PMC-Sierra trips on outlook, CFO's resignation; General Motors up on meeting; Par Pharmaceutical eases

By Kenneth Lim

Boston, July 7 - The convertible bond market slowed down on Friday with the weekend approaching and a lackluster equity scene.

PMC-Sierra Inc. raised eyebrows as its convertible dropped in line with its stock after the company guided for lower-than-expected sales in the second quarter and said its chief financial officer was leaving.

Meanwhile, General Motors Corp.'s three convertibles all made slight gains after the company's board agreed to explore a three-way alliance with Nissan Motor Co. Ltd. and Renault SA.

Level 3 Communications Inc.'s newest convertible also rose Friday in line with its stock, which took off mid-morning.

Also seen trading on Friday were the 2.875% convertibles of Par Pharmaceutical Cos. Inc., which came down slightly on a dollar-neutral basis as its stock recovered from a scare the day before. The convertible traded at about 85.75 against a stock price of $14.25, flat to just lower than Thursday's level on an outright basis. Par Pharmaceutical stock (NYSE: PRX) gained 6.46%, or 87 cents, to close at $14.34.

"Par was still active," a sellside convertible bond trader said. "The stock corrected."

Par Pharmaceutical, a Woodcliff Lake, N.J.-based generic drug maker, said Thursday that it will restate results from 2004 after an internal review found inadvertent errors in its accounts receivable. The company also delayed filing its second-quarter report.

ImClone Systems Inc. also had a busy Friday, with investors continuing to hope for put opportunities as the company looks for a buyer. The convertible tested the waters above 90 points in the afternoon and ended at 89.875, while ImClone stock (Nasdaq: IMCL) closed at $38.58, down by 1.08% or 42 cents.

"IMCL traded up a little out of their recent narrow range to get above 90 on hopes of a cash deal to activate the change-of-control put," a Connecticut-based trader said.

ImClone is a New York-based drug maker focusing on cancer-related treatments.

The convertible bond market in general had a languid session, wrapping up a slow week that was interrupted by the July Fourth holiday.

"Sloppy market," the Connecticut trader remarked.

PMC-Sierra tumbles with stock

PMC-Sierra's 2.25% convertible dropped about 10 points outright but stayed in line to better with its stock after the company's second-quarter guidance missed expectations and its chief financial officer resigned.

The convertible was marked at 113.5 bid, 114 offered versus a stock price of $7.85 on Friday. PMC-Sierra stock (Nasdaq: PMCS) fell 12.94%, or $1.17, and finished at $7.87.

"The stock got hit pretty badly," a buyside convertible bond trader said.

PMC-Sierra said late Thursday that it expects revenue at the mid-point of the $108 million to $112 million range previously guided, although analysts were expecting more than $110 million. The company also said chief financial officer Alan Krock will leave for personal reasons after a "reasonable transitional period."

PMC-Sierra is a Santa Clara, Calif.-based maker of communications semiconductors.

GM meeting boosts notes

GM's board agreed to begin exploratory talks for an alliance with fellow auto makers Nissan and Renault, fueling modest gains in the company's convertibles and stock.

The Detroit company's 4.5% convertible due 2032 (NYSE: GXM) was 24.60 bid, 24.65 offered versus a stock price of $30 on Friday. The 5.25% convertible due 2032 (NYSE: GBM) was 18.60 against the same stock price, while the 6.25% convertible due 2033 (NYSE: GPM) was 20.45 also at the stock level.

The 4.5% paper closed at 24.57, up by 0.49%, or 0.12 point, while the 5.25% convertible finished at 18.46, up by 0.33%, or 0.06 point. The 6.25% convertible was higher outright by 0.74%, or 0.15 point. GM stock (NYSE: GM) improved by 0.96%, or 28 cents, to close at $29.48 on Friday.

GM on Friday said directors at a board meeting had put chief executive Rick Wagoner in charge of evaluating a potential alliance with Nissan and Renault, which are headed by Carlos Ghosn. Billionaire Kirk Kerkorian, who is GM's single-largest shareholder through his investment company Tracinda Corp., proposed the alliance a week ago and said Nissan and Renault were interested in taking a significant stake in GM.

A buysider said company's decision to explore an alliance was not surprising.

"I think that at this point they don't have much of a choice," the buysider said. "If something looks positive they're going to have to pursue it, because shareholders are getting impatient with management. They're really not in a position to call the shots."

Level 3 gains with stock

Level 3 Communications' newest 3.5% convertible due 2012 was slightly higher outright on Friday as the stock bounced back from declines earlier in the week.

The convertible was marked at 101.25 versus a stock price of $4.45 on Friday. Level 3 stock (Nasdaq: LVLT) closed at $4.40, up by 3.04% or 13 cents.

"One stock that's doing well is Level 3, although I'm not sure why it's up," a buyside trader said. "I think there were some Form 4s filed...that showed insider buying."

Filings to the Securities and Exchange Commission on Wednesday showed that a number of Level 3 directors, including board chairman Walter Scott Jr., had increased their stakes in the company.

Level 3 is a Broomfield, Colo.-based provider of internet backbone services.

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