par of $25. Price talk was not disclosed. Anworth stock (NYSE: ANH) closed at $8.98 on Friday, up by 0.79% or 7 cents.

There is an over-allotment option for a further $3.75 million, or 150,000 preferred shares.

Friedman Billings Ramsey was the bookrunner for the registered off-the-shelf offering.

Anworth, a Santa Monica, Calif.-based real estate investment trust focusing on mortgage-backed securities and residential mortgage loans, said it will use the proceeds of the deal to acquire mortgage-related assets.

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