New deal parade marches on; Lattice reoffered at 98, still dives; secondary thin, lower

By Ronda Fears

Nashville, June 17 - The parade of new deals continued with another five deals emerging Tuesday, but amidst a thin secondary market traders say they are beginning to think the market may have reached a demand threshold.

"Everything seems to have come in," said a buyside trader, noting recent call scares have contributed to a general reluctance of market players to continuing the bidding war for an arguably over-valued convertible market.

"There is no liquidity in the market right now. Even these new issues are not doing anything."

Banker types say they've seen no signs of demand drying up - even in the face of another $2.7 billion on tap for this week already - but some resistance is visible, if only in reaction to terms on some new deals. The Lattice Semiconductor Corp. issue, for example, was reoffered by the underwriter at 98 and still sank right out of the chute.

"There are a few gunslingers out there right now who are taking a piece of everything that comes along, but the market in general is not willing to buy just anything," said a sellside trader.

"I don't know that I'd go so far as to say liquidity is drying up, but we're seeing some pressure from big players that are saying 'pass' on some of these deals."

Lattice sold $200 million of seven-year convertibles at par to yield 0% with a with a 38% initial conversion premium - at the cheap end of guidance - but lead manager Goldman Sachs reoffered it at 98 and buyside traders saw it at 96.25 bid right out of the gate.

Goldman closed the new Lattice at 96.75 bid, 98.25 offered. The shop closed the old Lattice 4.75% convertible due 2006, which will be taken out with proceeds from the new deal, up almost 10 points to 102.25 bid, 102.75 offered.

Lattice shares lost 58c, or 6.64%, to end at $8.16.

Valuation on the new Lattice convert ranged from right around fair value to 3.34% rich. Deutsche Bank Securities analysts put it 3.34% rich, using a credit spread of 400 basis points over Libor and a 55% stock volatility, but Lehman Brothers had it just 0.41% rich, using a credit spread of 600 bps over Treasuries and a 55% volatility.

ICOS Corp.'s new fare for the convert market was also weaker but it was not remarketed below par.

ICOS sold $250 million of 20-year convertible subordinated notes at par to yield 2.0% with a 43.4% initial conversion premium - at the aggressive end of yield talk and at the midrange of premium guidance. It was closed by one of the lead managers at 99 bid, 100 offered with the stock up 32c, or 0.75%, to $43.25.

At bat after Tuesday's close were five deals - BioMarin Pharmaceuticals Inc., Amylin Pharmaceuticals Inc., Cell Therapeutics Inc., DoubleClick Inc. and CNet Networks Inc. - totaling $610 million.

DoubleClick and CNet both are planning to take out their existing converts with proceeds from the new deals and both of those issues were marked up as a result.

The DoubleClick 4.75% due 2006 jumped 2.5 points to 101.5 bid, 103.5 offered with the stock off 61c, or 6.11%, to $9.37. The new 20-year convert is talked to yield 0% with a 46% to 50% initial conversion premium.

The CNet 5% due 2006 was 10 points higher to 85 bid, 87 offered with the stock down 33c, or 6.15%, to $5.04. The new 10-year convert is talked to yield 2.5% to 3.0% with a 55% to 60% initial conversion premium.

Cell Therapeutics also has an existing convert, but proceeds are to go to clinical trials, expansion of sales and marketing capabilities, potential acquisitions and general corporate purposes, including working capital. In addition, the company announced the acquisition of Italian cancer drug specialist Novuspharma SpA - a stock deal worth about $236 million.

The new Cell Therapeutics $100 million overnighter was talked to yield 3.5% to 4.0% with a 25% to 30% initial conversion premium. Cell Therapeutics' old 5.75% due 2008 were marked almost 10 points lower to 83.5 bid, 85.5 offered. Part of that issue was exchanged last December for new 5.75s due 2008, which were marked Tuesday down by almost 20 points to 142.75 bid, 143.75 offered.

The common stock fell $2.29, or 15.53%, to close at $12.46 - chiefly due to news of the acquisition.

Lehman Brothers put the new Cell Therapeutics convert 3.19% cheap, at the midpoint of guidance, using a credit spread of 1,200 bps over Treasuries and a 50% stock volatility. But Lehman analysts said the credit assumption may be aggressive in light of poor financial metrics, a small deal size and a difficult stock borrow.

The Lehman analysts also said the credit assumption may still not capture the degree of risk associated with the Novuspharma acquisition and with no FDA submission on Cell Therapeutics' Pixantrone cancer drug expected before the second half of 2005.

Also, Reliant Resources Inc. and Genesco Corp. launched deals for Wednesday's business.

Reliant is pitching $200 million of seven-year convertible notes - talked to yield 4.75% to 5.25% with a 43% to 47% initial conversion premium - ahead of a $350 million junk bond next week.

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