American Medical mixed on hedge on takeout news; Endo lower; AMR off; PPL, Hercules on tap

By Rebecca Melvin

New York, April 11 - American Medical Systems Holdings Inc.'s convertibles jumped outright but were mixed on a hedged basis Monday after news that Endo Pharmaceuticals Holdings Inc. planned to buy the Minnetonka, Minn.-based medical device maker for $30.00 per share, or $2.9 billion, including the assumption of $312 million of American Medical's debt.

Endo Pharmaceuticals' convertibles were in about a point due to the slightly weaker credit profile resulting from the Chadds Ford, Pa., specialty drug maker's acquisition.

Level 3 Communications Inc.'s convertibles were mostly quiet but better after news that the Broomfield, Colo.-based wire line company plans to buy Global Crossing Ltd. for $2 billion. That merger will join two major long-distance telecommunications networks to carry massive internet and other data traffic in the United States and internationally.

AMR Corp.'s 6.25% convertibles due 2014 were active again on Monday, "widening out" further for about a 2-point move in the last several days, trading at 96.625 versus an underlying share price of $5.60, compared to 103.5 versus a share price of $6.40 last week, according to a New York-based sellside desk analyst.

On the new issue front, PPL Corp. launched an offering of $750 million of mandatory convertible equity units that were seen pricing after the market close Monday and were indicated up about a point in the gray market at 50.5 bid, 51 offered, compared to its $50 par.

In addition, Hercules Technology Growth Capital Inc. launched a small $75 million offering of five-year convertible senior notes that was talked at a coupon of 5.5% to 6% with an initial conversion premium of 15%, according to a market source.

Volume overall was thin but was typical for Monday trading action in the convertibles market, sources said.

"It's so dead, but that's become the new normal for Mondays," a sellside trader said.

American Medical mixed

American Medical's 3.25% convertibles were in trade at 153 versus a share price of $29.50, which was up more than 30 points outright and better on a hedged basis, market sources said.

Holders of American Medical Systems' 3.25% convertibles due 2036 looked like they would "be the big winners" in a take out of the issuer, on the make whole, a New York-based sellside desk analyst said.

"They were only trading around 3 points before the announcement," the analyst said.

A second sellsider said he thought the 3.25% convertibles would gain 8.25 points using a 70% delta.

American Medical's 4% convertibles due 2041 were in trade at 167 versus a share price of $29.50.

The 4%s were seen losing a point or two with the make whole. Using an 85% delta, they would lose about 2.125 points, the second sellsider predicted.

Shares of the medical device company gained $7.17, or 32%, to $29.50 in ultra-heavy volume.

Endo slips a little

Endo Pharma's 1.75% convertibles due 2015, which priced in 2008, were seen in trade at 155 versus a share price of $43.00 on Monday after news that it plans to buy American Medical.

The paper was seen coming in slightly to about 7.7 points from 8.5 points last week.

"Endo [convertibles] are in because they will have more debt, hence weakening the credit," a New York-based sellside trader said.

"I also think Endo should be better. The combined entity will be a much better company plus the bond's trading at such a low premium, they are attractive as is," the trader said.

Shares of the Chadds Ford, Pa.-based company ended just above the neutral line, up 21 cents, or 0.5%, at $41.06 in active trade.

The shares opened higher at $43.13, which was up from $40.95 from late last week.

The proposed acquisition, touted as furthering Endo's evolution from a product-driven company to a health care solutions provider, strengthens Endo's leading core urology franchise while diversifying revenue, earnings and cash flow. It also fulfills Endo's strategy to build scale in devices and its services business, according to Endo's news release.

The Endo-American Medical deal is expected to immediately add to Endo's adjusted earnings in 2011 and to boost 2012 and 2013 earnings.

