Incyte trades up smartly on debut; AMR steady to stronger; Gaylord, PHH tracking over par

By Rebecca Melvin

New York, Sept. 25 - New issues dominated activity in the convertibles market Friday as they did for much of the past week, with new paper more or less holding price gains or strengthening, while the secondary market weakened somewhat as equities came off, market sources said.

Volume was lighter than in recent weeks.

Incyte Corp.'s newly priced 4.75% convertibles due 2015 traded at 105.5 versus its stock, which was trading around $6.66. Later the paper was offered at 105.5, with no trades reported.

"They traded - well bid. The stock was weak in the morning but found a nice trading range at the $6.66 level," a New York-based sellside trader said.

AMR Corp.'s 6.25% convertibles due 2014 - which debuted Tuesday - traded at 105.75 versus a share price of $8.00 on Friday. Later the paper was offered-only at a higher 106.25.

AMR shares also added Friday as the airline holding company announced another successful debt offering, this one for straight notes; and the airline sector in general was buoyed by UBS upgrades of five carriers, including AMR.

Another new issue, PHH Corp.'s 4% convertibles due 2014, traded at 102.5 versus a share price of $19.05. Shares ended 50 cents higher than that level, but the convertibles were later bid at 101.5.

Gaylord Entertainment Co., which debuted in the secondary market Thursday along with PHH, was also in trade Friday.

The paper changed hands at 100.5 versus a share price of $20.00 and was later offered at that level, although its shares weakened during the session, settling at $19.79.

"Across the board, with new issuance, I'm surprised things are not nearly as 'for sale' as I thought. There must be a ton of cash in the market," a sellsider said.

Valuations on the new issues are better than the overall market, he said. But the secondary has weakened only somewhat.

"Things are lower. The new paper has been doing well, with prices moving up. They were definitely a focus, with most activity the day before pricing and the morning of. By later in the day, people get burned out [on the new issues] and start looking at the rest of their books to see what they can do," the sellsider said.

"With this much cash in the market, and the valuations like this, these deals will continue to come," he predicted.

AMR upsizes deal

AMR's 6.25% convertibles traded 105.75 versus a share price of $8.00, which compared to about 104 versus a share price of $7.74 on Thursday.

Shares of the Fort Worth-based airline holding company gained 3.6% in the session to settle at $8.02.

AMR added to the notes, which are guaranteed by American Airlines Inc., with another debt sale of $450 million of 10.5% senior secured first-lien notes that will mature Oct. 15, 2012.

That will be added to the company's balance sheet along with the upsized $400 million of five-year convertible senior notes and $400 million of stock that priced Tuesday.

Also on Friday, UBS upgraded five U.S. airlines to "buy" from "neutral," saying that the recent flurry of capital raises has made these companies' balance sheets flush with cash.

"Near-term bankruptcy risk has diminished in our view," a UBS analyst wrote.

UBS' top pick is UAL Corp. given what the firm sees is the greatest leverage to economic and corporate travel recovery.

The UBS report followed upbeat research published on airlines Sept. 10 by JPMorgan.

JPMorgan analysts wrote, "We simply cannot ignore recent economic data and growing evidence of global economic improvement. As such, we believe the industry is on the verge of turning a financial corner and would suggest that risk-tolerant investors begin adding more aggressively to their existing airline equity holdings."

The airline analysts upgraded their airline sector credit opinion to "overweight" from "neutral."

"By no means are we recommending a 'buy everything credit related' strategy in airlines given the still precarious situation in terms of traffic, pricing, and fuel input costs. Nevertheless, our industry fundamental thesis is improved and our credit recommendations reflect this less bearish, perhaps dare we say somewhat bullish stance," they said.

Incyte trades up

Incyte's 4.75% convertibles, which debuted Friday, traded up to 105.5 even though the company's shares came off and the deal was re-priced prior to final terms.

The convertible held in even though the stock came off, sources said.

Incyte's stock fell quickly after the open to the $6.65 level and got down to as low at $6.50 with a high print at $6.70.

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 Rule 144A deal priced at the level of revised talk, which was pushed through the rich end of original talk of 5% to 5.5% for the coupon with 22.5% to 27.5% for the initial conversion premium.

There is a $50 million greenshoe, which was upsized from $37.5 million of additional notes.

Incyte also priced 18 million shares of common stock at $6.75 per share. There is a greenshoe of 2.7 million shares.

Goldman Sachs & Co. was the bookrunner, with Morgan Stanley and JPMorgan acting as co-managers.

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

Shares of the Wilmington, Del.-based biopharmaceutical company closed down 28 cents, or 4%, at $6.60.

Mentioned in this article:

AMR Corp. NYSE: AMR

Gaylord Entertainment Co. NYSE: GET

Incyte Corp. Nasdaq: INCY

PHH Corp. NYSE: PHH

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