Amgen, Medtronic succumb to profit taking; Intel up; Liberty/Time Warner in line despite warnings

By Rebecca Melvin

New York, Jan. 7 - Convertible bond players continued to be pretty good bidders on Wednesday, but some were taking profits, particularly on some of the investment-grade paper that has been moving higher and in some cases gapping up, sources said.

"Everything has been getting better. But some true convert arb positions are coming for sale," a West Coast sellside trader said, adding that the trend had started late Tuesday and continued into Wednesday.

Among those investment-grade names that were being offered were Amgen Inc. and Medtronic Inc. Amgen was called lower by 0.5 point to 0.75 point, and Medtronic was off by 0.5 point, according to one sellsider.

Amgen series A convertibles, which are on Barclays Capital's recommended portfolio list - along with the series A paper of other issues from EMC to Transocean to Symantec - were down nearly 5 points outright.

"They are selling and reaching for yield," a sellsider said. "Yieldy names are getting better pretty much across the board from tech to retail to energy."

But high-grade name Intel Corp. was better despite lower shares and a dismal preannouncement - which worsened the prospects for its upcoming earnings report from a previous preannouncement in November.

Nabors Industries Inc. - also on Barclays' recommended portfolio list - was also better. The Bermuda-based oil and gas land drilling contractor's straight debt offering helped boost the convertibles, a sellside desk analyst said.

Liberty Media Corp./Time Warner Inc.'s 3.125% exchangeables were trading pretty much in line with where they had been despite the company's saying it now expects a 2008 loss, which changed prior expectations of a gain.

The company said legal and lease-restructuring charges and the economic downturn were to blame for the poorer result.

Things were not "massively" for sale; bids were just getting hit, traders noted. Investment-grade stuff was for sale. Financials still dominate activity, and energy is getting into the mix, one sellsider said.

"Some are backing off from the strong gains over the last week. There were some major negative comments for financials today, but people don't seem as distraught as they were a couple months back," a New York-based sellside trader said.

"High yield and yieldy people are going further out on the risk curve," a West Coast-based sellsider said.

In equities, earnings warnings and unemployment data disappointed investors, who sent the major stock indexes down between 2.7% to 3.2%.

ADP Employment Service forecast that private-sector employment fell by 693,000 in December, suggesting nonfarm payroll numbers to be released on Friday will show a larger-than-expected decline.

While this type of data isn't new, it seemed to rain on the parade of some who had been optimistic about the salubrious effects of recent Federal Reserve and Treasury actions in the market and the potential for the incoming administration of president-elect Barack Obama to be able to stimulate the economy.

Intel strengthens

Intel's 2.95% convertibles due 2035 traded up to 91.7 on Wednesday and went out at about 91, which was still up from the beginning of the week when they were 88 bid, 89 offered.

The couple-point increase was notched despite lower underlying shares, which settled Wednesday at $14.44, which was down 93 cents, or 6%.

"They were crazy. I can't justify the valuation. It's crossover buyers; it's got to be. No convert arb guy I know would pay that," a New York-based sellsider said.

The paper is extremely long dated, with about 28 years left on the issue, which was a $1.6 billion deal.

The Santa Clara, Calif.-based chip maker announced preliminary fourth-quarter financial information, saying revenue will be about $8.2 billion for the fourth quarter, which will be down 20% from the third quarter and down 23% from a year earlier.

The forecast is lower than the company's previous preannouncement made Nov. 12, "as a result of further weakness in end demand and inventory reductions by its customers in the global PC supply chain," according to a news release.

In addition, gross margin for the fourth quarter is now at the bottom of the previous expectation at about 55%, plus or minus a couple of points.

The company also said that it is taking a charge of about $950 million due to the year-end market price of Clearwire Corp. stock. And Intel expects the net loss from equity investments and interest to be between $1.1 billion and $1.2 billion, versus a previous expectation of a loss of about $50 million.

Furthermore, the chip maker said spending (R&D plus MG&A) is expected to be a bit lower at $2.6 billion, from a previous expectation of $2.8 billion. Restructuring and asset impairment charges are expected to be unchanged at about $250 million.

The company is scheduled to announce fourth-quarter earnings Jan. 15.

Nabors moves up with new offering

Nabors' 0.94% convertibles due 2011 traded up at 87 on Wednesday, compared to 83.75 posted by NASD Trace late Tuesday. But Nabors shares fell 53 cents, or 4%, to $12.79.

Nabors was up on news of a straight debt offering, a New York-based sellside desk analyst said.

Nabors priced $1.125 billion of 9.25% 10-year notes to yield Treasuries plus 676.1 basis points via Rule 144A. The offering increases leverage but brings additional liquidity, and the new bonds mature well after the convertibles, the desk analyst pointed out.

Fitch Ratings said it downgraded Nabors' issuer default, senior unsecured and convertible debenture ratings to BBB+ from A- following the news. But the outlook was revised to stable from negative.

Fitch said the action reflects both the weaker operating environment for land-based drilling companies as well as expectations of increased leverage for the company.

The ratings are supported by the size, diversity and quality of the company's fleet of drilling and workover rigs as well as the forward earnings and cash flow protections of previously signed contracts, the agency said.

Fitch said Nabors has a solid history of maintaining a robust credit profile throughout industry cycles and the company's ability to maintain its credit profile is supported by its significant cash balances and the flexibility to reduce capital expenditures and generate significant free cash flows should the market conditions weaken further.

Players take profits

Both Amgen and Medronic were "in" a little due to hedge players taking profits in both names, which had richened considerably in the past week and even through much of December, sources said. In exchange, people were looking to buy low-premium and better-yielding names.

Amgen's shorter-duration paper endured greater selling pressure, moving down almost 5 points outright, compared to the longer-dated paper, which moved less than a point.

Amgen's 0.125% convertibles due 2011 were reported last on NASD Trace at 92.162, compared to 97 at the end of Tuesday.

The Amgen 0.375% convertibles due 2013 were seen on NASD Trace at 94.75 last, compared to 95.55 late Tuesday.

Shares of the Thousand Oaks, Calif.-based biotechnology giant slipped lower in light trade to $58.20, down 14 cents, or less than a quarter of a percentage point on the day.

Liberty/Time Warner little changed

The Liberty Media Corp./Time Warner Inc. 3.125% exchangeables due 2023 traded in line compared to where they were on Tuesday, when they outperformed their delta trading, a sellside source said.

They traded at 77.5 versus a stock price of $10.30 on Wednesday, compared to prints in the 73.125 to 73.5 area versus a stock price of $10.63 on Tuesday.

"Folks watched every fly for a few days; still no reason to sell, more likely tired of chasing at 78.687-79.194 versus 10.98," a New York-based sellside trader said.

The underlying shares of Time Warner, a New York-based media company, lost 69 cents, or 6.3% to $10.29 after the company said it expects to take a $25 billion fourth-quarter charge to write down the value of its cable, publishing and AOL assets, which will result in a fourth-quarter and full-year loss.

Previously, the company expected 2008 earnings of between $1.04 per share to $1.07 per share.

Results have been pressured by economic conditions that are more difficult than initially anticipated, the company said in a release.

Time Warner's cable television arm will account for $15 billion of the charge, with the remainder related to its publishing and AOL divisions, according to an Associated Press report.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Intel Corp. Nasdaq: INTC

Medtronic Inc. NYSE: MDT

Nabors Industries Ltd. NYSE: NBR

Time Warner Inc. NYSE: TWX

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