Omnicare withstands profit cut; Symantec rises with results; XM unmoved by loss; Weingarten plans deal

By Kenneth Lim

July 27 - The convertible bond market was busy with earnings reports on Thursday, with Omnicare Inc. standing firm despite the company's lowered profit and forecast.

Symantec Corp. gained outright in line with a sharp rise in the stock after the antivirus software maker beat expectations for its quarterly results and outlook.

XM Satellite Radio Holdings Inc. was unchanged, shrugging off a wider second-quarter loss that nevertheless was better than expected.

From the primary market, Weingarten Realty Investors launched an overnight $450 million offering of 20-year convertibles expected to price Friday before the market opens.

The market in general was busy reacting to quarterly reports as they started to pour in, but nothing seemed to be moving out of the ordinary.

"There's been a lot of earnings news, but nothing that's drastically affected any of the names we're involved in," a buyside convertible bond trader said.

Also seen trading on Thursday was Charles River Laboratories International Inc.'s 2.25% convertible due 2013, which was slightly better at 99.125 bid, 99.375 offered versus a stock price of $35.35. The convertible has improved in line with a gain in the stock this week. Charles River stock (NYSE: CRL) closed at $35.05, down by 2.09% or 75 cents.

"There's just been a lot of trading in the bond over the last couple of days," the buysider said. "They're better to buy."

Charles River is a Wilmington, Mass.-based biotech company that offers research models.

UTStarcom Inc. also came to life on Thursday, improving by about three quarters of a point outright. The Alameda, Calif.-based internet telecommunications solutions developer's 0.875% convertible due 2008 traded at 88.75 against a stock price of $8.

"I'm not sure why they're up, but perhaps the company is buying back some bonds, which they've done before in the past," the buysider said.

UTStarcom stock (Nasdaq: UTSI) gained 1.13% or 9 cents to close at $8.07.

Omnicare firm despite results

Omnicare's 3.25% convertible due 2035 slipped by about 2.5 points outright but improved dollar-neutral on Thursday after the company's poor second-quarter results and reduced forecast for the year took a toll on the stock.

The convertible traded at 90.5 versus a stock price of $44.90 on Thursday. Omnicare stock (NYSE: OCR) fell 9.27% or $4.52 to finish at $44.25.

Covington, Ky.-based Omnicare said Thursday that it earned $30.4 million, or 25 cents per share, in the second quarter, down from $61.7 million, or 59 cents per share, in the year-ago period. Excluding unusual items and accounting changes, earnings were 67 cents per share. The geriatric pharmaceutical services company also lowered its 2006 earnings forecast to between $2.90 and $3.05 per share before special items, down from the earlier estimate of between $3.15 and $3.40 per share.

To reduce costs, Omnicare announced a plan that aims to cut expenses by $100 million to $120 million by the end of 2008, although $80 million in charges would have to be incurred. The company said it will take $15 million of that charge this year.

A sellside convertible bond analyst said the news affected the equity more than it did the credit, noting that Omnicare still has decent credit. The increased volatility in the stock that resulted from the results announcement was probably good news for hedge investors, the analyst said.

A Connecticut-based analyst agreed that Omnicare's results had only a slightly negative impact, if any, on the company's credit quality.

"The credit isn't really affected, and the bonds did hold because of that," the analyst said. "And there are going to be all these cost cutting measures, which could be better for the credit also...They missed on the earnings, but actually their EBITDA and all that was fine."

The convertible models "very cheap" on a hedged basis, and even now has a "really nice upside-downside trade-off" for outright investors, the analyst said. One risk in holding the convertible was that the paper has a long maturity.

"If you liked them before, you'd really like them now," the analyst said.

Symantec gets earnings boost

Symantec gained about 5 points outright after the security software developer reported a smaller-than-expected slide in profit and beat Street expectations for its outlook.

The company's 1% convertible due 2013 traded at 103.8 against a stock price of $17. Symantec stock (Nasdaq: SYMC) closed at $17.24, up by 9.11% or $1.44.

"It's a new issue and the stock soared off," a buyside convertible analyst said. The 1% convertible was sold in June.

Cupertino, Calif.-based Symantec said late Wednesday that it earned $95 million, or 9 cents per share, in its first fiscal quarter ended June 30. It earned $199 million, or 27 cents per share, in the same period a year ago. Excluding special items, the company had a profit of 24 cents per share. Analysts were expecting 18 cents per share.

"It looks like their consumer business is doing a lot better than a lot of people thought it would," the analyst said.

Investors were concerned that new competition from Microsoft would affect Symantec's sales of its Norton Internet Security software, the analyst said. There were also concerns that the company's purchase of storage-software maker Veritas would have a significant negative impact.

"Looks like neither the competition nor Veritas problems are working out like people expected," the analyst said. "They're proving some analysts wrong."

XM Satellite unmoved by loss

XM Satellite's 1.75% convertible due 2009 was lower outright early Thursday but bounced back to trade roughly flat in line with the stock after the company's wider second-quarter loss was better than expected.

The convertible traded at 76.75 versus a $10.70 stock price around midday. XM Satellite stock (Nasdaq: XMSR) closed at $10.89, up by 5.12% or 53 cents.

Washington-based XM Satellite said its second-quarter loss widened to $231.7 million, or 87 cents per share, from $148.8 million, or 70 cents per share, in the year-ago period. Taking out non-operating losses, including $82.3 million from a debt restructuring, the satellite radio broadcaster would have lost just 48 cents per share, better than the 67 cents per share Street estimate.

"The stock actually recovered from an early morning conference call," a convertible bond trader said. "Perhaps it's up on ultimately the takeout speculation."

Weingarten plans $450 million deal

In primary news, Weingarten Realty (NYSE: WRI) plans to reoffer $450 million of 20-year convertible senior unsecured notes at 98.125 to 98.375, with talk for a coupon of 3.875% to 3.95% and an initial conversion premium of 25%.

The overnight deal, which is expected to price before the market opens Friday, will have an initial conversion price of $49.075 per share based on Weingarten's closing stock price of $39.26 on Thursday.

The over-allotment option is for a further $67.5 million.

Citigroup, JP Morgan and Morgan Stanley are the bookrunners of the Rule 144A offering.

Weingarten is a Houston-based real estate investment trust with a portfolio of shopping centers and industrial properties in the United States. It plans to use the proceeds of the deal to buy back up to $140 million of its common shares, to reduce its debt from a revolving loan and for general purposes.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.