Convertibles stronger: Mylan adds 0.5 point; strong bid on IG names; Allergan 1.5% notes up to par

By Rebecca Melvin

New York, Dec. 18 - The convertible bond market was attracting a lot of bids again Thursday, but not a lot of trades got done due to a lack of sellers, trading sources said.

Pricing was stronger as a result of the better bids, a New York-based sellsider said, adding that it bodes well for the convertible market in the future regardless of whether stocks continue to churn.

Especially for the larger, better credit quality issues, there were "some bids but no sellers," a New York-based sellside analyst said.

Volume was thin. But "it's to be expected at this time of year. People are just winding down," another New York-based sellsider said, referring to the holiday lull that has now set in.

"They'll come back in January. They'll figure out where things are and then make their decisions," the sellsider said.

Meanwhile, the market, despite the recent grab for all things investment grade, continues to be very cheap despite recent strengthening. "There's a ways to go," the trader said.

"Things are a lot better. Although it's less dramatic than yesterday," the trader said.

Among names in trade Thursday, Mylan Inc. bonds gained a couple of points outright, or about 0.5 point on a dollar neutral basis, amid no particular news, sources said.

JPMorgan began coverage on the Canonsburg, Pa.-based generic drug maker at "overweight" on Wednesday, and that probably had something to do with it," one New York-based sellsider said.

Also trading were Amgen Inc. and Prudential Financial Inc., as well as Allergan Inc., which surprised traders by moving up to trade at par.

"The stock was down for the day, and this thing traded in the mid 90s earlier in the week," a New York-based sellside trader said, saying that the strength in that paper seemed "weird."

NII Holdings Inc. also made a nice move up. They traded 87 bid, 87.375 offered, up a few points from the most recent trades, a sellsider said.

In energy, the usual suspects Nabors Industries Ltd. and Transocean Corp. were very active, a sellsider said, and seemingly unfazed by crude oil falling nearly 10% to $36.22 a barrel.

General Motors Corp. convertibles were lower after news that the Bush administration is considering "orderly" bankruptcy as a way of dealing with the ailing U.S. auto industry.

Mylan bonds add 0.5 point

The Mylan Laboratories 1.25% convertibles due 2012 were seen trading with a 71 handle late in the day. NASD Trace put a late trade at 73.

The bonds are up from the high 60s, where they had been trading for at least three weeks. Before then they had been trading in the mid-50s.

"I bought a chunk back when it was 55, 56 and then it jumped to the high 60s, and they had been there for quite awhile," a New York-based sellsider said.

The Mylan 3.75% convertibles due 2015, which priced in September, were seen at about 87, and the Mylan 6.5% mandatory convertible preferred shares due 2010 were seen in the low 600s.

The convertibles weren't much affected by their underlying shares, which pared losses during the session, to settle down just 8 cents, or 0.8%, to $9.66. Earlier the shares had fallen to $9.42, but on light volume overall.

On Wednesday a JPMorgan analyst said Mylan is likely to improve its profit margins over the next two years and benefit from increasing use of generic pharmaceuticals in foreign markets.

The analyst put a rating of "overweight" on the shares, with a price target of $14 per share, and said the company's profit margins should grow over the next year or two as it integrates the Merck business.

The JPMorgan analyst forecast an annual profit of 65 cents per share in 2008 and $1.04 per share in 2009, according to an Associated Press report.

Allergan jumps to 100

Allergan's 1.5% convertibles due 2026 traded at par of 100 on Thursday, compared to a trade late Wednesday at 98, and that was up from 96.5 on Wednesday. Meanwhile its shares dropped $1.01, or 2.7%, on Thursday to settle at $35.88.

Since Wednesday until about 2 p.m. ET on Thursday the stock had been in a fairly narrow range, and traders could not pinpoint anything that would have led the issue to move up so strongly.

"The Allergans are a surprise; they're trading between 99.5 and par. It doesn't make any sense. I'd love to know what's going on," one trader said.

Another trader said, "it seems weird. If it was short covering, you'd see the stock go up."

"At 74% premium, there's no play here. The only play would be if you bought them to hedge them," the first trader said.

GM falls on bankruptcy talk

The GM 6.25% convertibles due 2033 closed down 27 cents, or 7.1%, to $3.48 in slightly less-than-average volume versus a closing stock price of $3.66. That compared with $3.75 versus a stock price of $4.37 at the close Wednesday for the GPMs.

The GM 5.25% convertibles due 2032 dropped 24 cents, or 7.4%, to $3.00 versus a closing stock price of $3.66. That compared with $3.24 versus a stock price of $4.37 on Wednesday for the GBMs.

The shorter dated GM 1.5% convertibles due June 2009 closed down 46 cents, or 7.8%, at $5.45.

Shares of the Detroit-based carmaker sank 71 cents, or more than 16%.

The Bush administration said it is looking at an "orderly" bankruptcy. White House press secretary Dana Perino said it wasn't simply a choice between government rescue and the disastrous collapse of a major industry. "There's an orderly way to do bankruptcies that provides for more of a soft landing," she said. "I think that's what we would be talking about."

A White House decision on helping the troubled automakers could come as early as Friday.

Mentioned in this article:

Allergan Inc. NYSE: AGN

Amgen Inc. Nasdaq: AMGN

General Motors Corp. NYSE: GM

Mylan Inc. NYSE: MYL

Nabors Industries Ltd. NYSE: NBR

NII Holdings Inc. Nasdaq: NIHD

Prudential Financial Inc. NYSE: PRU

Transocean Inc. NYSE: RIG

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