Genworth synthetic coming; Cell Therapeutics dives; Celgene rises; Saks bagged up; Lions Gate higher

By Ronda Fears

Nashville, March 7 - Convertible players were in a somewhat typical muted state Monday, but traders reported they were busy as more headlines roiled the biotech group. It was a mixed bag, though, with Cell Therapeutics Inc. revealing disappointing drug trial results while Celgene Corp. revealed positive drug trial news.

Meanwhile, Elan Corp. plc and Biogen Idec Inc. were both in recovery stages following severe hits last week on the suspension of a multiple sclerosis drug following the death of one patient and contraction of a potentially fatal disease by another. Chiron Corp. was still on the mend, too, from news last week that British officials had cleared its Liverpool plant to resume influenza vaccine manufacturing.

A buying mood struck some special situations fund managers focused on Saks Inc. due to recent weakness attributed to earnings and a Securities and Exchange Commission inquiry, said a convertible trader at a boutique in New York.

Lions Gate Entertainment Corp. was finding buyers, too, at least for its 2.9375% convertible, which one trader remarked has been "trading like water" recently. Lions Gate had no news, although weekend box office reports looked good for the film company. News from potential Lions Gate suitor Sony Corp. of an executive shakeup over the weekend stirred interest in Lions Gate, too.

Also mentioned in play Monday were Ford Motor Co., Computer Associates International Inc., the Devon Energy Corp. exchangeable into ChevronTexaco Corp., Huntsman Corp. and Delta Air Lines Inc.

There was no news from Delta; traders said it was just a trade strategy getting executed. There were sellers of the Delta 8% convertibles early in the day and buyers for the 2.875%. The 8s were down 1.25 points at 52 early in the day before getting lifted to 53 bid, 54 offered by the closing bell. The 2.875s traded up 2.75 points at 51 before easing back to settle out the day at 49.5 bid, 50 offered. Delta shares gained 27 cents on the day, or 5.4%, to end at $5.27.

Allied Waste Industries Inc.'s new 6.25% mandatory was the issue "du jour," as one sellside source put it. It was still trading pretty actively, he said, at roughly 253 early Monday; but it eased back to close the day at 251.5 bid, 252 with the common stock 3 cents higher at $8.01. The company's old 6.25% mandatory gained 0.15 point to 47, and the 4.25% convertible bonds were steady at 86 bid, 87 offered.

Nash Finch Co. was marketing its $150 million discount cash-to-zero convertible - talked to yield 2.75% to 3.25% with an initial conversion premium of 32.5% to 37.5% - for Wednesday's business. And while some buyside sources said there seemed to be a nice level of interest in the deal, a gray market hadn't emerged yet. In addition to Merrill Lynch, Deutsche Bank Securities is a bookrunner of the Nash Finch deal.

Following some discussion last week in the convertible market about synthetic offerings, news of another Genworth Financial Inc. convert, as a synthetic offering from Citigroup Global Markets Inc., hit the tape Monday. Timing and other details of the transactions, however, have not yet been determined, according to market sources.

Details are still forthcoming, as well, on the new deal planned by Chiquita Brands International Inc.

Genworth synthetic in the pipe

Following up on its spinoff of Genworth Financial Inc., GE is cutting its stake in Genworth to roughly 51%. Genworth announced Monday that GE is divesting another large portion of its interest and simultaneously with the secondary offering of up to 82 million shares of class A common shares to Citigroup, the investment bank intends to publicly offer a convertible exchangeable for the shares.

Timing and other details of the transactions, however, have not yet been determined, according to market sources.

In addition, Genworth plans to repurchase directly from GE $400 million to $500 million of its class B common stock, contingent on the sale of the class A shares.

The existing Genworth 6% mandatory, a $600 million issue sold concurrently with the initial public offering of Genworth shares by GE, has steadily climbed along with the underlying stock.

Genworth's mandatory on Monday closed up 0.34 point at 34.09 in heavy volume. The stock, which was issued in an IPO at $19.50 last May, closed Monday up 55 cents on the day, or 1.91%, at $29.30.

Rob Haines, CreditSights analyst, said in a report Monday that Genworth's popularity can be traced to its GE roots.

"Overall, Genworth remains one of our top life insurance picks for 2005," Haines said in the report. "We believe Genworth has inherited much of the process-driven General Electric culture and is extremely disciplined and focused on risk management."

