JDS Uniphase firm on sector concerns; Goodrich quiet in debut; Amgen, Gilead hit on broad pullback

By Kenneth Lim

Boston, Dec. 1 - JDS Uniphase Corp. held steady on Friday and improved slightly on a dollar-neutral basis, but the rest of the convertible bond market hardly saw any action.

Goodrich Petroleum Corp. fell victim to the lackluster market, staying quiet on its debut even after its offering arrived at the cheap end of talk.

Beyond that, a dearth of market-moving news and the typical Friday slowdown provided little to stir the still waters of the convertible bond market.

"It's kind of dead," a sellside convertible bond trader said. "I hate to say that, but it seems like securities trading haven't been terribly significant."

Biotech giant Amgen Inc. saw its 0.125% convertible due 2011 slip ½ point outright to 99 against a stock price of $71, while its 0.375% convertible due 2013 also declined ½ point outright to 99.25 versus the same stock price. Stock of Thousand Oaks, Calif.-based Amgen (Nasdaq: AMGN) closed at $69.38, down by 2.34% or $1.66.

Gilead Sciences Inc.'s 0.5% convertible due 2011 also retreated about ½ point outright, trading at 102.25 against a stock price of $65. The Foster City, Calif.-based drug maker's 0.625% convertible due 2013 was also ½ point weaker outright at 102.5 against the same stock price. Gilead stock (Nasdaq: GILD) closed down 1.12% or 74 cents, at $65.22.

The biotech declines came despite a bullish note by Thomas Weisel Partners equity analyst Ian Somaiya, who said a falling dollar could benefit large biotech companies such as Amgen and Gilead.

"A number of the biotechs were down today," a buyside convertible bond trader said. "I saw there was some sellside research that should have been positive, but I think investors were more concerned about some of the economic data that came out."

Also seen trading on Friday was Diamond Offshore Drilling Inc.'s 1.5% convertible due 2031, which gained about 3 points outright in line with its stock. The convertible changed hands at 160 against a stock price of $77.625, while Diamond Offshore stock (NYSE: DO) rose 3.83% or $2.97 to close at $80.59.

Houston-based Diamond Offshore is an offshore oil and gas drilling contractor.

"There were a few names that were trading, but it's the usual bunch," the buyside trader said. "There's nothing significant."

JDS Uniphase dragged lower

JDS Uniphase's zero-coupon convertible due 2010 held firm on Friday, improving slightly on a dollar-neutral basis after the stock fell in reaction to poor results at competitor Finisar Corp.

The JDS Uniphase convertible traded at 91.75 against a stock price of $18.50, unchanged on an outright basis. JDS Uniphase stock (Nasdaq: JDSU) closed at $18.05, down by 2.33% or 43 cents.

Sunnyvale, Calif.-based Finisar said late Thursday that it was expecting third-quarter revenue of $108 million to $112 million, below Street estimates of about $114.3 million. The company also said it launched an investigation into its stock options dating practices and will probably have to restate past results.

The news hit Finisar's stock, which fell about 11.23% on Friday, and also weighed on JDS Uniphase, a sellside convertible bond analyst said. JDS Uniphse is a Milpitas, Calif.-based maker of communications equipment.

"The stock looks like it reacted to the Finisar results and the investigation," a sellside convertible bond analyst said. "There's some concern about Finisar's guidance for 3Q, which was lower than expected, but I'm not sure that it necessarily means JDSU is also looking at a tough quarter. They've [JDSU] made progress in getting back to profitability, and on the whole the sector looks like it's not getting worse."

The analyst said there should not be any change to JDS Uniphase credit.

"I don't think it changes anything for the credit," the analyst said. "If anything it probably increased volatility a little."

Goodrich quiet on debut

Goodrich Petroleum's new 3.25% convertible senior notes due 2026 did not see active trading on Friday, as the market generally stayed on the sidelines even after the deal came at the cheap end of talk.

"I'm not seeing anything in it," a sellside convertible bond trader said. "But if you ask me, people were a little tighter on the credit than what I thought was fair."

The convertible, which has an initial conversion premium of 50%, was talked at a coupon of 2.75% to 3.25% and an initial conversion premium of 50% to 55%. The notes were offered at par.

There is an over-allotment option for a further $50 million.

Bear Stearns and Deutsche Bank were the bookrunners of the overnight Rule 144A offering.

Goodrich stock (NYSE: GDP) dropped 4.8% or $2.11 to close at $41.85 on Friday.

There is a concurrent registered offering of up to 3.3 million shares of Goodrich common stock that will be used for a 20-year share lending agreement with Bear Stearns.

Goodrich, a Houston-based oil and gas exploration company, said it will use the proceeds of the deal to repay a $50 million term loan and pay part of an outstanding senior debt.

A sellside convertible bond analyst said a slow market and the short marketing period may have dampened interest in the deal.

"It seems like a quiet day, for one thing," the sellsider said. "It's also a relatively small company, and most of the time those guys don't do overnights."

It did not help that the stock fell after the deal was announced.

"It was a 50% conversion premium, but that was all based on the closing price of the stock [on Thursday]," the buysider said. "So then the stock fell after that, so you're really talking close to a 60% premium now."

But the buysider explained that the high initial conversion premium will be effectively lowered because Goodrich has some warrants that will kick in within the year.

"It's sort of a little bit of a complicated, unusual structure," the analyst said. "A couple of people on the sellside modeled it, it came a couple of percent cheap, but it's a complicated structure and we didn't get involved."

The analyst added that it was not clear whether the stock borrow facility created for the offering was enough to make the deal attractive for hedge investors.

"It's one of those deals...where there's no borrow, so the company lends out some stock," the buysider said. "I don't know how much that loosed up the borrow, but it helped get the deal done."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.