Celgene rebounds; Medtronic firm; School Specialty drops; NRG eyes $500 million mandatory preferred

By Rebecca Melvin

Princeton, N.J., Oct. 3 - Convertibles trading for the first session of the fourth quarter was relatively quiet with a few issues moving on company-specific news like those of Celgene Corp. and Medtronic Inc.; but overall activity was characterized as slow, traders said.

Celgene stock slid in early trading after the biotechnology company said that the Food and Drug Administration delayed its decision on Celgene's blood disorder treatment by three months. But investors stepped in later and scooped up the stock, lifting it into positive territory and leaving the bonds in by about 0.50 point on swap, traders said.

Medtronic shares slipped but its convertibles remained firm Monday as investors viewed as negative news the health care company's $51 million award in a longstanding patent infringement court case.

Meanwhile, the convertibles of School Specialty Inc. traded lower as its shares tumbled after the school supplies distributor said that an expected $1.5 billion acquisition of the company wouldn't close as scheduled because three banks agreeing to provide financing pulled out of the deal.

In the primary arena, convertibles players kept an ear cocked for further details on a $500 million mandatory convertible that NRG Energy Inc. said would be part of its financing package in acquiring Texas Genco LLC for $5.8 billion in cash and stock.

"It's been slow. Nothing has been too active. I think a lot of people are doing month end stuff for clients. That's a lot of what I've been doing today," a New York-based sellside trader said.

Celegene volatility continues

Trading opportunities continued in Celgene as another in a string of announcements about the Summit, N.J.-based biotech's experimental cancer drug caused the stocks and bonds of the company to gyrate.

Celgene announced Monday that regulators told the company they needed more time to review additional information on Celgene's risk management plan for Revlimid. The FDA was originally scheduled to make a decision on Revlimid by Oct. 7.

The risk management plan seeks to inform doctors on how to reduce the risk of exposing women who many become pregnant to the drug since it is sufficiently similar enough to Thalomid and its active ingredient, thalidomide, which caused severe birth defects in the late 1950s after women took the drug to treat morning sickness.

Last week, Celgene stock dropped after the Wall Street Journal reported that a clinical trial for the drug had been suspended because of concerns about blood clots in patients in a clinical trial for the drug.

On Sept. 14, the company announced that an advisory committee of the FDA had recommended full approval of Revlimid for the treatment of patients with transfusion-dependent anemia, or MDS patients who have relapsed or become resistant to other treatments.

On Monday, Celgene stock initially slid about $3. But the company said in a conference call that it does not expect the "short-term" delay to affect its launch plans, and plans to submit an application with the FDA in November to market Revlimid.

"It's a solid credit, and I think people are taking advantage of this good volatility as a trading opportunity," a New York-based sellside convertibles trader said.

Celgene's 1.75% convertible due 2008 traded up about 8 points to about 230, compared to a level of about 222.5 bid, 223.5 offered on Friday. On Sept. 9, the 1.75% convertibles were seen at 213 bid, 213.5 offered.

Celgene shares closed up 26 cents, to $54.58 in heavy volume on the Nasdaq Stock Market.

Medtronic remains firm

The 1.25% convertibles of Medtronic were firm or edged higher on Monday to about 99.5, while its underlying stock slipped, after news that the Minneapolis-based medical device maker's Medtronic Navigation unit had been awarded $51 million from a jury in the U.S. District Court in Denver in a patent case against Germany's BrainLab AG involving four image-guided surgical techniques and device patents.

The court ruled that all the BrainLAB products infringe the Buchlotz and Roberts patents, as well as the two others.

But the amount of the award on the case that dates back to 1998 was viewed negatively. Recently the convertibles had been trading well over par on a higher stock price.

Now, with a call in 2006, it's unlikely that the convertible is going move too far away from par, an analyst said.

"There's a call at 100 that's going to cap it. It's going to behave like an equity," a New York-based sellside shop analyst said. "The premium has spread out a little bit, but it's a putable, A-rated company, so it's not going to go below."

Medtronic shares closed down 39 cents, or 0.73%, at $53.23.

Collapsed deal sinks School Specialty

The 3.75% School Specialty convertibles due 2023 traded down about 11 points at 109 from about 120, following its shares lower, after the Greenville, Wis.-based company said that its acquisition by LBW Holdings Inc., planned since May, would not take place as scheduled this week.

The reason was that Banc of America Securities LLC, J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc., initial purchasers of $350 million of senior notes, terminated their purchase agreement.

School Specialty also cut its fiscal 2006 financial forecast due to a slowdown in customer orders and said that it believes the banks backed away from the deal because they were concerned about disappointing results in August and September and about its near-term financial and operating prospects.

Shares of School Specialty closed down $8.42, or 17.3%, at $40.36.

NRG acquisition lifts existing preferreds

The 4% NRG Energy preferreds were indicated higher Monday amid news that the Princeton, N.J.-based power plant operator has agreed to buy Texas Genco LLC for $5.8 billion. The company said its financing plans include another mandatory preferred deal expected to be about $500 million in size.

Texas Genco is a Houston based independent wholesale electric power generating company, which is part owner of the South Texas Project with CPS Energy in San Antonio.

Company officials say the combined company will be a great wholesale power generating company with one of the largest portfolios of power generation assets of any independent power producer in the United States.

The deal will involve about $2.5 billion in debt, the mandatory convertibles and $1 billion in common equity.

The NRG 4% preferreds were seen at about 1,348 bid, 1,358 offered, up about 165 basis points.

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