UAL, airlines higher with lower oil prices; Lifepoint contracts; RadioShack, China Medical to price

By Rebecca Melvin

New York, Aug. 11 - A drop in oil prices spurred airline convertibles and their underlying shares higher on Monday in a session that was otherwise generally quiet, market participants said.

Traders said it was a quiet "summer Monday."

Crude oil prices dropping to a 14-week low caused airlines convertibles, particularly UAL Corp. and AMR Corp., to move higher.

UAL's 4.5% convertibles moved as much as 7 points higher to 61 at about noon ET before they eased slightly from that level.

Continental Airlines Inc. was another name in trade, with the 5% convertibles called a touch better on the day, while the Continental convertible preferreds were also in trade.

Elsewhere, Lifepoint Hospitals Inc. convertibles were lower, however, following strength on earnings news Friday.

In the primary arena, two new deals were launched, with pricing expected after the market close Tuesday. RadioShack Corp. plans to price $300 million of five-year convertible senior notes talked to yield 2.5% to 3% with an initial conversion premium of 27.5% to 32.5%; and China Medical Technologies Inc. plans to price $150 million of five-year convertible senior notes talked to yield 3.75% to 4.25%, with an initial conversion premium of 20% to 25%.

UAL gains altitude

UAL's 4.5% convertibles "definitely traded up a bit," according to a New York-based sellside trader.

The convertibles, which mature in 2021, opened up at about 56 bid on Monday from a Friday close at 54 bid, 55 offered. There was a print at 61 at about noon on Monday.

UAL, the Chicago-based parent of United Air Lines Inc., also has a convertible issue with a 5% coupon; but they weren't seen active in trade.

Shares of UAL were extremely active and closed up $1.14, or 10%, at $12.27.

"One investor was saying they were active in UAUA today," according to a sellside trader, and indeed, they have been quite active for several weeks, with the 4.5% convertibles moving up from the mid 30 level versus a share price of about $4.50.

"People are hedged up pretty heavy," the sellsider said.

The 4.5% paper was active on Monday. But the 5% paper is also pretty active, he said. "I might prefer the 5%, but I guess if they file, it doesn't matter."

He was referring to the possibility of a bankruptcy filing. "At this point, if you're looking at a stock trading at $12.25, and the market cap still valuing at $1.5 billion: that's a lot of money banking on the fact that they're not."

Crude oil prices retreated on signs that weakness in the U.S. economy will continue into 2009 resulting in a concomitant reduction in oil demand.

Crude oil for September delivery fell 75 cents, or 0.7%, to settle at $114.45 a barrel on the New York Mercantile Exchange, the lowest close since May 1. But prices are still up 60% from a year ago.

AMR, Continental pull higher

AMR's 4.5% convertible senior notes due 2024 were seen closing up more than a point at 95.4 versus a share price of $12.18 on Monday, compared with 93.75 versus a share price of $11.26 on Friday. In mid-July, the 4.5s were at 82 versus a share price of $6.75.

The AMR 4.25% convertibles due 2023 were seen at 98.7, compared to 97 on Friday.

Shares of the Forth Worth, Texas-based airline (NYSE: AMR) rose 92 cents, or 8%, on Monday.

Continental's 5% convertible senior notes due 2023 were called 107 versus a share price of $17.75 on Monday, compared to 101.5 versus a share price of $16.48 on Friday.

"They were a touch better, dollar neutral," a sellside trader said. "Things were feeling a little bit better from Friday. There were no huge bankruptcies pulling the market down - yet."

Shares of Houston-based Continental (NYSE: CAL) added $1.27, or 7.7%, at $17.75.

Lifepoint lower despite higher stock

Lifepoint's 3.25% convertibles due 2025 traded at 89.875 versus a share price of $33.88 on Monday, compared to 90 versus a share price of $33.00 on Friday.

Shares of the Brentwood, Tenn.-based rural hospital owner and operator (Nasdaq: LPNT) gained 97 cents, or 3%, on Monday.

"Those came in pretty hard," a New York-based sellside trader said. "They're in about half a point from Friday."

The company reported higher revenue and income from continuing operations for its second quarter, net income increased 128.9% to $30.5 million, and debt was lower, but volumes for the quarter were disappointing, according to a CreditSights research report published Monday.

"Admissions declined 2.3% and adjusted admissions declined 1.1% in 2Q08 over 2Q07 levels," the CreditSights report stated.

"Management cited decline in self-pay admissions, the closure of two obstetric facilities and one rehabilitation unit and a shift to the out-patient setting (from inpatient) as probable causes."

Lifepoint volume also was lower due to declines in self-pay admissions.

"[A] shortfall in net physician hiring during 2007 was also a factor that probably contributed to the volume decline," CrediSights said.

RadioShack to price

Forth Worth, Texas-based RadioShack said that it is planning to price $300 million of five-year convertibles in a Rule 144A deal being sold via joint bookrunners Citigroup and Banc of America Securities LLC. Merrill Lynch, Wachovia and Wells Fargo are co-managers.

The notes have an over-allotment option of $50 million.

They are non-callable for life with no puts.

The consumer electronics retailer plans to use proceeds to pay for the net cost of the convertible note hedge and warrant transactions and to fund a share repurchase. The remaining proceeds will be used for general corporate purposes.

China Medical to price

China Medical Technologies plans to price $150 million of five-year convertible senior notes via Credit Suisse Securities (USA) LLC and Morgan Stanley & Co.

There is a greenshoe of $22.5 million.

Concurrently with the notes offering, ADS issuance and repurchase agreements are being made with affiliates of the underwriters.

Distribution for both offerings is via a shelf registration filed Monday.

The convertible notes are non-callable for life and have dividend and takeover protection.

China Medical has an existing issue of 3.5% convertibles, priced in November 2007, that is in the money.

China Medical ADS have risen dramatically (Nasdaq: CMED) from about $33 in June to about $55 on Monday. The shares have risen from about $46 in the last several days.

Proceeds of the note offering are for general corporate purposes and for the acquisition of businesses, products and technologies that the company believes will complement its existing business.

China Medical is a medical device maker based in Beijing.

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