Convertibles muted; Transocean rises; Amylin up on competitor's drug delay; Omnicom active

By Rebecca Melvin

New York, June 18 - Friday's action in the convertible bond market was muted, making it difficult for players to get a precise read; but the tone had improved in the past week, as the outright investor bid returned, marking a shift away from May's weak performance and early June's lull, sources said.

"It's pretty dead. Everybody's watching soccer," a New York-based sellside analyst said, referring to the soccer World Cup. "But things seem better given that equities are better."

The stock market headed into Friday with a week-to-date gain of more than 2%, but most of that was notched in a strong rally Tuesday, and Friday's session was choppy amid a quiet news day and lack of new economic data.

The convertible bonds of Transocean Ltd. continued to be the three most actively traded bonds in the convertibles market, and that paper improved again Friday, in continuation of a move upward all week on the company's improved spill liability outlook.

Amylin Pharmaceuticals Inc. saw its 2.5% convertibles jump about 3 points outright as its shares zoomed higher on word that a competitor's diabetes drug is going to be pushed back 12 months to 18 months on drug trial problems.

Omnicom Group Inc.'s 0% convertibles of 2038 were among the most actively traded names in trade sparked midweek by the company's sweetener to extend the put on those bonds.

"I still think credit in general is fairly tight and we need better economic numbers for it to loosen up a bit," a Connecticut-based trader said.

Transocean improves

Transocean's 1.625% series A convertibles due 2037 resumed a climb that began on Monday, trading at 97.75 on Friday, compared to 96.75 on Monday.

Transocean's 1.5% series B convertibles due 2037 traded at 91.5 Friday, which compared to 88 on Monday, and Transocean's 1.5% series C convertibles due 2037 traded at 85.5 on Thursday, compared to 82.5 on Monday.

Shares of the Vernier, Switzerland-based company zoomed higher trading above $53 on Friday at midday, compared to a settle at $44.78 on Monday.

Why Transocean gained so markedly on Friday was seen as "carry over of people getting more and more comfortable about its liability and that BP won't be taken to the cleaners," a New York-based sellside convertibles analyst said.

There didn't appear to be anything new out on the company overnight to cause renewed gains in the company's stock on Friday, the analyst said.

"The real answer is no one really know" if Transocean is out of the woods, the analyst said. There could be an article over the weekend that causes investors to take it all back, but for the time being Transocean shares were up nearly 10% on the day and its bonds were better.

"I'm looking at all the E&P names and RIG is clearly outperforming everyone by a large margin," the analyst said.

The news of the past week reinforced the view that "they are going to be OK. They are not going to have to pony up to the claim fund," the analyst said.

BP ratings knocked down

Even BP plc securities were better early Friday, but its shares came off later amid a Moody's Investors Service downgrade on its credit rating, citing ongoing uncertainty over the Gulf of Mexico oil spill.

Moody's cut its rating on long-term BP debt to Aa2 from A2 and unsecured issuer rating of BP Corp. North America to Baa1 from Aa3.

BP's 1.55% paper of August 2011 traded as low as 89 for a 12.2% yield to maturity on Wednesday but was trading at 95.25 for a 5.94% yield to maturity around midday Friday, a Connecticut-based sellside trader said.

As for the bigger picture on the volatile situation, a New York-based outright buysider said: "The BP affair certainly saps enthusiasm for investing. BP apparently violated the safety rules on the well that blew out, but the U.S. government seems uninhibited by the law in pursuit of redress from BP."

For the week through Thursday, the outright convertible return was 1.4%, compared to U.S. high-yield bonds, which were up 1.6%, and the S&P return, which was up 2.2%, according to a New York-based sellside trader.

"Convertibles seem to be lagging some. Outside of the energy sector, RIG bonds in particular, there is not much trading going on, especially below the most active 15 names," the analyst said.

Amylin gains

Amylin's 2.5% convertible notes due 2011 traded 99.25 versus a share price of $19.00, up about 3 points outright from Thursday. The paper fell below par in the May slump, compared to April when the bonds had been trading a few points above par. In March, there was a trade reported at the same 99.25 but versus a higher share price of $19.75.

Shares of the San Diego, Calif.-based biopharmaceutical company on Friday zoomed up by $3.47, or 21%, to $19.97.

The news driving the jump was that Roche Holding AG said a change in its taspoglutide diabetes drug clinical trial protocols was required following hypersensitivity reactions in some patients. That change was expected to push back an expected regulatory filing by as much as 18 months.

Amylin, Alkermes and Eli Lilly & Co. are awaiting a Food and Drug Administration decision on the once-weekly diabetes treatment Bydureon.

Roche said that some patients in the continuing phase 3 study proved to be hypersensitive, showing skin reactions and gastrointestinal symptoms. Less frequently, patients showed cardiovascular and respiratory symptoms. All patients recovered without complications.

In April, Roche said taspoglutide showed promising results in a late-phase test, raising chances the drug could live up to its blockbuster potential if it makes it to the market. It acquired exclusive worldwide rights to develop and market the drug from French drugmaker Ipsen.

Roche had expected to file the medicine for approval in the United States and Europe by 2011.

Mentioned in this article:

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Omnicom Group Inc. NYSE: OMC

Transocean Ltd. NYSE: RIG

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