Mylan, Medtronic trade flat to lower; Ambac gives back some gains; energy names quiet despite storm

By Rebecca Melvin

New York, Aug. 29 - Trading in the convertibles market was slim with a modest amount of month-end housecleaning on Friday, the last trading day of August and the final day before the long Labor Day weekend.

"It's not dead quiet - not yet, anyway," a New York-based sellside desk analyst said about the session.

Convertibles players, however, were generally cautious. "No one wanted to mark positions lower, and they weren't bidding things up. We're not seeing the typical flows of month end, or the price discovery. It was a quiet month end," a New York-based sellside trader said.

The story was the same for much of the week - which one trader said "has to be the longest week of the year" - due to the fact that it's unofficially the last week of summer.

But while the week's trading volumes were thin, its news flow wasn't that sparse. Instead, the final week of August was "eventful," as one trader put it.

Not only was there a decent amount of company news, including negative drug product news that hit several health care convertible names, but there was plenty of economic data as well as political developments.

On Friday, for example, John McCain caused quite a stir with his announced choice of running mate, Alaska governor Sarah Palin, a virtual unknown, but also a potential winning hand for the Republican ticket.

Mylan Laboratories Inc. traded mostly flat Friday as did another health care name, Medtronic Inc. There were quite a lot of trades in this sector during this week.

But there wasn't much heard from financials Friday, as the week's rally in equities in that sector sputtered out. And while Ambac Financial Group Inc. mandatory convertibles gave back about 2 points outright on Friday, the name has still had a strong run up, with the stock now at more than $7 a share, compared with marking $1 and change in July.

Energy names were mostly quiet as well, with crude oil prices ending flat despite tropical storm Gustav tracking toward the Gulf of Mexico. But Hercules Offshore Inc., which priced an issue of convertibles May 29, traded at 83 versus a stock price of $22.50.

Mylan trades on the bid side

Mylan's 1.25% convertibles due 2012 traded at both 84.125 and 84.50 versus a share price of $13.00, according to several sources, which was pretty much where the bid was.

"I'd call it flat to 'in' a little," a trader said. "It traded on the bid side."

Mylan's 6.5% mandatory convertible preferred shares due 2010 weren't seen in trade but were indicated to close at 897 versus a share price of $12.89.

The Canonsburg, Pa.-based generic drug maker's shares (NYSE:MYL) shed 11 cents, or nearly a 1% on Friday.

News this week was that Mylan and Barr Pharmaceuticals Inc. are both launching generic versions of Ortho-McNeil's Alzheimer's drug Razadyne. The pair won a patent suit Thursday in the U.S. District Court for the District of Delaware that effectively voids one of the patents on that drug.

Medtronic off a little

Medtronic's 1.5% convertible senior notes due April 2011 (series A) traded at 109 versus a share price of $55.25 early Friday, and the Medtronic 1.625% convertible senior notes due April 2013 (series B) traded at 110.5 versus the same share price.

Shares of the Minneapolis-based medical device maker (NYSE: MDT) closed below that level, down 61 cents, or 1%, at $54.60.

The indicated closing prices of the issues were 108.6 for the series A and 109.7 for the series B, which was down about 0.5 point for both.

Volume in the name was much lighter than would typically be the case for the issues, however, one trader said.

Ambac eases back

Ambac Financial 9.5% mandatory convertible equity units due May 2011 traded at 49 during the session versus a share price of $6.90. The issue was seen closing at about that same level, although shares of the New York-based bond insurer (NYSE: ABK) closed higher at $7.16 - which was still down for the day by 26 cents, or 3.5%.

Ambac shares had surged on Thursday together with another bond insurer, MBIA Inc., on MBIA's news that it reached a deal to reinsure more than $180 billion in municipal bonds.

Also in financials, Lehman Brothers Holdings Inc. saw its newer preferred shares trade at 625 versus a share price of $15.50 and its older preferred issue trade at 64.5 versus a share price of $15.875.

Five-month-old Hercules at 83

Hercules 3.375% convertibles due 2038 traded at 83 versus a share price of $22.50.

Shares of the Houston-based oil services company (Nasdaq: HERO) closed a bit lower from there, down 50 cents, or 2.2%, at $22.07.

The company's stock slipped pretty steadily through Friday's session ending close to its low for the day.

Nevertheless, there was no evidence that the impending storm was stirring much investor anxiety. "It was not causing a lot of scrambling," a New York-based sellsider said. "Chesapeake, for one, would be one of the names in trade if people thought one way or the other about oil prices going up."

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