OSI Pharmaceuticals new issue rises, but ON Semiconductor slips; Carnival lower on higher dividend fears

By Rebecca Melvin

Princeton, N.J., Dec. 16 - Of the latest batch of new convertibles in the market, OSI Pharmaceuticals Inc. traded 2.5 points to 3 points higher on Friday. But ON Semiconductor Corp. slipped to 99.25 bid, 99.75 offered. A third new issue from Goodrich Petroleum Corp. wasn't seen much in trade, although a syndicate source said the preferreds were up early in the session and faded later as its underlying shares traded off.

Elsewhere, Carnival Cruise Corp. convertibles shed points amid fears of a dividend increase after the world's largest cruise operator announced that its fiscal fourth-quarter revenues were up 20%, beating expectations, due to higher capacity and ticket prices, which offset higher fuel costs.

Albertsons Inc.'s convertible preferreds were up 0.375 point to 0.50 point, in line with the shares, but its credit default swaps widened on reports that an investment group including Cerberus Capital, Kimco Realty Corp. and Minnesota-based supermarket chain Supervalu Inc. is near a deal to buy the Boise, Idaho-based supermarket chain.

On the upside, the stocks and bonds of Par Pharmaceutical Cos. Inc. gained, with its convertible bonds about 0.125 point to 0.25 point better than their underlying shares, after the company announced a deal to gain rights to generic versions of Augmentin and Amoxil antibiotics.

The company said the distribution rights to these drugs could boost the company's diluted earnings per share by about $0.30.

Airlines convertibles were also better as lower oil prices continued to boost that sector. But most of the activity of this week's convertibles market has come in the form of new issuance, market players said.

The month's flurry of new issuance, which saw a landmark $1.4 billion of convertibles issued by semiconductor titan Intel Corp., is expected to come to an end starting Monday, however, origination sources said.

One bookrunner's e-mail, which said new issuance is "all over for the year now," was backed up by other others who saw the bumper crop of new issues in the last two weeks was a testament to issuers resolve to get deals done early.

Holiday vacation schedules were expected to curb market activity overall starting Monday. "Yeah, we would have been willing to do something as late as Monday, but I think the volume that we've seen this week shows that issuers were pushing to get it done earlier," a New York-based sellside shop source said.

Carnival lower on dividend worries

The three convertibles of Carnival were lower Friday, with its most liquid 1.132% convertibles due 2033 dropping about 2 points, traders said, due to concerns about a special dividend increase.

The Carnival 2% convertibles and 0% convertibles, both due in 2021, were also lower on Friday. All three issues have special dividend protection, however.

Carnival posted a 20% jump in net income for its September to November quarter despite hurricanes and higher fuel costs. It reported earnings of $353 million, or 43 cents a share, on revenue of $2.6 billion. Analysts polled by Thomson First Call had expected earnings of 41 cents a share on revenue of $2.53 billion.

But the company also lowered guidance for 2006, saying that growth will not be what it has been in the last two years. That news sent shares down; but the bonds' decline was attributable mostly to "worries of the dividend for arb guys," a New York-based sellside trader said.

Carnival expects 2006 earnings per share will be between $3.00 and $3.10, below the $3.14 expected by analysts surveyed by Thomson Financial.

The 1.132% Carnival convertibles traded at 80.50 and closed lower at about 77.50 bid, 78 offered, which was down 4.5 points on the day.

The Carnival 2s shed a similar amount to trade at 134 bid, 135 offered, and the 0% notes traded off about 1 point at 89, although they closed lower at 87.25 bid, 87.875 offered. Carnival shares closed off their lows, down $2.19, or 4%, at $52.65.

OSI Pharma gets warm reception

The new 2% convertibles of OSI Pharmaceuticals opened up in the aftermarket at 101 and traded higher, to a close of 102.5 bid, 103 offered, according to a syndicate source.

The Melville, N.Y.-based biotechnology company priced $100 million of 20-year convertible senior subordinated notes at par to yield 2% with an initial conversion premium of 25%. There is an option for an additional $15 million of the notes.

Allocations were tight and not all players who wanted to buy the issue were able, according to one would-be buyer of the notes.

UBS Investment Bank was bookrunner for the Rule 144A offering, which priced at a yield within talk of 1.75% to 2.25% and with an initial conversion premium at the rich end of the 20% to 25% talk.

"OSIP traded up and ON [Semiconductor] traded down," a trader said. "I think people were a little surprised that ON [Semiconductor] didn't do better."

But market players seemed to like the shorter five-year put of OSI Pharmaceuticals, as compared to the seven-year put of ON Semiconductor's issue, sources said.

"Seven years was a little long on the maturity," a trader said.

The OSI notes are non-callable for five years and have a put in years five, 10 and 15.

OSI said it would use up to $25 million of proceeds to buy stock concurrently with pricing of the notes. It also would enter into call spread transactions to reduce dilution from conversion of the notes, with remaining proceeds earmarked for general corporate purposes.

In connection with the call spread transactions, the initial purchaser of the notes or its affiliates have indicated that they will purchase shares of OSI's common stock in secondary market transactions and enter into various derivative transactions near to the time that the notes price.

OSI Pharmaceuticals shares also closed higher Friday, up 40 cents, or 1.7%, at $23.94.

ON Semiconductor sags on issue

ON Semiconductor was seen as not as strong a credit as OSI Pharmaceuticals, discouraging some outright support and "the hedge community couldn't get off enough stock," according to a sellsider.

The semiconductor company priced $95 million of 20-year convertible notes to yield 1.875% with an initial conversion premium of 22.6%, according to a syndicate source.

The Rule 144A deal was a one-day book sold via joint bookrunners Merrill Lynch, Citigroup Global Markets and JP Morgan Securities.

The convertibles came within talk, which was 1.5% to 2.0% for the coupon with a 20% to 24% initial conversion premium.

The Phoenix-based ON Semiconductor, a maker of chips for portable electronic devises, planned to use proceeds to repay its outstanding 10% junior subordinated notes due 2011.

The new ON Semiconductor 1.875s traded as low as 99 but closed a little higher at 99.5, a syndicate source said. Its shares finished off slightly lower, down 4 cents, or 0.7%, at $5.63.

Goodrich Petroleum issue ends little changed

The Goodrich Petroleum preferreds moved above par in early trading but ended little change at the close on Friday, a syndicate source said.

The first convertible issue from the company had good outright support and kept the bookrunning trading desk busy in the initial aftermarket, but other trading sources hadn't seen the issue quoted.

Goodrich priced $82.5 million of cumulative convertible perpetual preferreds at par to yield 5.375% with an initial conversion premium of 20%.

The Rule 144A deal was sold via bookrunner Bear Stearns & Co., with BNP Paribas as co-manager.

It priced at the cheap end of talk, which was for a dividend of 5.125% to 5.375% and an initial conversion premium of 20% to 25%.

The preferreds are non-callable for five years and provisionally callable thereafter at a trigger of 130%. There are no puts.

Proceeds will be used to redeem all of the outstanding series A preferred stock for about $9.5 million, with the balance of proceeds earmarked to fund the continued acceleration of its drilling program.

Houston-based Goodrich Petroleum is an independent oil and gas exploration company.

Goodrich shares closed down $1.02, or 3.9%, at $25.11.

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