MedImmune, Gilead trade; Vector launches overnight deal; Chesapeake prices

By Rebecca Melvin

Princeton, N.J., June 27 - The convertible bond market Tuesday continued its recent trend of weaker prices and thinner trading volume, defying identification of any sector trends, market sources said.

"It felt heavier today than Monday. It was busy in the morning, but it really quieted down here in the last couple of hours," a New York-based sellside analyst said after the close.

Among convertibles in action, recently issued paper, including the convertibles of MedImmune Inc. and American Medical Systems Holdings Inc., appeared to dominate. MedImmune priced a $1 billion two-part offering of convertibles on June 22 and American Medical priced a $325 million deal on June 21.

The older and larger issues of Gilead Sciences Inc. also saw activity Tuesday, although prices were little changed from Monday, but lower compared to Friday.

Gilead's 0.5% convertibles closed at 93.204 versus a stock price of $55.18 on Tuesday, compared to 93.625 versus a stock price of $55.79 on Monday, according to a dealer quote. On Friday, the Gilead 0.5s were at 93.75 versus a stock price of $55.57.

Meanwhile, the convertibles of XM Satellite Radio Holdings Inc. were among the few gainers of the session, with the 1.75% paper "finding a home in the upper 70s," or at 78 to 78.25, compared to about 77.50 on Monday, according to a market source.

Meanwhile, Red Hat Inc. convertibles traded ahead of its earnings, which are expected after the close on Wednesday. The 0.5% convertibles were seen lower by 0.125 point to 0.25 point.

Also in the secondary market, Nortel's 4.25% convertibles due 2008 traded at 93.125 ahead of the Brampton, Ont.-based telecommunications networking equipment maker's expected pricing of a $2 billion, three tranche issue of fixed- and floating-rate senior notes, and following news that the company is cutting about 1,100 jobs globally to help improve operating margins and business performance.

In the primary market, Chesapeake Energy Corp. priced late Tuesday $500 million of mandatory convertible preferred stock at par of $250, with a dividend of 6.25% and an initial conversion premium of 20%.

Also after the close, Vector Group Ltd. was expected to price $85 million of 20-year convertible bonds in an overnight deal, via sole bookrunner Jefferies & Co. Inc.

Vector to call older convertibles

Vector's overnight deal of senior convertible debentures was talked to yield 5.5% to 6% for the coupon, with an initial conversion premium of 29% to 33%. However, the coupon wasn't straightforward.

It was talked to yield 3.75% to 4.25% plus an additional amount equal to the cash dividends per share paid on Vector's stock during the prior three-month period multiplied by the total number of shares into which the debentures are convertible. The coupon will have a floor, with the total to be no less than 5.5% to 6%, according to a syndicate source. The books were still open at press time, according to a buyside source.

The bonds are non-callable for six years, and have puts in years six, 10 and 15.

Vector plans to use proceeds to call its 6.25% convertibles due July 15, 2008, of which there is $63.1 million principal outstanding, and for general corporate purposes.

Miami-based Vector (NYSE: VGR) is a tobacco holding company.

Chesapeake prices mandatories

Chesapeake Energy's $500 million of mandatory convertible preferred stock priced toward the cheap end of talk for the dividend and at the cheap end of talk for the premium, according to a syndicate source.

Price talk was 5.875% to 6.375% for the dividend and 20% to 25% for the initial conversion premium.

Concurrent with the mandatory preferreds, Chesapeake offered 20 million shares of common stock and $500 million of seven-year senior notes. The notes priced to yield 7.95%, or 275 basis points over Treasuries.

Goldman, Sachs & Co., Banc of America Securities LLC, Credit Suisse, Lehman Brothers Inc. and UBS Securities LLC were joint book-running managers, with Goldman was sole physical books.

There is a greenshoe of $75 million for the three-year mandatories.

Proceeds from the offering, together with proceeds from the concurrent public offerings of senior notes and common stock, are expected to fund Chesapeake's recently announced Barnett Shale acquisitions for $932 million, to repay outstanding indebtedness under its revolving credit facility and for general corporate purposes.

Oklahoma City-based Chesapeake (NYSE: CHK) is the second largest independent natural gas producer in the U.S.

MedImmune moves lower with stock

The newish convertibles of MedImmune moved lower on Tuesday, but mostly in line with its underlying shares, which lost 2.5%.

The seven-year B tranche, which carries a coupon of 1.625%, traded at 99.725 versus a share price of $26.58 on Tuesday, compared to a close of 100.54 bid, 100.79 offered versus a share price of $27.08 on Monday.

Muted trade seen

On the equity side, airline stocks moved down as a group Tuesday as some energy names gained in tandem with higher crude oil prices. But convertibles traders said very few airline or energy convertibles traded.

Of those that did, JetBlue Airways Corp.'s 3.50% convertibles traded at 90.25 versus a closing stock price of $12.43, down 42 cents, or 3.3%, compared to 90.75, versus a stock price of $11.50 a week ago.

Meanwhile a New York-based dealer closed the 4.9% convertibles of Devon Energy/Chevron at 119.75 versus a stock price of $60.10, and the 4.95% at 118.87, versus the same closing stock price.

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