Gaylord, PHH, ATP Oil slip from highs with stocks; Incyte looks less cheap as terms reset

By Rebecca Melvin

New York, Sept. 24 - Three new issues released for secondary dealings in the convertibles market Thursday came off from early highs as stocks got clobbered.

Gaylord Entertainment Co., which priced an upsized $300 million of convertibles and $131 million of common stock after the close Thursday, saw its newly issued 3.75% convertibles due 2014 close around par in a transaction that was well liked among investors, sources said.

A syndicate source could not be reached to confirm Gaylord's closing level.

"It modeled really cheap. We derived our spread off where the straights were trading, and it modeled more or less 9% cheap," a Connecticut-based sellside trader said of the Nashville hospitality and entertainment company.

PHH Corp.'s newly priced 4% convertibles due 2014 opened around 103, were later seen at 102 bid, 102.5 offered and closed the day at 101 bid, 102 offered, a syndicate source said.

PHH launched and priced its convertible senior notes on the same day. They were repriced during the session, which made them less cheap than they seemed originally.

ATP Oil & Gas Corp.'s newly priced 8% convertible perpetual preferred shares slipped below par shortly after the open, after pricing late Thursday $125 million of the preferred shares.

Looking ahead, convertibles players eyed Incyte Corp.'s planned offering of six-year convertible senior notes, which were expected to price Thursday after the close.

The deal was said to have repriced twice during the session, making it difficult to get a read on its cheapness, sources said.

Incyte's existing 3.5% convertibles, which will be repurchased with proceeds of the new deal, were much higher since the launch of the new deal than they were last week, but they came off during the session as Incyte common stock slid 39 cents, or 5.4%, to $6.88.

Stocks, which started the day off on a positive note, were hit hard after existing home sales for August came in below expectations at an annualized rate of 5.1 million units. In addition, the sales rate dropped 2.7%, which marked the first time since March that sales slowed.

Stocks started out better, boosted by initial jobless claims for the week ended Sept. 19 that came in at 530,000, which is below the 550,000 that was expected.

Gaylord croons better than others

Gaylord's newly priced 3.75% convertibles due 2014 opened up at 105 bid and traded at that level, before slipping to 103 and even lower, sources said.

Shares of the operator of country music's Grand Ole Opry closed down $1.08, or 5%, at $20.72.

"People liked this name out of all the names," a New York-based sellside trader said.

A second sellsider, who put the paper significantly cheap, said that Gaylord was free cash flow positive for the first time in eight quarters and expects to be free cash flow positive for the year.

In addition, EBITDA should remain steady, and growth could come from acquiring distressed lodging assets, the analyst said.

PHH ends at 101, 102

PHH's newly priced 4% convertibles due 2014 traded down to 101 bid, 102 offered from about the 103 level.

Shares of the Mt. Laurel, N.J.-based outsource provider of mortgage and vehicle fleet management services closed down 95 cents, or 4.9%, at $18.90.

The company priced an upsized $220 million of five-year convertible senior notes after the close Wednesday.

The Rule 144A deal, which was initially going to be $200 million in size, priced at the rich end of talk for the coupon, which was 4% to 4.5%, and beyond the rich end of talk for an initial conversion premium of 30%, when it was originally talked at 20% to 25%.

ATP languishes with shares

ATP's newly priced 8% perpetual convertible preferred stock traded down immediately after the open Thursday to 98.75 bid, 99 offered.

Shares of the oil and natural gas company extended a sharp slide Thursday, moving down $1.21, or 6.5%, to $17.40 during the session, after sinking 16% on Wednesday.

"The stock is not helping out," a sellside trader said. "The borrow was difficult. It was a negative 9% borrow and it only has an 8% dividend."

"I sold them after the open. I was trying to get them above issue for my client," the sellsider said.

Another sellsider said of the new issues, "I know of some accounts that are stuck with outright positions in these and waiting for stocks to recover - including ATPG."

Incyte less cheap on revised terms

Talk on Incyte was last heard at a 4.75% coupon with a 30% initial conversion premium, compared to an initially talked 5% to 5.5% deal with a 22.5% to 27.5% premium.

The deal was also supposed to be upsized to $350 million from $250 million with a greenshoe of $50 million, up from $37.5 million.

The deal talk was revised two times, sources said, with one adding that he heard one buyer was taking 40% of the deal.

"They are crazy repricing," one sellsider said.

A sellside analyst said that initially he saw the paper 7% cheap, and after the first repricing, he saw them 4% cheap.

Credit spreads attached to the valuations were between 1,100 basis points over Libor to 1,250 bps over Libor, according to the analyst.

Incyte's existing 3.5% convertible senior notes due 2011 traded at 98 but were later seen at 97.25.

Incyte's existing 3.5% convertible subordinated notes due 2011 traded at 97.5 but were later seen at about 96.50.

The existing convertibles began moving up in the last week or so from 92 for the senior paper and 90.5 for the subordinated notes, according to a New York-based sellside desk analyst.

Shares of the Wilmington, Del.-based biopharmaceutical company closed down 39 cents, or 5.4%, at $6.88.

Incyte was seen as primarily a hedge play, with no borrow problems, rather than for outright investors.

The company has some trials in phase 3 rather than phase 2, which is where all the trials were a year ago, a sellside analyst said of Incyte.

The company doesn't have any of the usual criteria that debt investors look to in a credit such as positive cash flow, a certain amount of market cap, etc., the analyst said. But like other biotechnology and biopharmaceutical companies it has the potential to take off.

"It's a coin toss," the analyst said. "But I'm probably tighter than some of the others out there since they partner out their drugs, they continue to do well, they hit their milestone payments."

Incyte shares are down 17% from Tuesday when the convertible and stock offerings were launched. But at a $6.88 close Thursday, the shares are up considerably from July 21 when they stood at $5.20.

Mentioned in this article:

AMR Corp. NYSE: AMR

ATP Oil & Gas Corp. Nasdaq: ATPG

Incyte Corp. Nasdaq: INCY

Gaylord Entertainment Co. NYSE: GET

PHH Corp. NYSE: PHH

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