Sino-Forest weaker on bankruptcy filing; United Rentals moves higher; Amylin extends gains

By Rebecca Melvin

New York, March 30 - The $805 million of Sino-Forest Corp. convertibles were seen 20 bid, 30 offered and weaker, though not actively traded on Friday, after the Chinese-based, Toronto-listed commercial tree plantation operator filed for bankruptcy protection from creditors in Canada, market players said.

Sino-Forest was the object of damaging scandal in the middle of last year after research firm Muddy Waters LLC put out a report that alleged its acreage assets were exaggerated.

On Friday, the company said that it reached an agreement with an ad hoc committee of its noteholders on the material terms of a transaction to either sell the company to a third party or to restructure, under which the holders would acquire substantially all of the assets of the company, including the shares of all of its direct subsidiaries.

Overall, the convertible bond market was seen little changed on Friday, with some activity attributable to month-end and quarter-end window dressing.

Quoting of United Rentals Inc.'s 4% convertibles due 2015 could have been due to window dressing. The high-dollar price, low-premium issue currently trades a little shy of quadruple par, a New York-based sellsider said.

The sellsider also mentioned Home Inns & Hotels Management Inc., which doesn't always trade and which printed Friday at a little below 77.

In addition, Hertz Global Holdings Inc. saw a lot of trades of its 5.25% convertibles due 2014, and it was up about a point at midday at 191.34, according to Trace data.

"Hertz is a high-dollar price name, and a good stock alternative. It's a safe trade that could work out if the stock blows up or the company decides to flush the bonds," a sellsider said.

Elsewhere, Amylin Pharmaceuticals Inc.'s 3% convertibles extended gains, moving up to about 99.75 on Friday, up from 99.625 on Thursday and 98.25 on Wednesday, from a previous level of 96.5. Word of a rejected buyout offer from Bristol-Myers Squibb Co. sparked this week's positive action for the San Diego-based diabetes drug maker.

In addition, Omnicare Inc.'s new 3.75% convertibles due 2042, which were exchanged for its 3.75% convertibles printed in December 2010, continued to trade actively and higher at 99.45, which was up nearly 1.5 points from Thursday when the exchange transactions were announced.

There was mixed response on the day's action Friday. One New York-based sellsider said, "A lot of clients aren't paying attention or are out." Another sellsider said there was decent activity.

A convertible analyst based in New York said that volumes in the convertible market for March are down significantly as market players eyed valuations that were too high to inspire buying and with new issuance still so low that it was difficult to sell.

"They have fallen off a lot," the analyst said of volumes. "I'm not sure that means anything at all except that people are not looking to add."

A third source said. "I'm not hearing that people are worried about redemptions or don't have capital, or don't have liquidity: the problem is that most things don't look especially attractive, and the things that do, there are issues with them."

In the meantime, returns are still positive for the year, with convertible arb players generally seeing ballpark returns of about 2% to 4% for the year to date, an analyst said.

Sino-Forest weaker on filing

Sino-Forest's $460 million of 4.25% convertibles due 2016 and $345 million of 5% convertibles due 2013 were seen at 20 bid, 30 offered on Friday, which compared to a recent trade at 27.50 or 27.75, market players said.

One sellsider familiar with the name said that the Sino-Forest convertibles' market was down 5 points. But given that the market was so wide, it was difficult to know exactly where the paper would trade in the context of a 10-point spread.

Sino-Forest announced that it was initiating proceedings in the Ontario Superior Court of Justice under the companies seeking approval for a court supervised restructuring process to implement a transaction, including the immediate initiation of a sale solicitation process and a stay of certain creditor claims.

The company said holders of about 40% of the notes have said they support the transaction agreement, but that it will continue to solicit additional noteholders' support. Noteholders have until May 15 to do so.

In addition to the $805 million in convertible bond paper, there are two straight bond issues, for a total of $1.8 billion in bonds that the company has outstanding.

Sino-Forest is also making a $4 billion claim for damages against Muddy Waters.

One convertible analyst said it will be interesting to watch how the case plays out because since all its sales go through intermediaries, it will be difficult where its financials actually stand.

The ad hoc committee of bondholders represents a significant portion of the company's 5% convertible senior notes due 2013 and the 4.25% convertible notes due 2016.

"Technically, they have rights to the value of the shares in Canada, but as to the holdings in China, who knows," the analyst said.

For its part, Sino-Forest said in a news release, "We believe the full value of our assets will only be achieved if we are able to continue operating the business, and repair and preserve relationships with our customers and suppliers. We believe that the CCAA restructuring process is the best method to secure our future and will allow the time and stability required to normalize operations following the allegations made against the company by Muddy Waters LLC. The transaction we have negotiated is indicative of the support of a significant portion of Sino-Forest's noteholders."

United Rentals higher

United Rentals' 4% convertibles due 2015 traded up to 390.729, which was up 17.5 points on the day. The bonds have risen meteorically since moving down to a little above par during the market drop in August.

"The bonds have 4 points of premium; and they were trading around 390 when conversion at parity is in the high 380s," a sellsider said.

Shares of the Greenwich, Conn.-based equipment rental company ended the session essentially unchanged at $42.89 in light trading.

Mentioned in this article:

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Hertz Global Holdings Inc. NYSE: HTZ

Home Inns & Hotels Management Inc. Nasdaq: HMIN

Omnicare Inc. NYSE: OCR

Sino-Forest Corp. Toronto: TRE

United Rentals Inc. NYSE: URI

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