Lehman trades mixed; CIT edges higher; Amylin quiet despite Byetta concerns, Bristow deal seen cheap

By Rebecca Melvin

New York, June 9 - The convertible preferred shares of Lehman Brothers Holdings Inc. traded mixed on Monday after the New York investment bank said its quarterly loss would be an unexpectedly large $2.8 billion and that it was raising $6 billion in capital, including $2 billion in mandatory convertibles.

"Lehman is getting pushed all over the place," a New York-based sellside trader said Monday.

The older Lehman paper was said to be holding up well, or even expanding, despite a significant decline in the underlying shares on Monday.

CIT Group Inc. bucked the overall trend in financials on Monday, with the CIT 8.75% perpetual convertible preferreds adding in line, or a little better, compared with its underlying shares after the company announced that it has agreed to a $3 billion long-term financing facility with Goldman Sachs Group Inc.

"The old Lehman did better. CIT was better; CDS was tighter," a New York-based sellside trader said.

National City Corp. saw its convertibles lower amid headlines regarding its memorandum of understanding with U.S. regulators to address its rising amount of bad loans and lingering concern over the regional bank's exposure to hard-hit Ohio and Michigan real estate markets and bad timing on getting involved in Florida construction loans.

National City's 4% convertible due 2011 were seen down about 2.5 points as its shares slid 9.7%.

Convertibles players remained focused on financials, a trend that was called six weeks old or six months old, depending on different sources. Energy also continued to be in focus, but not much was happening elsewhere, sources said.

Amylin Pharmaceuticals Inc. was quiet despite a 10.3% drop in its underlying shares after concerns were raised about competition facing the company's top-selling Byetta diabetes drug.

"No one checked with us in the name today," a New York-based sellsider said.

In the primary market, two new deals emerged. Bristow Group Inc.'s $100 million of 30-year convertibles was seen cheap despite anticipated borrow problems; while Sotheby's announced a planned $150 million of five-year senior unsecured convertible notes; but price talk wasn't available by press time.

One sellsider summarized the session: "It was a hot weekend, and everybody was in place right off the bat. But the summer bookend days are historically a little slower, and for whatever reason, it was busy, but not active. Tomorrow will probably be more active."

Lehman moves eyed closely

Sources gave mixed reviews of Lehman's new offerings on Monday.

"A mandatory preferred is just a silly piece of paper. The extra yield over the common is evaporated by the guaranteed loss of all your premium over the three-year period. Not sure why people buy this crap! Still buying LEH common, in other words, the preferred at 28 is a good deal in my opinion," one sellsider said.

Others echoed his sentiments, with one person guessing that those buying the new paper were investors trading out of the existing Lehman preferred. "But it didn't make a lot of sense" given the structure of the new paper, a buyside analyst said.

Another sellsider saw the broader situation favorably: "They're being proactive. It's good in my eyes.... Maybe they've not taken all the write-downs they need to, but the fact is, they're at least in motion," the sellsider said.

Lehman priced $2 billion of mandatory convertible preferreds with an 8.75% dividend and with an initial conversion premium of 18%.

Concurrently Lehman priced $4 billion of common stock, for a combined capital raise of $6 billion. The common priced at $28.00 per share.

The new 8.75% series Q non-cumulative mandatory convertible preferred stock was initially bid above par, sources said. But by afternoon, it was quoted at 9,648 versus $28.52.

On April 1, Lehman priced $4 billion of perpetual convertible preferred stock with a dividend of 7.25% and an initial conversion premium of 32.5%.

The Lehman 7.25% convertible preferreds were quoted at 999 bid, 999.5 offered versus a share price of $30.00, which represented bids that were essentially unchanged versus $31.20 on Friday.

"Bids were the same, with the stock lower as there's more capital," a sellsider said.

"The structure doesn't make much sense. You're going to end up with the stock, and the stock will outperform on the way up. But if you're worried, you should buy the bonds," he said.

Standard & Poor's said the rating on Lehman (A/negative/A-1) will not be affected by the firm's announcement of an expected $2.8 billion net loss for the second quarter.

The agency said its recent downgrade of Lehman integrated an expectation that the firm's second-quarter performance would meaningfully deteriorate.

The loss primarily reflects negative valuation adjustments and hedging losses in the firm's fixed-income business, the agency noted.

Lehman's shares (NYSE: LEH) closed down $2.81, or 8.7%, at $29.48.

CIT lifts, but NCC sags

Also in trade on Monday were the 8.75% convertible preferreds of CIT Group. They were seen at 50.75 bid 50.875 offered versus a share price of $9.20 shortly after noon. But they closed higher at 51 versus a share price of $9.48.

Shares of the New York-based commercial finance company (NYSE: CIT) closed up 29 cents, or 3.2%.

Meanwhile the National City 4% convertibles were last at 82.5 versus a closing share price of $4.47, compared to about 85 versus a share price of $4.95 on Friday.

The Cleveland-based regional bank was making headlines due to its memorandum of understanding signed with U.S. regulators under which it promises to address rising amount of bad loans. But the bank hasn't "given color on the MOU yet," a buyside analyst pointed out.

National City's shares (NYSE: NCC) closed down 9.7%.

Amylin remains quiet

Elsewhere, Amylin Pharmaceuticals saw its convertibles quiet as its underlying shares sank on concerns that Byetta, the company's top-selling diabetes drug, may come under pressure from competitors, including Roche and Novo Nordisk.

"The stock is getting destroyed," a New York-based sellside trader said. And regarding the convertibles, he said: "There's nothing trading. No one checked with us in the name today. The stock borrow is not the best in the world."

Amylin's 3% convertibles due 2014 were seen at 86.125 bid, 86.325 versus a share price of $26.84, compared with 86 versus a share price of $29.93 on Friday.

Shares of the San Diego-based drug company (Nasdaq: AMLN) closed down $3.09, or 10.3%, at $26.84.

Bristow looks cheap

Using credit spreads in line with Bristow's existing straight debt, the $100 million of 30-year convertibles that Bristow plans to price Wednesday after the close looked very cheap, sources said.

The paper was talked to price at 3% to 3.5% for the coupon and with an initial conversion premium of 60% to 65%.

Concurrently, Bristow plans to price 4.1 million shares of common stock.

Both offerings are registered. Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co. and J.P. Morgan Securities Inc. are joint bookrunners for the convertible notes offering.

The notes are non-callable for seven years until June 2015. There are puts in 2015, 2020, 2025, 2030 and 2035. There are also additional warrants related to the offering.

Proceeds from both offerings are earmarked to fund the purchase of additional aircraft and for general corporate purposes.

Shares of the Houston-based provider of helicopter service for offshore oil production (NYSE: BRS) closed down $2.45, or 4.9%, at $47.30.

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