Central European Distribution jumps on investment; Amylin up; James River Coal plunges

By Rebecca Melvin

New York, April 23 - Despite the weight of lower stocks and selling that hit particular names, there were still several bright spots in convertible bonds on Monday, market sources said.

Central European Distribution Corp. jumped 9 or 10 points to 97 or 97.25 on news that the Polish vodka maker and spirits distributor inked a strategic alliance with Russian Standard Corp., under which the Russian investor is buying $100 million of CEDC stock and exchangeable notes at a price of $5.25.

Regional sister Central European Distribution Media Ltd. saw improvement in its 3.5% convertibles in a move that appeared to be inspired by CEDC's rise, a New York-based trader said.

Amylin Pharmaceuticals Inc. gained 0.5 point to 0.75 point outright on Monday to 100.25 bid, 100.5 offered as the underlying shares of the San Diego-based diabetes drug maker surged on word the company has hired advisers for a potential sale of itself.

Meanwhile, Helix Energy Solutions Group Inc.'s convertibles added a couple of points outright with the underlying stock jumping after the Houston-based oil and gas services contractor reported better-than-expected earnings.

"It's interesting that energy names have been laggards and performing poorly recently, but they outperformed," a New York-based convertibles strategist said Monday.

D.R. Horton Inc. traded lower outright and was called in line to slightly weaker on a dollar-neutral, or hedged, basis after the Fort Worth, Texas-based home builder reported stronger-than-expected earnings and its third quarter of gains in new home sales as the company continues to gain market share.

But James River Coal Co.'s convertibles plunged amid no particular news as a large seller of convertibles executed in the market.

"There was some select selling, but vol. [volatility] is picking up, and there's a desire to buy put names," a New York-based convertibles strategist said of the market overall.

Low-premium names, or those that are near or in-the-money, are at high dollar prices, and bigger moves in the stock downward are going to be required to get the bonds to open up meaningfully, the strategist said. "I don't know how great those trades are."

Stocks slid on Monday amid European uncertainty. The Dutch prime minister tendered his government's resignation on Monday after Dutch officials failed to agree on budget cuts. And France is looking at the possibility of a socialist victory in upcoming elections, which casts doubts on public support for future euro zone austerity measures.

Back in the United States, materials stocks and bonds were weak. Wal-Mart Stores Inc. weighed on the Dow Jones Industrial Average after negative reports of alleged bribery and cover up in its Mexico business.

CEDC jumps

Central European's 3% convertibles due 2013 traded up 9 or 10 points to 97.5 and were seen last around 97 bid, 97.375 offered, as the underlying shares surged 60 cents, or 14% to $4.85.

A source said that the CEDC convertibles gained 9 or 10 points on the day after the deal with Russian Standard was announced, providing more clarity around what becomes of the company and the convertible bonds in particular.

CEDC, whose brands include Absolwent and Parliament, will sell about 28% of itself to Russian Standard, allowing the vodka maker to retire the $300 million in convertibles due March 15, 2013.

"It looks like they forged a decent agreement with the Russian guy who essentially wants to take them over," a convertibles strategist said, "Although some details are yet to be agreed upon."

Given the huge jump from the upper 80s to the upper 90s, it looked as if profit-taking is attractive.

"I'm not going to blame people at this point for wanting to sell," he said. Nevertheless, there is still appetite for yield, and there is the potential that the convertible bond "might be recut to give a lower conversion price," he said.

The paper coming into today's trade had been fairly quiet at the 87 bid, 88 offered range.

Meanwhile, Central European Media moved in the same direction as CEDC, in general, a trader said.

"Those bonds are both better," he said.

The CETV bonds are a good place to hide some money," the trader said, referring to the yield and relative safety of the short-dated 3.5% CETV convertibles.

Shares of CETV ended down 15 cents, or 2.2%, at $6.81 on Monday.

Amylin adds on sale chatter

Amylin's 3% convertibles due 2014 traded up to 100.25 bid, 100.5 offered, which was up 0.5 point to 0.75 point on Monday and up from 99.75 on April 19.

The bonds trade outright.

Reuters reported that Amylin has hired advisers Credit Suisse and Goldman Sachs to explore a sale of the company.

The reports follow Amylin's rejection of a $3.5 billion takeover bid from Bristol-Myers Squibb Co.

The diabetes drugmaker is also fending off a lawsuit from activist investor Carl Icahn.

Amylin makes diabetes drugs Byetta and Bydureon, and there are several drug companies that could be potential buyers, including Astrazeneca plc, Merck & Co. and Takeda Pharmaceutical Co. Ltd., according to news reports.

Amylin shares shot up $3.14, or 14% to $26.06.

The takeout chatter follows similar situations in the health care sector, as big pharma pursues promising biotech companies and potential pipeline candidates. Last week, for example, Human Genome Sciences Inc. rejected a $2.6 billion bid from GlaxoSmithKine plc and opted instead to begin its own sales process, and before that Illumina Inc. rejected a bid from Roche SA and inviting GSK to participate in a sale process.

D.R. Horton flat to lower

D.R. Horton's 2% convertibles of 2014 were down nearly 2 points to 130, with 130 versus an underlying share price of $15.17 cited as a late market, after the Fort Worth, Texas-based homebuilder slipped 32 cents, or 2% to $15.06.

"They look about 0.125 point to 0.25 point weaker," a trader said of the convertible bonds, but he said that it was a tough call to make, and other sources called them in line with the dip in underlying shares.

"It's difficult to tell because a lot of people like to put the trade on before earnings, and then when the event happens, there's a minor exodus after the earnings come," a New York-based convertibles strategist said.

The D.R. Horton bonds are in the money and trade on a 75% delta, a trader said.

Helix Energy adds outright

Helix Energy's 3.75% convertibles due 2032 traded up nearly 2 points to 107.4 during the session, according to Trace data.

Helix shares ended up $1.17, or 6.7%, at $18.52.

The oil and gas services contractor reported first-quarter income of $65.7 million, or 62 cents per share, which was up from $25.9 million, or 24 cents per share, in the year-earlier period.

Analysts expected earnings of 36 cents per share.

Revenue climbed to $407.9 million from $291.6 million a year earlier.

The company said that results reflected the trend of increasing activity and high vessel utilization in its contracting services business, including a significant improvement in its subsea construction business.

First-quarter results also benefited from relatively high premium prices realized on Gulf Coast crude oil sales, Helix said.

James River plunges

James River's 3.125% convertibles due 2018 dropped sharply to about 33 from the low 40s amid a big seller in the issue, a market source said.

"They puked them at 33 cents on the dollar," he said.

James River, the Richmond, Va.-based coal producer, has been the subject of speculation about a possible bankruptcy filing.

"A lot of people think they are going bankrupt," the market source said. "And just think a year ago there was takeout speculation at 30 bucks a share."

There was "one big cross at 33.375," he said.

The James River 4.5% convertibles traded late in the session at 42.75 bid, 43,offered, compared to earlier in the day when they were 44.25 bid, 44.50 offered.

James River shares ended down 13 cents, or 2.9%, at $4.42 on Monday.

Mentioned in this article:

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Central European Distribution Corp. Nasdaq: CEDC

Central European Media Enterprises Ltd. Nasdaq: CETV

D.R. Horton Inc. NYSE: DHI

Helix Energy Corp. NYSE: HYL

James River Coal Co. Nasdaq: JRCC

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