Crown Castle tightens talk; United Technologies, EMC lower after earnings; Medivation flat

By Rebecca Melvin

New York, Oct. 22 - Earnings news spurred much of the trading action in the convertible debt market on Tuesday, but a central focus continued to be the planned mandatory preferred deal of Crown Castle International Corp., which was seen pricing after the market close.

Price talk on the $750 million of Crown Castle mandatory mandatories was tightened early Tuesday to 4.5% to 4.75% dividend and 20% to 25% initial conversion premium, from initial price talk of 4.75% to 5.25% dividend and 15% to 20% premium.

Even after the revision, the deal was seen as attractive for investors.

"It's a pretty decent deal; it's a little bit cheap with the stock correcting yesterday," an East Coast-based buysider said Tuesday afternoon.

Back in established issues, the listed convertible equity units of United Technologies Corp. traded lower after the Hartford, Conn.-based building and aerospace technology company reported earnings ahead of estimates but offered a mixed outlook.

EMC Corp.'s 1.75% convertibles due Dec. 1 traded down about 5 points on an outright basis, but were in line with the underlying shares of the Hopkinton, Mass.-based data storage and software company after the company's third quarter earnings and revenue missed estimates. The company also lowered its full-year outlook.

"The bond has no premium so it will move with the underlying shares until it converts in December," a Connecticut-based analyst said of the EMC convertibles.

Illumina Inc. posted strong earnings that pushed its stock up 10%, however, and the convertibles of the San Diego-based gene-sequencing company also gained outright, but were seen about flat on a dollar-neutral, or hedged, basis.

Elsewhere, Medivation Inc.'s convertibles started out about 2 points lower on swap, but then recovered to flat on a hedged basis after the San Francisco-based drug developer said a late stage study of its prostate cancer treatment Xtandi has been halted because the drug had been so effective.

One source suggested that Medivation went flat to higher, but a second source said that with the late surge in its shares, the bonds looked about flat.

Equities finished sharply stronger after a rather mixed start following a weak jobs report.

The September data showed that 126,000 jobs were added to U.S. nonfarm payrolls, which was below economists' expectations for a gain of 180,000 jobs. U.S. unemployment ticked down however to 7.2% from 7.3% in August. Economists had predicted the unemployment rate would remain steady.

One market player suggested that convertibles and the market in general might take a pause here.

"It seems like people are thinking the market is going to keep going up, but with the government issues still unresolved and uncertainty ahead of us, we might be in for a pause. We're up 5% in the last two weeks; it's a bit much," the market player said.

Nevertheless, earnings season was still a wild card. "First we have to get through earnings and see how that flows through," he said.

Crown Castle talk revised

Price talk on the Crown Castle mandatory convertible deal was tightened during marketing to a dividend of 4.5% to 4.75% with an initial conversion premium of 20% to 25%.

That was revised from a larger 4.75% to 5.25% dividend and 15% to 20% initial conversion premium.

The deal was still seen as attractively priced, however.

The registered offering was being sold via joint bookrunners Morgan Stanley, BofA Merrill Lynch, J.P. Morgan Securities LLC and Barclays.

The Houston-based wireless infrastructure company plans to price the 7.5 million of mandatory convertible shares at a $100 liquidation preference after the market close on Tuesday.

There is a greenshoe of up to an additional $112.5 million of mandatories for the registered offering.

Proceeds from the convertible and a simultaneous common share offering, together with cash on hand and additional debt financing, are going to be used to pay AT&T Inc. and its affiliates in connection with a previously announced transaction between Crown Castle and AT&T.

If the transaction does not close, proceeds will be used for general corporate purposes, which may include repayment of debt, the company said.

United Technologies heads lower

United Technologies' 7.5% mandatory convertible equity units due 2015 traded down $1.04, or 1.6%, to $63.35. The paper has a $50 liquidation preference.

The preferred slightly underperformed United Technologies' common shares, which lost $1.49, or 1.4%, to end the session at $106.13.

The company posted a profit of $1.43 billion, or $1.57 a share, which was a tick better than $1.42 billion, or $1.56 a share, in the year earlier period.

The latest period included restructuring costs of 8 cents a share, while favorable items boosted earnings last year. Earnings from continuing operations climbed to $1.55 a share in the latest period, up from $1.37 a share.

Revenue rose 2.8% to $15.46 billion.

The profit beat estimates for $1.54 a share, but fell short of a $16.18 billion revenue estimate.

Looking ahead, the company raised the low end of its forecast for per-share earnings by 10 cents, calling for a profit of $6.10 to $6.15 a share. But it lowered its revenue view by $1 billion to $63 billion, citing weakness in military aerospace markets and the European economy.

Medivation ends flat

Medivation's 2.625% convertibles due 2017 traded at 128.25 bid, 129 offered versus an underlying share price of $50.00, according to two market sources.

A third source saw the paper quoted 129.5 bid, 130 offered versus $50.50.

Medivation shares were initially up about 1%, but then rallied strongly to end the day up $4.07, or 8%, to $53.89.

The bonds "started out down 2 points on swap, but then recovered throughout the day. They are flat on swap now," an East Coast-based buysider said.

A second source said, "They are fine. Vol. guys wanted a bigger move, so I could see them coming in, but I think technical outright demand wins at the end of the day."

At the end of the day, they were seen flat on a hedged basis.

Driving the surge was news from Medivation and Astellas Pharma Inc. that their Phase 3 trial of enzalutamide was halted due to positive results.

Overall survival and radiographic progression-free survival were strong enough that an independent monitoring committee recommended that patients in the study being treated with placebo be offered the enzalutamide drug. It was an international study of more than 1,700 men with advanced prostate cancer who had not received chemotherapy.

Medivation and Astellas entered into a global agreement in 2009 to develop and commercialize enzalutamide jointly. The companies are collaborating on a comprehensive development program that includes studies to develop enzalutamide across the full spectrum of advanced prostate cancer and in breast cancer. The companies are jointly commercializing enzalutamide in the United States and Astellas has responsibility for commercializing enzalutamide outside the United States, pending further regulatory approval.

Mentioned in this article:

Crown Castle International Corp. NYSE: CCI

EMC Corp. NYSE: EMC

Illumina Inc. Nasdaq: ILMN

Medivation Inc. Nasdaq: MDVN

United Technologies Corp. NYSE: UTX

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