Cheniere Energy to price $300 million deal; selling hits convertibles as Treasuries slump

By Rebecca Melvin

Princeton, N.J., July 21 - Selling continued to hit the convertibles market Thursday as Treasuries pulled back, apparently in reaction to China's move to delink its currency, at least partly, from the U.S. dollar. Other uncertainties came into play including another terror attack in London and mixed earnings news, which all contributed to a weaker convertibles market, traders said.

Nevertheless Houston-based Cheniere Energy Inc. stepped up to the plate after the bell with news that it expected to price $300 million of seven-year convertibles ahead of the bell Friday.

"You've had more selling over the last couple of days. Stuff sold off in line with the bond market," said a sellside trading desk manager. "I think they got taken by surprise by the yuan news."

Meanwhile, news was developing throughout the morning on the bombings in London. Initial reports were sketchy, leaving a lot of uncertainty about the fate of the city only two weeks after a devastating bombing spree that left 56 dead and hundreds injured.

Trying to determine exactly what was moving markets was tricky.

"It started off a little lighter than yesterday. It was just the combination of things, the yuan, London doesn't help, and we're in the middle of earnings. So you've got people looking at five different things at once," said a sellside desk analyst.

Bond prices slumped and the yield on the benchmark 10-year note reached the highest since May amid speculation that China's currency decision means that it will purchase less U.S. government debt.

China was the second-biggest holder of Treasuries with more than $243 billion at the end of May, up from $165 billion a year earlier, according to the U.S. Treasury Department.

Eyeing $300 million Cheniere deal

Houston-based Cheniere Energy, which develops LNG receiving terminals and engages in exploration and production in the Gulf of Mexico, announced that it intends to price $300 million of convertible senior unsecured notes due 2012 with a greenshoe of $25 million.

The deal, via bookrunner Credit Suisse First Boston, is expected to have a coupon of 2.25% with an initial conversion premium of 10%, according to a buyside source.

The Rule 144A deal carries full dividend protection, according to the source.

The company intends to use a portion of the proceeds for costs related to hedge transactions. The balance will be for general corporate purposes.

Biotechs hook up

The convertibles of MGI Pharma Inc. and Guilford Pharmaceuticals Inc. traded in reverse directions after news that Bloomington, Minn.-based MGI will buy Baltimore-based Guilford for about $179 million.

In a bid to augment its pipeline for acute care treatments and cancer medicines, MGI Pharma said it will acquire all of the outstanding shares of Guilford for $3.75 each, representing a premium of 55.6% over Guilford's closing Nasdaq price Wednesday of $2.80.

Guilford's central products are the Gliadel Wafer brain cancer treatment and the experimental Aquavan sedation drug for use during common procedures such as colonoscopy.

MGI is currently testing its drug Aloxi, now sold for nausea caused by chemotherapy, as a treatment for post-operative nausea.

"That would be our first indication outside of oncology ... the desire was to acquire other products in acute care," said Lonnie Moulder, MGI's chief executive.

The deal, which is expected to close in October, is likely to lead to a loss for MGI this year after transaction costs. But it will begin contributing to earnings in 2008, MGI Pharma said.

MGI's 2.24% convertible cash to zero convertible notes due 2024 slipped 0.25 point. Its shares ended at $27.57, up 90 cents, or 3.4%.

Guildford's 5% convertibles due 2008 traded up about four points to 83 bid, 84 offered.

Amgen remains bright spot

The convertibles of Amgen Inc. remained firm and continued to be a focus of activity in the convertibles market Thursday.

"It made a big move. People in the arb community made a lot of money. It continues to expand and is a great gamma position," said a sellside source.

The Amgen convertibles traded up on Wednesday after the Thousand Oaks, Calif.-based biotechnology company reported better-than-expected quarterly profit and raised its full-year profit forecast.

On Thursday, Amgen's 0% convertible due 2032 traded at 78.17, flat compared to Wednesday, which saw a three point rise.

Its share price extended gains Thursday, closing up nearly 1% at $81.95, following a 15% surge on Wednesday.

BearingPoint brightens

The convertibles of BearingPoint Inc. remained active after trading up Wednesday when the management consulting services company announced positive business news even amid an accounting probe that should continue through the summer.

BearingPoint said it had record bookings in the quarter ended June 30 of $960 million, and that it secured additional capital by closing a five-year $150 million line of credit with a syndicate of banks led by UBS and a $40 million private convertible investment by Friedman, Fleischer & Lowe.

In addition, Goldman Sachs upgraded the McLean, Va.-based company to "in-line" from "underperform."

On Thursday, BearingPoint's 2.75% convertible due 2024 traded at 95.25 bid, 95.5 offered, representing a two point to three point climb from Tuesday.

Shares of Bearing Point closed down six cents, or 0.75%, to $7.98.

Level 3 slants downward

The convertibles of Level 3 Communications Inc. were lower in inactive trade after the wholesale network communications provider posted a weak earnings report.

Level 3's quarterly loss increased to $188 million, or 27 cents per share, which included a charge related to job cuts. The year-earlier loss was $63 million, or nine cents a share, a year earlier.

Revenue fell to $910 million from $918 million.

On average, analysts polled by Thomson Financial expected a loss of 31 cents per share.

The Broomfield, Colo.-based telecommunications company has been trying to manage its way to profitability even as competitive pressures weigh on its business.

The company's 6% convertible due 2010 traded at 54.125 on Thursday, compared to 57.9 on Wednesday. Its 2.875% convertible due 2010 were at 54 bid early in the day, and traded later at 54.478.

Level 3 shares closed down 14 cents, or 6.33%, to $2.07.

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