Convertibles mostly quiet; iStar Financial floaters little changed; Mylan weaker; Amgen strengthens

By Rebecca Melvin

New York, Dec. 15 - Trading in the convertible bond market was quiet on Monday with mixed pricing as the ranks of convertibles players were thinned by the beginning of the holiday lull. Investors stood on the sidelines evaluating such things as the Bernard Madoff scandal and data that pointed to further weakening of the economy.

"It's pretty quiet; some of my traders were out this morning," a New York-based sellsider said.

The sellsider didn't think the situation with Madoff, the investment manager who was arrested Thursday for what prosecutors are saying was a $50 billion Ponzi scheme, would affect convertibles in any tangible way either now or down the road.

"People were expecting a total market meltdown on Friday, but that didn't happen," the sellsider said.

Another sellsider, however, said the Madoff scheme that allegedly defrauded billions from investors including hedge funds and fund of funds, and including HSBC Holdings Inc., Banco Santander, BNP Paribas and Royal Bank of Scotland Group plc, to name a few, could have potentially big implications for the market.

There could be another shoe to drop, he said. "This is a real concern. We're not subprime ... but do investors know that?"

The 70-year-old Madoff had served as chairman of the Nasdaq Stock Market and was well-respected in the investment community.

In economic data, the Federal Reserve reported that U.S. industrial production decreased 0.6% in November, the third decline in four months; and the Federal Bank of New York's general economic index fell to minus 25.8 from minus 25.4 in November. Readings below zero for the Empire State index signal manufacturing businesses are shrinking.

Among convertibles in trade were iStar Financial Inc., Mylan Inc., Nortel Networks Corp. and Amgen Inc.

iStar mostly steady

iStar Financial's Libor plus 50 basis points senior floating-rate notes due 2012 traded intraday at 30, which was flat versus the previous session, but it was seen closing closer to 29.25 versus a share price of $1.94.

On Oct. 13, the iStar floaters traded at 44 versus a share price of $1.46.

iStar shares gained 9 cents, or nearly 5%, in lower-than-average volume.

iStar has repurchased a significant chunk of its $800 million of floating-rate senior notes, which were priced October 2007.

The New York-based commercial real estate investment trust said early last month in a filing that it bought back $393.1 million of senior unsecured notes after the end of the third quarter.

Last week, the REIT announced that its chief financial officer, Catherine Rice, will retire in March to be able to focus on her family business interests. She will be replaced by James Burns, who is iStar's treasurer.

Mylan weakens

The newer Mylan 3.75% convertibles due 2015 traded at 84 versus a share price of $9.30 intraday Monday but were seen closing lower.

The Mylan issue was among the last batch of convertibles to price in September before the convertible new-issue market went dormant. The Mylan paper was well-received at that time, having gained to 101.5 bid when initially released for secondary trade, and trading north of 106 at one point.

The Mylan 1.25% convertible bonds due 2012 traded at 70 intraday versus a share price of $9.30. Later the Mylan 1.25s were seen trading at 68.75.

Shares of the Canonsburg, Pa.-based maker of generic drugs closed down 34 cents, or 3.7%, at $8.97.

Nortel slide continues

Nortel's 1.75% convertibles due 2012 traded at 12 and the 2.125% convertibles due 2014 traded at 11.50 on Monday, compared to both issues being quoted at 13 last Wednesday.

Shares of the Toronto-based telecommunications equipment maker fell 7 cents, or 17.5%, to $0.33. The shares settled at $0.40 last Wednesday.

On Monday, Moody's Investors Service said it downgraded the probability-of-default rating for Nortel's group of companies to Caa3 from B2 while downgrading the group's corporate family rating to Caa2 from B3.

As a result, the senior unsecured ratings for Nortel and its wholly owned subsidiaries (Nortel Networks Ltd. and Nortel Networks Capital Corp.) were downgraded to Caa2 from B3 and the preferred share ratings of Nortel Networks Ltd. were downgraded to Ca from Caa3, the agency said.

Despite Nortel's speculative-grade liquidity rating being affirmed at SGL-2 (good liquidity), the uncertain business environment caused the outlook to remain negative, the agency said, adding that the rating actions were prompted by the potential that ongoing adverse business conditions may persist for a prolonged period, implying that the company is unlikely to return to positive free cash flow over the near term.

Amgen strengthens

Amgen's 0.125% convertibles due 2011 traded higher at 95 versus a share price of $58.00, compared with 93.5 bid, 94 offered on Friday versus a share price of $58.13.

Amgen's 0.375% convertibles due 2013 traded at 93 versus the $58.00 stock price, compared with 91.35 versus a stock price of $58.13 on Friday.

Shares of the Thousand Oaks, Calif.-based biotech settled down 42 cents, or 0.7%, at $57.71.

The company's convertibles have been strengthening pretty steadily over the last few weeks as they have caught the eye of investors, who currently want the security of investment-grade paper, and are also weighing the prospects of the health care/biotech space carefully.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

iStar Financial Inc. NYSE: SFI

Ford Motor Co. NYSE: F

Mylan Inc. NYSE: MYL

Nortel Networks Corp. NYSE: NT

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