Teva sinks outright, holds up dollar neutral; Group 1 re-offered; $2 billion new deals seen pricing Thursday

By Rebecca Melvin

Princeton, N.J., June 21 - Selling continued to hit the convertible bond market on Wednesday, with lots of paper coming under pressure across many sectors, including biotechnology, financial and technology names, market sources said.

In particular several convertible issues of Teva Pharmaceutical Industries Ltd. dropped outright in active trading, but on a hedged basis they held steady or even expanded a small amount, sources said.

"There were sellers coming in, vol names were especially under pressure," a New York-based sellside trader said. "Last Tuesday and Wednesday things were going up, the Vix was up. But now the Vix is down."

Vix refers to the CBOE Volatility Index, which closed Wednesday at 15.52, down 1.17, or 7%.

Other market sources said trading was spotty or even quiet.

"Sorry our names were quiet today," said one buysider, focused on smaller issues.

The convertibles of Prudential Financial Inc., American Express Co. and Boston Properties Inc. were mentioned as active in trade as were the convertibles of Merrill Lynch & Co. Inc., which were spurred by positive earnings news in its sector coming from Morgan Stanley Inc.

But perhaps the day's biggest news came after the close when two large new deals were launched for pricing on Thursday after the close. MedImmune Inc. plans to price $1 billion of convertible bonds in two $500 million tranches and Equity Office Properties Trust (through a subsidiary) plans to price $1 billion of exchangeable senior notes.

The new convertible issue of Group 1 Automotive Inc. was released for trade in the secondary market Wednesday. The 30-year convertible senior notes, which were re-offered at 99.5, lifted to as high as 101 during trade, but closed the session at par, according to a syndicate source.

"Trading was pretty spotty," the source said of Group 1 as well as of the overall secondary market on Wednesday.

Deals on deck were focus

Meanwhile, many players were focused during the session on a deal expected to price after the close. No firm gray market emerged on American Medical Systems Holdings Inc.'s deal; but one source cited a market of up 0.50, 2.50.

Word of a second smallish deal emerged during the session from Lifetime Brands Inc. This deal was originally expected to price Thursday after the close, but actually priced after the close Wednesday, as had been rumored during the session.

Late Wednesday, American Medical priced $325 million of 30-year convertible senior subordinated notes to yield 3.25% with an initial conversion premium of 27.5%, according to a syndicate source.

The deal priced at the mid-point of talk, which was for a coupon of 3% to 3.5% and an initial conversion premium of 25% to 30%.

During the session, a Connecticut-based sellside analyst said that American Medical modeled up 2% cheap at the mid-point of price talk, using a volatility of 35% and a credit spread of Libor plus 350 basis points.

The Minnetonka, Minn.-based medical devices concern is comparable to Advanced Medical Optics Inc., which is another medical device concern with convertibles, the analyst noted.

Piper Jaffray & Co. was sole bookrunner for the American Medical notes which are non-callable for five years, with puts in years seven, 10, 15, 20 and 25.

"It's gonna be a clean deal with Piper, and at 2% cheap, it's going to be scooped up," the analyst said.

In its prospectus, American Medical estimated that the conditions the company targets affect more than 280 million people worldwide. Its primary physician customers include urologists, gynecologists and urogynecologists.

But there are competitors, the company warned in its prospectus, including several large medical device manufacturers such as Johnson & Johnson, Medtronic Inc., C.R. Bard Inc. and Boston Scientific Corp. These companies have potentially greater resources and more widely accepted products, better distribution channels, less invasive or non-invasive products, pharmaceuticals and cell or gene therapies, the prospectus stated.

Lifetime upsizes, prices a day early

Lifetime Brands priced an upsized $65 million of convertible senior notes after the close to yield 4.75%, with an initial conversion premium of 25.45%, according to a syndicate source.

The Rule 144A deal, which priced Wednesday, a day earlier than originally expected, was originally expected to total $50 million.

The deal priced at the cheap end of talk for the coupon, which was 4.25% to 4.75%, and at the rich end for the premium, which was 20% to 25%.

Citigroup Global Markets was bookrunner of the deal, with co-manager Brean, Murray, Carret & Co.

Westbury, New York-based Lifetime (Nasdaq: LCUT) designs and markets kitchenware and home décor items under brand names such as Farberware, KitchenAid, Pfaltzgraff, and Cuisinart.

Teva expands slightly

Amid concerns that a move by Merck & Co. Inc. could cut Teva's gains from its generic versions of Zocor, Teva stocks and bonds fell hard outright. But on a hedged basis, the newer, so-called C and D convertibles of Teva, held steady or even rose slightly, according to a New York-based sellsider.

The move involved Merck offering discounts to secure a co-payment price level on its Zocor branded drug that is below those offered for generics.

Teva is an Israel-based generic drug maker that has been expected to make money especially during an exclusivity period with its generic version of Zocor.

Teva's 0.25% convertible due 2026 traded during the day at 95.125, versus a share price of $33.70. The bonds traded later at 94.4, but with nearly a 10% drop in shares during the session, the bond's move represented a slight expansion of about one-sixteenth.

MedImmune to price $1 billion

MedImmune plans to price $1 billion of convertible bonds Thursday. The deal is in $500 million tranches, with price talk on the first, five-year tranche for a coupon of 0.875% to 1.375%, with an initial conversion premium of 20% to 25%.

The second, seven-year tranche is talked for a coupon of 1.125% to 1.635%, with an initial conversion premium of 20% to 25%.

The Rule 144A deal is being sold by joint bookrunners Merrill Lynch and UBS Investment Bank, with UBS stabilizing.

There is a planned over-allotment option for up to an additional $150 million of bonds, or $75 million for each tranche.

MedImmune expects about half of the proceeds to go to repurchase of its existing 1% convertible senior notes that come due July 15.

MedImmune's existing 1% convertibles due 2023 changed hands at 100 on Wednesday, up about 0.25 to 0.50 from Tuesday.

In addition, MedImmune expects to use up to $150 million to buyback shares of common stock concurrently with the offering of the notes.

MedImmune also expects to enter into convertible note hedge transactions with certain of the initial purchasers, their affiliates or other dealers.

Remaining proceeds will be added to working capital and used for general corporate purposes, including potential acquisitions, in-licensing and collaboration opportunities, and additional share repurchases, pursuant to the company's recently announced $500 million share buyback program.

Gaithersburg, Maryland-based Medimmune (Nasdaq: MEDI) is a biotechnology company focused on the treatment of infectious and inflammatory diseases and cancer.

EOP to price 20-year bonds

Equity Office Properties Trust plans to price $1 billion of exchangeable senior notes, which were talked to yield 3.75% to 4%, with an initial conversion premium of 18% to 22%.

There is an additional $150 million, or 15%, over-allotment option on the notes, which will become due 2026.

The exchangeables have 5.5 year call protection and a 5.5 year put.

Merrill Lynch is the lead of four bookrunners including Banc of America, Wachovia and UBS Investment Bank.

Equity Office (NYSE: EOP) is a Chicago office building real estate investment trust.

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