Also Monday, Endo reiterated its solo 2011 revenue guidance of between $2.35 billion to $2.45 billion and full-year adjusted diluted earnings per share to be between $4.20 a share to $4.30 a share. It estimated reported (GAAP) diluted earnings per share to be between $2.43 per and $2.53 per share.

Level 3 boosted by Global buy

Level 3's sizable move in its high-yield bonds wasn't mirrored in the convertibles, which were mostly quiet, but the same rationale that boosted the junk bonds was likely to keep the convertibles strong, market players said.

"There's significant overcapacity in wire line, so if you get these guys together, and you put the two revenue streams together and the two debt streams together and you eliminate $300 million of expenses - which is not a stretch - it's pretty significant," a Connecticut-based sellside analyst said.

The Level 3 6.5% convertibles due 2016 traded at 155 early, compared to 145 bid, 146 offered last week. "That's totally moving with the stock," the analyst said. About $8.5 million of the 6.5% convertibles traded, which isn't really that much, a sellsider said.

Meanwhile Level 3's 3.5% convertibles due 2012 were quote up a bit at 99.5 last, compared to 99.125 in a dealer bought deal last week. About $1 million of those bonds traded.

"They didn't really move that much," the analyst said of the 3.5% convertibles. "But they have a short maturity of June 2012, and they are so busted."

"Everything on Level 3 is up quite a bit," he said.

By way of comparison, the Level 3 9.675% straight bonds traded up to 103 bid on Monday, from 98.9 on Friday. The current market is 103 bid, 104.5 offered.

The Level 3 15% due January 2013 strike at $1.80, and that's a $400 million issue, which traded at 142.125 compared to previous level of 130.

"That's a good hedge. Put that on a 100% hedge," the analyst said of the 15% paper.

PPL looks to add

PPL, the Allentown, Pa.-based electricity producer, launched a $750 million offering of mandatory convertible equity units that were talked to yield 8.75% to 9.25% with an initial conversion premium of 17.5% to 22.5%.

"I think it will trade a point over if not better," a New York-based sellside trader said of the planned paper with a $50 par.

Market players were using the existing PPL 9.25% convertible mandatories as a comparison for valuations, and that paper was 53.25 bid, 53.5 offered versus a $25.70-ish stock price on Monday, a New York-based sellside trader said.

"People like it because of the coupon and the premium," the sellsider said. "The stock yields a lot."

PPL also plans to price 80 million shares of its common stock.

There is a $112.5 million greenshoe of equity units and an additional 12 million shares of PPL to cover over-allotments for the common stock deal.

Joint bookrunners for the mandatories are Citigroup Global Markets Inc., Merrill Lynch, Credit Suisse Securities (USA) LLC, UBS Investment Bank and J.P. Morgan Securities LLC.

Proceeds of the offerings will be used to repay a portion of the £3.6 billion bridge term loan facility used to fund PPL's recently completed £4.1 billion acquisition of the Central Networks electricity distribution businesses in the United Kingdom.

Hercules to price

Hercules planned to price a small $75 million of five-year convertible senior notes as early as Monday after the close that were talked at a coupon of 5.5% to 6% with an initial conversion premium of 15%, according to a market source.

There is a $15 million greenshoe for the Rule 144A deal.

RBC Capital Markets LLC is the bookrunner.

The notes are non-callable and mature April 15, 2016.

There is contingent conversion subject to the underlying share price being 130% of conversion.

Proceeds will be used to fund investments in debt and equity securities in accordance with investment objectives and for general corporate purposes.

Palo Alto, Calif.-based Hercules Technology is a specialty finance company focused on technology and life science companies.

Mentioned in this article

American Medical Systems Holdings Inc. Nasdaq: AMMD

AMR Corp. NYSE: AMR

Endo Pharmaceuticals Holdings Inc. Nasdaq: ENDO

Hercules Technology Growth Capital Inc. Nasdaq: HTGC

Level 3 Communications Inc. Nasdaq: LVLT

PPL Corp. NYSE: PPL

© 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.