Amgen convertibles active in trade; Halliburton gains; XM Satellite lower

By Rebecca Melvin

Princeton, N.J., Feb. 16 - Amgen Inc. convertibles continued to trade briskly and higher on Thursday, and Halliburton Co. gained. But sellers stepped into the market in force, with XM Satellite Radio Holdings Inc. a notable name that was lower in trade.

"We saw a bunch of them today," a New York-based sellside trader said of the sellers. "If I had to hazard a guess, I would say 60% to 65% of our trades today were sales in terms of total bonds traded."

He suggested that sellers surfaced amid concerns related to what direction new Federal Reserve chairman Ben Bernanke will point the economy as hearings continued on Capitol Hill, this time before the Senate Banking Committee.

A second New York-based sellside trader said, "This week has been a little bit slower, and today was the slowest day of the week. Other than Amgen, that was it."

The convertibles of Amgen continued to trade a day after two $2.5 billion convertibles issues from the giant biotech company were released for secondary trading. Those issues moved higher, as did the older Amgen 0% convertibles, which traded actively and slightly higher at 75.75 bid, 75.875 offered near the end of the day, a trader said.

Cephalon Inc. also extended its climb from Wednesday on earnings and guidance, with its 2% convertible adding another 4 points on top of Wednesday's 3 to 4 point increase.

But the convertibles of XM Satellite were down outright and came in about 0.25 point on a hedged basis as its underlying shares (Nasdaq: XMSR) dropped 5% after the Washington, D.C.-based satellite radio operator reported a wider fourth-quarter loss and the departure of a key director.

Overall, there were not a lot of trades today, a Connecticut-based sellsider said, citing broker quotes including the 1.5% convertibles of Health Management Associates Inc. at 100.25 versus a share price of $21.63 and the 2.25% convertibles due 2012 of Human Genome Sciences Inc. at 90.25 versus a share price of $12.02.

Halliburton gains despite dividend increase

Halliburton's 3.125% convertibles due 2023 gained 6 points outright to about 193.50, while its underlying shares (NYSE: HAL) lifted $2.63, or 3.83%, to a close of $71.24.

The Houston-based oil services company announced late Thursday morning that its board approved a 20% increase in the company's quarterly dividend and declared a first-quarter dividend of $0.15 a share on the company's common stock payable March 23.

The board also approved a 2:1 stock split, subject to shareholder approval, which will increase the number of authorized shares of common stock to 2 billion from 1 billion. But the board simultaneously authorized a share buyback program of up to $1 billion of shares. The program doesn't require a certain number of shares be repurchased.

The premium left in the Halliburton convertibles is small at about 2.5%. They are also held at a typically high delta in the low to mid 90s.

Typically, a dividend increase hurts the holders of the company's convertible paper, who have presumably shorted the stock. But today's announcement didn't seem to hurt the price of the bonds, which have dividend protection.

"We have that they are partially dividend protected. But these things are so far in the money that they trade like the stock," a Connecticut-based sellside analyst said of the Halliburton 3.125s.

A New Jersey-based buyside analyst suggested that the dividend increase was small so as unlikely to have a significant impact on bondholders. "You're going from 0.8 to 1.1, so it was small," he said, also suggesting that the Halliburton convertibles may have been pulled higher by a stronger energy sector overall on Thursday.

"I would have thought it would hurt," the Connecticut analyst said of the dividend increase. "If you're short a lot of the stock and you have to pay. You're protected. But you have to wait for the adjustment."

With the bonds trading near double par and little premium, they trade as an equity surrogate. But a Connecticut-based sellside trader commented: "I have no flow in that kind of a name. You have much less of an audience for it. It's awkward. Few people want to be bothered to write the dividend checks. You mark up your bonds 2 points, but you have paid out that much in dividends."

XM Satellite down on hedge

XM Satellite's 1.75% convertibles due 2009 traded late in the day at 85.25 versus a stock price of $24, compared to early trades at 84.875 versus a share price of $23.26, according to one New York-based sellside shop.

XM shares closed down $1.27, or 5%, at $23.98.

The Washington, D.C.-based company's fourth-quarter net loss increased to $268.3 million from a net loss of $188.2 million in the year-earlier quarter. For the full year 2005, XM's net loss was $666.7 million, compared with a net loss of $642.4 million in 2004.

The company cited higher subscriber acquisition costs for the bigger losses. It said subscriber acquisition cost was $89 compared with $64 in the same period last year. The cost per gross addition - a measure of the costs to add new subscribers - in the fourth quarter was $141, compared with $104 in the same period last year. These increases were primarily due to higher marketing expenses to meet a one-time competitive event in the fourth quarter.

The company also said that Pierce Roberts Jr. stepped down as a director, citing strategic differences with other board members over the company's direction.

Roberts, a former chief telecom investment banker with Bear Stearns, had served as a director for five years and sat on all of the board's major committees.

In a letter to board chairman Gary Parsons, Roberts said he was "troubled" by the company's current path. "Given current course and speed there is, in my view, a significant chance of a crisis on the horizon," Roberts wrote. "Even absent a crisis, I believe that XM will inevitably serve its shareholders poorly without major changes now."

XM said it had more than 5.9 million subscribers at the end of 2005, up 84% from a year earlier, and said its total had risen to more than 6 million in the first week of January. Sirius Satellite Radio Inc., its smaller rival and the only other U.S. satellite radio operator, said it has more than 3 million subscribers.

Amgen extends gains

Amgen's new 0.125% convertibles gained a point, extending Wednesday's 1.5 point increase. That paper, known as the A tranche, closed at 102.375 bid, 102.625 offered, while its underlying shares (Nasdaq: AMGN) gained $1.00, or 1.27%, to $73.97.

The existing 0% Amgen convertibles were also active and widely quoted on Thursday, traders said, with one saying the bonds were more active than earlier in the week. "The 0s have a put next year; there's not much downside versus the stock," a second trader commented.

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