Convertibles trade mixed, with Amgen, Nabors edging up, Cypress Semiconductor down

By Rebecca Melvin

Princeton, N.J., Sept. 8 - A couple of new deals and more players online following summer vacation season helped boost activity in the convertibles market Thursday, traders said.

But there didn't appear to be any particular flavor of the day, with mixed trades seen in a mixed bag of names, including Amgen Inc., Cypress Semiconductor Corp., Vornado Realty Trust, Nabors Industries Ltd., Curagen Corp. and Mirant Corp., among others.

Some eyes were fixed on possible upside early Friday for Nektar Therapeutics convertibles after the Nasdaq National Market halted trading of its stock all day pending regulatory action on its inhalable form of insulin.

Also, the new Dobson Communications Corp. convertibles jumped out of the gate Thursday at 101 bid, 101.5 offered but remained little changed through the session and closed at the same level, a syndicate trading source said.

And a gray market at 101.75 bid, 102.5 offered materialized for Chesapeake Energy Corp.'s $250 million offering of convertible preferreds expected to price after the close Thursday.

The Chesapeake deal modeled out cheap, sources said. Using a credit spread of 350 basis points over Libor and a volatility of 36%, the issue was seen 6.3% cheap, according to a sellside analyst based in Connecticut.

The preferred deal is being sold via joint bookrunning managers Lehman Brothers, Banc of America Securities LLC, Credit Suisse First Boston, Morgan Stanley and Wachovia Securities.

Price talk on the deal was seen at 4.5% to 5% for a coupon, with an initial conversion premium of 30% to 35%.

Oklahoma City-based Chesapeake is an oil and natural gas producer and intends to use proceeds to repay debt under its bank credit facility.

Holders poised for Nectar stock move

A possible rise in the convertibles of Nectar was seen on Friday after the trading of its common stock was halted pending a Food and Drug Administration advisory panel decision on whether to recommend approval of the company's inhalable form of insulin.

The San Carlos, Calif.-based drug delivery company received approval at the end of the day Thursday.

Its new form of insulin called Exubera was co-developed with drug makers Pfizer Inc. and Sanofi Aventis SA.

"They announced that they got approval, so we'll see. It might be good for a point or two on the upside," a New York-based sellside desk analyst said.

Nektar has two convertibles. The 3.5% convertibles, which have about $113 million of principal outstanding, were last seen trading in the low 90s versus a stock price of $19.14.

The amount outstanding on its 5% convertible is small, and the issue was last seen trading at about 97.5.

The FDA advisory panel voted to recommend that the agency approve Pfizer's Exubera, the industry's first inhaled insulin drug in a 7 to 2 vote. It recommends it for the treatment of both type 1 and type 2 diabetes in patients with no known lung problems. The committee did recommend however additional studies if the drug is to be used on patients with lung problems or who are regularly exposed to smoke.

On Wednesday, positive FDA committee documents filed ahead of the panel meeting sent Nektar's the common stock up more than 10%, with a gain of $1.81.

Some analysts project the drug may generate sales of as much as $2 billion a year if it goes to market.

Nabors edges higher

The convertibles of Nabors Industries traded slightly higher even as energy prices continued to vacillate and its common stock eased by about half a percentage point.

The Nabors 0% convertibles due 2021 traded at 68 early in the session, and its sister issue, a 0% convertible due 2023, traded at 110.

The 2021 maturing paper was about 0.25 higher compared to Wednesday's indication, a Connecticut-based convertibles analyst said.

Where energy prices are going is definitely a question puzzling investors. "I'm told these things are cyclical and that the high prices will promote new drilling and new exploration until it's overbuilt," the analyst said.

While oil prices ended the session essentially flat, early in the session they were coming off, and were lower in fact than when Hurricane Katrina hit the Gulf Coast 10 days ago and caused oil to spike up to $69.96 on Aug. 31.

On Thursday, crude oil for October delivery closed up 12 cents at $64.49 a barrel on the New York Mercantile Exchange.

"Prices were below $64, and that's below where prices were until Aug. 25 at around $65.50," the analyst said.

For Nabors' part, the oil and gas producer said a week ago that three of its four rigs that were near Hurricane Katrina's path escaped with little damage, based on initial observations.

It did lose one rig when the platform upon which it was working was lost. It also saw damage to one of its workover jackups. But it didn't expect the loss of the rig and the repairs on the jackup to have a material adverse effect on its financial statements.

Amgen gains with stock move

The convertibles of Amgen lifted by about 0.5 point Thursday as the common stock of the Thousand Oaks, Calif.-based biotechnology company spiked in early trade Thursday.

The shares lifted to as high at $83.75 before settling at the end of the day up 63 cents, or 0.8%, at $82.29.

The convertibles traded pretty actively, with one trade reported at 80, up about 0.5 point, versus a stock price of $82.

Also in the biotechnology arena, the Curagen 4s traded higher Thursday even though its common stock sagged 3.1%. The 4% convertibles traded at 77.50 early in the session, versus a stock price of $4.85, when it was near its highs for the day.

Buyers support Cypress

The 1.25% convertibles of Cypress Semiconductor Corp. traded flat to lower Thursday on a nearly 1% loss for its common stock.

But there were still bids for the paper and it held up pretty well even though the stock came down, a New York-based sellside trader said.

The 1.25s traded at 122.75, compared to a level seen at 122.75 bid, 123.25 offered on Wednesday.

The New York Stock Exchange-traded shares closed down 14 cents, or 0.85%, at $16.34.

Progress in bankruptcy case boosts Mirant

The 2.5% convertibles of Mirant jumped as much as 6 points to 102, before easing back to 98 bid, 99 offered after the Atlanta-based independent power producer said it reached a deal with a number of key creditors in its bankruptcy case and has gained their support for an amended plan of reorganization.

Late Wednesday, Mirant said the deal had the support of three committees appointed to represent creditors and stockholders as well as two ad hoc representatives.

Under the new deal, $6.5 billion in debt and unsecured obligations at the parent level will be converted into 96.25% of the company's remaining common stock.

The deal would also see former Edison Mission chief executive Edward Muller become chairman and chief executive of Mirant, replacing the two people in those posts, Bill Dahlberg and Marce Fuller, respectively.

Mirant's lead attorney said the judge in the case was willing to pursue a schedule that could see Mirant exit Chapter 11 bankruptcy protection by the end of the year.

Shares of Mirant traded over the counter rose 0.015 cent, or 1.2%, to $1.145.

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