Human Genome straddles par; Calpine's issue falls 3 points; Charter off; United Rentals up

By Ronda Fears

Nashville, Sept. 29 - New convertible debt put into circulation by Human Genome Sciences Inc. did well to straddle par, buyside traders said, even though it was upsized by 25%, had traded higher in the gray market and priced tight or aggressively outside pre-market terms.

Calpine Corp.'s new convertible also traded lower, dropping 3 points alongside all the independent power producer's securities, which buyside traders attributed to the market's reaction to the discounted price in the stock loan transaction with Deutsche Bank Securities, the bookrunner on the convert.

American Financial Realty Trust's new 4.375% convertible also slipped, by a half-point to 97.5 bid, 98 offered while the stock rose 9 cents, or 0.65%, to $13.96.

Elsewhere in secondary action, there were other notable decliners but traders said the market overall felt somewhat firmer.

Charter Communications Corp.'s convertibles were weaker by 1 to 1.5 points as recent chatter about the Adelphia Communications Corp. bankruptcy auction has pretty much eliminated Charter as a player. Rather, Comcast Corp. and Time Warner Inc. now appear to be joining forces to bid for Adelphia assets.

On the upside, United Rentals (North America) Inc. convertibles traded higher on what a trader referred to as some "clarity" on the company's recent writedown against third-quarter results. The writedown is considered a possible focus of the Securities and Exchange Commission, which is looking into the company's accounting practices, an issue which was aired a month ago.

Human Genome upsized

Human Genome Sciences' new issue was upsized to $250 million from $200 million but struggled to stay above par once it freed to trade, buyside traders said. After straddling the par mark throughout the session, it ended the day up a quarter-point on the bid side.

The seven-year non-callable subordinated bonds priced at par to yield 2.25% with a 40% initial conversion premium - at the aggressive end of guidance for a 2.25% to 2.75% coupon and aggressively outside original premium guidance of 30% to 35%. Indicative terms had been amended before the books were closed Tuesday to a yield of 2.25% and premium of 40%.

The new Human Genome convertible closed out the day at 100.25 bid, 100.5 offered, according to Merrill Lynch, a joint bookrunner on the deal. Before the deal priced, it was seen in the gray market with a bid of 1.5 points over issue price.

The Rockville, Md.-based biotech firm said it plans to use proceeds to repurchase its existing convertibles.

Human Genome Sciences shares closed Wednesday down 18.5 cents, or 1.67%, to $10.92.

Lions Gate prices wide

Filmmaker Lions Gate Entertainment Corp. sold $125 million of 20-year convertible notes at par to yield 2.9375% with a 36.5% initial conversion premium - at the cheaper end of price talk for a 2.375% to 3.125% coupon and 36.5% initial conversion premium. Versus the Tuesday close for Lions Gate shares, the premium would be 30.83%.

A boon for the deal, a buyside source speculated, was the use of proceeds. The Santa Monica, Calif., motion picture production company said proceeds would be used to repay its U.S. dollar bank revolver and term loan, and possibly to fund any future acquisitions.

Lions Gate shares closed Wednesday off a nickel, or 0.57%, to $8.74.

Calpine hurt by stock discount

The pullback in Calpine paper Wednesday, and the new convertible specifically, was related to the discounted price in the stock loan transaction with Deutsche, buyside traders said.

"It was a very negative point on the whole Calpine story, because the only interpretation you can make from that is that that's where the company sees the stock worth," said a trader at a convertible fund based in New York. "So everything was coming in on that."

Concurrently with the convert sale after Monday's close, and chiefly to accommodate swap transactions for the convertible, Calpine entered a stock loan transaction with Deutsche Bank for 89 million shares at $2.75. Calpine shares closed Monday at $3.14.

Calpine priced the new convertible at 83.9 for a yield of 7.15%, as the 10-year issue pays a 6% cash coupon in years one and two then skips to years six through maturity while accreting during years three, four and five. The 40% conversion premium at par was cheapened to 17.46% by the discounted price.

In the immediate aftermarket, the issue shot up by 6.75 points on swap Tuesday but pulled back by at least 3 points on swap Wednesday to 88 bid, 87 offered.

Sources in the bank debt and high-yield markets said Calpine paper was lower there, as well, with the bank paper off by 0.5 to 0.75 point.

Calpine shares on Wednesday ended lower by 13 cents, or 4.32%, to $2.88.

United Rentals up on clarity

While United Rentals reiterated a warning of a charge against third quarter results, traders said the equipment rental company's converts rose with a fair amount of buying as nothing new or drastically different emerged on the story.

"It was really a little more clarity in what sort of writedown they are looking at," one trader said.

The United Rentals 1.875% convertible bonds gained 1 point to 88.5 bid, 89.5 offered, a sellside trader said. Its 6.5% convertible trust preferred shot up 1.5 points to 41, the dealer said.

United Rentals shares also rose, adding $1.10 on the day, or 7.69%, to close at $15.40.

United Rentals had disclosed in its second-quarter SEC financials that because of weakness in its traffic control business, a goodwill impairment charge was likely, and the latest announcement noted that the goodwill balance associated with that unit at June 30 amounted to $140.5 million.

Because it was a relatively small amount and considering that construction spending continues to rise, albeit by a slim margin, the trader said the news was digested optimistically. He said construction spending was up about 0.7% in July, and while it is not expected to get much better over the next quarter, it is still in positive territory.

Standard & Poor's said Wednesday it is keeping United Rentals ratings (BB) on negative watch but also noted no surprise in the company's news from late Tuesday. S&P's watch is focused mainly on the SEC inquiry, for which no specific reason or scope has been cited.

"People are still thinking, for the most part, that the SEC inquiry is just a routine matter," the trader said.

Charter convertibles lose 1-1.5 pts

Charter's convertibles softened sharply Wednesday as Charter moved farther away from the center of activity surrounding Adelphia's bankruptcy auction and picking up any of those assets, which had been something considered as a means of deleveraging with equity.

Comcast chief executive Brian Roberts at a Merrill Lynch conference on Wednesday said it will "try to pursue [an Adelphia asset purchase] jointly with Time Warner," which had been speculated by several cable industry analysts as a possibility.

Because recent chatter about the Adelphia sale hasn't focused on Charter as a buyer, Gimme Credit bond analyst Shelly Lombard said in a report Wednesday, "that's disappointing to the market, which has viewed a deleveraging acquisition as one way for Charter to bring down its high leverage.

"So far, Comcast and Time Warner appear to be the most likely buyers for Adelphia," Lombard said, adding, however, that at an investor conference Tuesday, Charter said it might bid for parts of Adelphia but it would need help from Paul Allen, the billionaire investor who controls Charter.

Despite concerns surrounding Charter and its financial woes, Lombard said she is "comfortable with the debt at the CCHII subsidiary and below, which includes the second-lien notes and the 8.75% and 10.25% bonds."

Charter probably has enough liquidity to last until 2007, Lombard said, and the company could do debt-for-debt swaps to take out upcoming maturities, which is the hope of holders of the 5.75% convertibles.

"Speculative investors who are brave enough to buy the holding company bonds (covered at $3,000 per subscriber) may want to consider the parent company convertibles that are fascinating but also risky," Lombard said. "Those bonds mature earlier and the incremental value needed to cover them is only $120 per subscriber."

Charter's 5.75% convertibles due 2005 dropped a point to 88.5 bid, and the 4.75% converts due 2006 fell 1.5 points to 86.75 bid, while Charter shares dropped 4 cents on the day, or 1.51%, to $2.61.

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