Cell Therapeutics news a blow

Cell Therapeutics was the latest explosion in the biotech group, announcing its Xyotax drug used in conjunction with other drugs did not achieve primary trial goals in treatment of lung cancer, and its securities took a hard hit across the board. One sellside trader put the 4% convertible due 2010 in the 80s at a drop of 20 points or so; another marked it off by 12 points on swap.

The stock plunged by more than 50% before catching a wave upward to close lower by 47.5%, or $4.75, at $5.25.

"The drug was turned down on one point but it's not shot down entirely," one of the sellside traders said.

"The company said clearly that there are other uses for this drug. It failed on the trial for increased survival rates but they did say they thought it was beneficial to use in conjunction with chemotherapy to help with those side effects."

Seattle-based Cell Therapeutics had hoped the data would show its treatment was superior to standard chemotherapy, which was proven in trial studies. However, the company said in a statement, "We are encouraged by the preliminary analysis, which demonstrates a significant Xyotax treatment effect, reduction in toxicities, and increased patient convenience."

On a company conference call, CEO James Bianco said patients in the trials "had significantly less hair loss and overall reduction in neurologic toxicities; we saw a reduction in other side effects such as muscle and joint pain, cardiac symptoms."

Bianco said the company anticipates further results to be available in April.

Celgene rises on good news

Conversely, Celgene reported its Revlimid treatment for multiple myeloma, a cancer of the blood, exceeded expectations in Phase III trials. The company is in talks with the Food and Drug Administration and international regulatory agencies about submitting the data for approval, and plans are being formulated to expand access to the drug program.

That made Celgene one of the bright spots in the biotech group, which was broadly mixed Monday.

Celgene's 1.75% convertible due 2008, which trades about 13 to 14 points over parity, was described as up 2 to 3 points on swap and 17 to 18 points higher outright. The stock climbed $5.20 on the day, or 18.13%, to close at $33.88.

"This is a major positive and we now see the probability of Revlimid approval as very high," said S&P equity analyst Fran DiLorenzo. "We assume FDA approval to treat MM [multiple myeloma] by early 2006 or first half of 2006."

There were some sellers taking profits on the development, but one sellside source said getting active in the bonds Monday was a tough job. Another sellside source said there were too many "longtimers" in this bond and "amazingly, no one wants to let go of these now, it seems."

Saks sacked up on weakness

Saks buyers bagged up the convertibles on recent weakness, though, with traders observing special situations managers getting involved on speculation about the recent chatter of Saks looking to separate its upscale stores from the modest-priced department stores, do a spinoff or maybe engineer a leveraged buyout.

The 2% issue was quoted up 0.5 point at 98.5 bid, 99 offered Monday while the stock closed up by 9 cents, or 0.6%, at $15.11.

"Anytime there is what's perceived as serious talk along these lines [spinoffs, mergers, etc.] then you see the special situations guys step up," a sellside trader said. "This doesn't mean there is a deal or that there will be a deal, just that they have taken a position. They may have to unwind everything next week."

There were willing sellers, he said, as, S&P put Saks Inc.'s ratings on negative watch Monday, citing a trend of lackluster earnings and relatively weak cash flow protection amid consolidation in the department store industry and increasing competition.

Birmingham, Ala.-based Saks operates 233 traditional department stores under various nameplates, 57 upscale Saks Fifth Avenue department stores, and 52 Off 5th clearance stores.

Lion's Gate up on Sony news

Lions Gate was a triple-play winner, as one sellside observer put it. Not only has it seen some good box office figures for recent film releases, but there was "some good ink" on the company in the New York Times on Monday. To boot, he added, Sony - considered the top suitor for Lions Gate - seems to be even more interested given executive changes at the entertainment giant over the weekend.

The Lions Gate 2.9375% convertibles gained 0.5 point to 119.5 bid, 120 offered Monday while the stock added 2 cents to close at $11.40.

Over the weekend, Sony chairman and CEO Nobuyuki Idei and president Kunitake Ando announced their resignations and Howard Stringer was appointed to sit in the top seat. Onlookers see it as a strategic move by Sony to get more aggressively involved in the content side of its business, the trader said.

Press reports, the trader said, pointed out that Stringer was the think man behind the purchase by a Sony-led consortium of film studio Metro-Goldwyn-Mayer. Also, he added that Sony's new PlayStation Portable is set to debut later this month and last week, Lions Gate announced it would be supporting the Sony format with its own movie releases for the PlayStation Portable.

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