Gilead edges up further on swap; RadioShack steady; Hutchinson jumps; solar names in focus

By Rebecca Melvin

New York, Feb. 8 - Convertible bond market trading on Wednesday was dominated by a handful of investment-grade names such as Gilead Sciences Inc. and Amgen Inc., which were pulled slightly higher on a dollar-neutral, or hedged, basis amid weakness in the underlying shares.

Gilead was up probably about 0.125 point on swap in a continuation of the strong trading volume that has surrounded the convertibles of the Foster City, Calif.-based biopharmaceutical company for the last several weeks.

Last week, the company had favorable trial data for a hepatitis C drug acquired when it bought Pharmasset Inc. for $10.8 billion in January.

These high-grade names may see a weak day here or there, but in general they are continuing to strengthen amid tight supply in the convertibles universe and gains in the underlying shares, a New York-based trader said.

So far February has brought a cooling to the hot January rally, but things are still basically going up, he said.

According to Barclays Capital, convertibles rallied in January, returning 5.89% as equity markets rebounded sharply. The Barclays Capital IG Index gained 2.08% and the high-yield index was up 2.04%, according to Barclays. Treasuries rallied as well.

Elsewhere on Wednesday, yield name RadioShack Corp. was seen "better to buy" at steady to slightly higher pricing. Shares of the Fort Worth, Texas, electronics retailer were up 3% but have failed to recover much ground since their 30% slide last week on an earnings warning.

Also trading was Hutchinson Technology Inc.'s 3.25% convertibles, which jumped about 4 points as market players began to realize that the exchange offer that the Hutchinson, Minn.-based designer and manufacturer of precision technologies began on Monday is likely going to get done, and it means that those bonds are worth more than the current dollar value, a sellside trader said.

The convertibles of Suntech Power Holdings Co. Ltd. traded up 0.25 point to 0.5 point from previous levels amid sharply higher share prices for Chinese solar companies. Those equities jumped on Wednesday - including a 20% surge in Hanwha SolarOne Co. Ltd. shares - amid headlines about a shift in the solar sector to Asia in 2012.

"There were some headlines about China solar outperforming U.S. solar," a New York-based trader said.

But Hanwha's convertibles weren't seen in trade on Wednesday. They traded at almost 64 on Tuesday, which was lower than trades in that name on Monday, a sellsider said.

Gilead remains active, higher

Gilead's 0.625% convertibles due 2013, or B convertibles, traded at 145 during the session, which was 1.5 points lower outright but up about 0.125 point on swap, a trader said.

Gilead's 1% convertibles due 2014, or the C convertibles, traded at about 130, which was also slightly lower outright but improved on swap.

Shares of the Foster City, Calif.-based company slipped 81 cents, or 1.5%, to $54.27.

"Both Gileads were trading up another 0.125 on swap," continuing their notable trading volume and better pricing, a trader said.

He said he wasn't sure what was driving continued strength. But last Thursday, Gilead said that in a clinical trial, two groups of patients who were treated with a hepatitis C treatment called GS-7977 had undetectable levels of the hepatitis C virus after four weeks.

The patients took GSI-7977 and ribavirin, an older treatment for the virus, and they had either failed to respond to previous therapies or had not been treated before. In November, Pharmasset Inc., which developed the drug and was acquired by Gilead in January, said 100% of patients in a study responded to the drug.

RadioShack steady

RadioShack's 2.5% convertibles due 2013 traded right around 95 on Wednesday, which was more or less unchanged on the day, a trader said, and the company's credit default swaps were tighter on the day.

RadioShack was "better to buy," a trader said, referring to a stronger bid in the name.

Shares of the electronics retailer settled up 24 cents, or 3.3%, to $7.51 in stronger-than-average volume. But the equity has gained no ground to speak of since its 30% plunge Jan. 31.

The bonds trade outright and are not overly equity sensitive, however.

Last month, RadioShack warned that it beat fourth-quarter revenue estimates but missed profit expectations, blaming "significant declines" in its Sprint Nextel business. RadioShack said fourth-quarter revenue rose about 6% to $1.39 billion from $1.31 billion, beating the analysts' consensus estimate of $1.35 billion.

But fourth-quarter earnings of between 11 cents per share and 13 cents per share were sharply below 51 cents per share reported in the 2010 fourth quarter, and well below the estimate of 37 cents per share. In addition, gross profit margin as a percentage of sales fell to 35% from 41% in the year-earlier period.

Hutchinson gains

Hutchinson Technology's 3.25% convertibles due 2026 traded up to 84 to 85 on Wednesday, from 80 to 81. Shares of the company were up nearly 6%.

The company announced on Monday an exchange offer and tender offer for its 3.25% convertible subordinated notes, a tender offer for its 8.5% convertible senior notes due 2026 and a rights offering.

The company is offering $900 principal amount of new 8.5% senior secured second-lien notes due Jan. 15, 2017 in exchange for each $1,000 principal amount of 3.25% convertibles.

The company is in the middle of an exchange offer and it traded up, a trader said. "It's probably the most interesting thing that I looked at today."

Although the exchange was announced a few days ago, it has taken market players a few days to digest its implications, and also to determine if the exchange was really going to go through or not, the trader said.

In the past, the company has tried to conduct several exchanges that weren't completed.

The offers announced Monday expire March 6.

"People are feeling that if you're not going to exchange it, you're going to get par back, and that the convertible is worth closer to 90," the trader said.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Gilead Sciences Inc. Nasdaq: GILD

Hanwha SolarOne Co. Ltd. Nasdaq: HSOL

Hutchinson Technology Inc. Nasdaq: HTCH

RadioShack Corp. NYSE: RSH

Suntech Power Holdings Co. Ltd. NYSE: STP

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