Horizon Lines takes another leg down; Life Technologies slips; Dendreon up; Meritor steady

By Rebecca Melvin

New York, April 4 - Horizon Lines Inc., which has been selling off since early last week except for a pause on Friday, fell again on Monday in active trade amid no new developments in the name, market participants said.

Last week the Charlotte, N.C.-based shipping company warned about its ability to continue as a going concern, and the convertibles have now dropped to Monday's 70 bid, 71 offered level, from 90 bid, 91 offered a week ago.

It's "just continuation," a New York-based sellside trader said of Horizon's action Monday.

Life Technologies Corp., a life science company created by the combination of Invitrogen Corp. and Applied Biosystems Inc., was trading Monday, with its 1.5% convertibles due 2024 seeing most of the action and slipping slightly.

Some trading activity may have been related to the idea of avoiding negative make-whole grid names, or those with premiums too high for takeovers to be favorable, a New York-based sellside trader said.

Two convertible names, Cephalon Inc. and GSI Commerce Inc., lost on a hedged basis last week after takeover bids.

But Dendreon Corp.'s 2.875% convertibles edged up again in a continuation of a move sparked by favorable news on the Seattle-based biopharmaceutical company's Provenge prostate cancer drug last week.

Meanwhile, Meritor Inc.'s 4% convertibles traded at 100 versus a share price of $17.00, which was steady compared to Friday when the Troy, Mich.-based auto components maker lowered its second-quarter earnings outlook.

Overall, the market was described as quiet, and although dominated by Horizon's action, it didn't really feel weaker, a New York-based trader said.

"You can't count a Horizon as being an indication of the market; it's clearly a special situation," the trader said.

At the same time, there didn't appear to be any bounce back from weakening last week in shorter-term, volatility names, the sellsider said.

Sun setting on Horizon?

Horizon's 4.25% convertibles due 2012 slid about 6 or 7 points on Monday to about 70 bid, 71 offered. The convertibles trade outright.

Nevertheless, the convertibles and shares have dropped in tandem since the company warned about "going concern" status in a filing with the Securities and Exchange Commission late last Monday.

On the following day, shares of the company slumped 48% while the convertibles were crushed to 82 from 91. On Wednesday, the shares fell another 22% and the convertibles dropped to the 76.5 to 79 range. On Thursday, the shares extended losses by another 33% to $0.85, but then bounced back on Friday to $1.33.

In February, the Horizon convertibles were about 92.75 bid, 93 offered versus a share price of $4.42, and they were at 90.875 bid, 91.125 offered as recently as March 25.

The company's refinancing efforts have proved disappointing to date. It failed to receive bondholder approval to waive a default after the Justice Department's $45 million antitrust fine, and it may be forced to seek court protection if talks with creditors to restructure debt fail. The company may seek to swap its debt for equity to avoid bankruptcy.

An onslaught of selling in the convertibles hit with renewed vigor on Monday, when $20 million of bonds changed hands. In comparison, $30 million of bonds changed hands last Tuesday, the first day of the plunge.

"They held for a day," a New York-based sellside trader said, referring to action in the Horizon paper on Friday.

The company has until May 21 to try to get consents from the convert holders, and observers believe that negotiations were bound to get more aggressive than the $1 for bonds offered initially.

A month ago, Horizon started soliciting consents from holders of the $330 million of 4.25% convertibles outstanding to a proposed waiver of a default or even if a default may arise.

The shipping company, which settled an antitrust suit with the U.S. Justice Department in February for a $45 million that the company doesn't really have, does not expect to be in compliance with its debt covenants this year and expects to experience a covenant default on the convertible notes.

Horizon further said in the filing that although it amended its senior credit facility this month, it expects to fall out of compliance with the revised covenants beginning in the third quarter.

"The $1.00 per bond offer for the consent from the convert holders is probably the lowest I've seen in 30 years," a New York-based sellside trader said.

Horizon owns or leases a fleet of 20 U.S.-flagged containerships and operates five port terminals.

Moody's Investors Service downgraded Horizon Lines two levels to Caa3, its third-lowest rating, on March 29.

The combination of the Justice Department fine and declining shipping volume since the start of 2008 has sent Horizon into a tailspin.

Life slips

The Life Technologies 3.25% convertibles due 2025 traded down to 117 and then to 116.6 on Monday, which was lower by a point or less.

The Life Technologies convertibles had $30 million of bonds change hands, mostly on the 1.5% stripe, a sellsider said.

With stocks having risen dramatically, it means that certain convertibles are trading higher than the takeout matrix in the takeover protection of those bonds. And it means that hedged players will lose out on a takeover. This is what happened last week in Cephalon and GSI Commerce.

"Hopefully, it opened up some eyes," the sellsider said of the Cephalon and GSI events.

"There's a loss built into the converts," he said.

Mentioned in this article:

Cephalon Inc. Nasdaq: CEPH

Dendreon Corp. Nasdaq: DNDN

GSI Commerce Inc. Nasdaq: GSIC

Horizon Lines Inc. NYSE: HRZ

Life Technologies Corp. Nasdaq: LIFE

Meritor Inc. Nasdaq: MTOR

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