Advanced Medical gains, RF Micro drops on earnings; Charming Shoppes up on debut; Oscient prices deal

By Kenneth Lim

Boston, April 25 - Earnings-related news drove convertible action on Wednesday, with Advanced Medical Optics Inc. improving outright after it reported a first-quarter profit surge.

RF Micro Devices Inc. slipped outright but was slightly better hedged after the company warned of weaker than expected results for its first quarter.

Meanwhile, Charming Shoppes Inc. received a warm welcome as its new convertibles gained after pricing within talk.

In the primary market, Oscient Pharmaceuticals Inc. priced its new 3.5% convertible senior notes due 2011 at the rich end of talk.

Advanced Medical climbs on earnings

Advanced Medical Optics' 3.25% convertible due 2026 rose about 4 points outright to a touch below par after the company said its first-quarter profit more than quadrupled.

The convertible traded at 99.75 against a stock price of $42.75 on Wednesday. Advanced Medical stock (NYSE: EYE) rose 8.75% or $3.41 to close at $42.37.

"EYE moved up after they reported earnings, looks in line," a sellside convertible trader said.

Santa Ana, Calif.-based Advanced Medical reported a first-quarter net profit of $12.1 million, or 20 cents per share, up from the year-ago income of $2.6 million, or 4 cents per share. Advanced Medical, a maker of eye care products, maintained its full-year earnings per share guidance of $1.40 to $1.55.

"These look like good results," a sellside convertible analyst said. "There was some concern about the recall they had earlier in the year, but I think obviously the impact wasn't as big as some people were expecting. Either that or we haven't seen the full impact of the recall yet."

The analyst said the company's credit profile remains unchanged.

"They've got a pretty tight credit, so the results won't affect that very much," the analyst said. "It's hard for it to get any tighter...The only concerns at the moment would be the impact of the recall and the IntraLase acquisition."

Advanced Medical earlier in the year recalled 100,000 units of its Complete MoisturePlus contact lens solution over problems at a manufacturing plant in China. It bought IntraLase, a maker of laser vision correction equipment, earlier in the month.

RF Micro eases on warning

RF Micro's 0.75% convertible due 2012 and its 1% convertible due 2014 slipped about 2.25 points outright but improved slightly on a dollar-neutral basis on Wednesday after the company warned that it could miss Street estimates for its first-quarter results.

The 0.75% convertible was about 99.35 against a stock price of $6.30, while the 1% convertible changed hands at 97.65 against the same stock price. RF Micro stock (Nasdaq: RFMD) closed at $6.32, down by 3.51% or 23 cents.

"They were kind of all over the place," a buysider said. "The A's and the B's were stuck right under par."

RF Micro reported fiscal fourth-quarter profit of $30.1 million, or 14 cents per share, from a year-ago loss of $1.57 million, or 1 cent per share. Analysts were expecting a profit of 11 cents per share. But the Greensboro, N.C.-based maker of radio frequency components for mobile communications said it expects its fiscal first-quarter earnings per share to be between 2 cents and 4 cents, well short of Street consensus of 8 cents.

A sellside convertible trader said the convertible was slightly better on a dollar-neutral basis.

"I think they were a little better dollar neutral," the trader said. "The hedge guys who bought this a few weeks ago are probably giving themselves a pat on the back."

A sellside convertible analyst said RF Micro's poor quarter probably stemmed from delays at key customer Motorola.

"It looks like the Motorola problem is a little worse than what most people thought," the analyst said. "It's not just that the issue seems to last longer than expected, but it's also affecting their top and bottom lines to a greater degree. I guess the concern here is that they haven't been able to tide over this setback as well as people were hoping."

Charming Shoppes gains on debut

Charming Shoppes made a modestly positive entrance into the secondary market on Wednesday, trading up by less than a point after the deal priced within talk.

Its new 1.125% convertible senior note due 2014 was 100.375 bid, 100.5 offered against a stock price of $12.71. The convertible was offered at par. Charming Shoppes stock (Nasdaq: CHRS) eased 0.16% or 2 cents to close at $12.69.

"It was quite liquid," a buysider said. "I don't know if they actually traded up too much. I think we got an OK allocation. We ended up shooting it back to one of the bookrunners."

Charming Shoppes priced the $250 million offering on Tuesday after the market closed with an initial conversion premium of 21%. The deal was talked at a coupon of 1% to 1.5% and an initial conversion premium of 20% and 25%.

There is an over-allotment option for a further $25 million.

JP Morgan and Banc of America were the bookrunners of the Rule 144A offering.

Charming Shoppes, a Bensalem, Pa.-based retailer of women's plus-size apparel, said it will use the proceeds of the deal to call its $150 million outstanding 4.75% convertible senior notes due 2012 and for general purposes. The company has also entered into convertible note hedge and warrant transactions that increase the effective conversion price of the notes to about $21.61 per share, or an initial 70% premium.

"They looked OK," a sellside convertible trader said. "They were just slightly cheap where they priced at the mids, so guys got what they were expecting. It's a decent deal."

Oscient upsizes deal

Oscient upsized its offering of five-year 3.5% convertible senior notes to $60 million and priced it at an offer price of 77.5 on Wednesday after the market closed.

The convertibles have an initial conversion premium of 110.9% and a yield of about 10.7% based on the offer price. The convertibles have par of $1,000 and are being sold for cash together with concurrent exchange offers for Oscient's $185.448 million outstanding 3.5% convertible senior notes due 2011 and $22.31 million outstanding 5% convertible promissory notes due 2009. All the new convertibles have the same terms.

Price talk guided for a reoffered price of 72.5 to 77.5. The coupon and initial conversion price were the same.

The size of the cash offering was originally $30 million, but it was increased to $50 million on April 18 and increased again at pricing. There is no over-allotment option.

Piper Jaffray & Co. is the placement agent of the registered offering.

Oscient, a Waltham, Mass.-based biopharmaceutical company, said it will use the proceeds of the cash deal to fund general corporate purposes.

Oscient's older 3.5% convertible due 2011 last traded at 77.625 on April 18, according to Trace. The stock closed Wednesday at $6.40, down by 1.23% or 8 cents.

© 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.