Convertibles catch wave of optimism as new Invitrogen deal gains favor; Saks sinks after default notice

By Rebecca Melvin

Princeton, N.J., June 15 - The convertibles market was cheered Wednesday by healthy demand and strong pricing of a $325 million new issue from Invitrogen Corp.

The biotechnology company's older convertible issues also moved higher in the session.

Across the board prices were generally firmer, traders said, seeing a variety of issues moving on company-specific news, including Chiron Corp., Reebok International and Veeco Instruments Inc.

Calpine Corp. convertibles also regained their footing after falling Tuesday, but Northwest Airlines continued to slide along with other carrier issues as oil prices turned up. Northwest also announced a reorganization of marketing and sales operations after the close.

Of the session, a sellside trader in New York said, "It was very busy. It feels like we're gaining market share. Prices were firmer."

"The name of the day was Invitrogen," said another Manhattan sellside trader.

The 3.25% issue of convertible senior notes, with a 27.5% initial conversion premium, priced "cheap" and was well received in the market.

The deal traded out of the box at 101, and moved up to the 102.0 bid, 102.50 offered early in the day. The strong pricing caused at least one New York analyst to question whether the underwriters had been aggressive enough with the deal.

"It was priced at the cheap end; and when it trades higher than the open and expands out, you wonder if it could have been priced differently," the analyst said.

Price talk on the issue was 2.75% to 3.25%, with an initial conversion premium of 27.5% to 32.5%.

Given current market conditions, however, few were willing to argue the point too strongly, including the New York analyst, who said, "Most [recent deals] had to be reoffered through fees or pulled, including Joy Global."

Mining concern Joy Global Inc. earlier this month abandoned a planned $260 million offering of 20-year convertible notes.

But Invitrogen, a Carlsbad, Calif.-based company that provides drug discovery, software, and other products and services for research organizations, pleased investors, and demand was so healthy that the size of the deal was boosted. Originally it was expected to be a $300 million deal; but the size was lifted by $25 million and the greenshoe reduced by the same amount to $25 million.

Sister issues recovered in trade Wednesday. Its 1.50% due 2024 was trading "back to normal," a trader said, after it lost a half-dozen points to trade in the 91 range on Tuesday. The company's 2% convertible also recovered after a four-point slide Tuesday. Invitrogen shares closed up 69 cents, or nearly 1%, to $77.67.

"Maybe this will lure some issuers out of the woodwork, and investors will be more confident that they can put money out," an analyst said.

Invitrogen will hold its 2005 investor meeting 11 a.m. Thursday.

Meanwhile, market participants also have their eyes fixed on MetLife Inc.'s $1.8 billion new deal of mandatory convertibles, which was scheduled to price after the close. The deal has a $270 million greenshoe. The issue was talked at 6% to 6.75% with an initial conversion premium of 20% to 25%.

However, Chiquita Brands International Inc. won't be doing a convertible deal that had been seen on the horizon for some time. "That's dead," a source said Wednesday.

The company had planned a $75 million perpetual convertible preferred to be sold in conjunction with $150 million of senior bonds. But instead it is offering $225 million of senior notes to help finance its proposed purchase of Fresh Express packaged salad and fresh-cut fruit business from Performance Food Group Co.

Chiron holds up

Chiron Corp. convertibles slipped early Wednesday, and trading of shares of the biopharmaceutical company was halted early on the Nasdaq. But the convertibles recovered later in the session despite the company's warning that manufacturing problems will prevent it from producing the planned number of flu vaccine doses this year and, as a result, 2005 revenue and earnings will be lower than expected.

Chiron now plans to produce 18 million to 26 million doses of Fluvirin for the 2005-2006 season, down from a previous forecast of 25 million to 30 million doses.

Chiron is one of the few firms licensed to provide flu vaccine in the United States but did not sell any of its Fluvirin vaccine in this country last season after British regulators shut down a Liverpool manufacturing facility.

The company expects 2005 earnings from continuing operations of 86 cents to $1.11 per share, or $1.20 to $1.45 per share excluding acquisition-related items. The company previously predicted full-year earnings from continuing operations of $1.06 to $1.16 per share, or operating profit of $1.40 to $1.50 per share.

Chiron's 1.635% convertible senior notes due 2034 traded at 92.75 early in the session. Later they traded at 93, compared with yesterday's close at 93.38 bid, 93.68 offered.

Chiron 2.75% convertible senior notes were seen early in the session at 95.125 bid, 95.375 offered. But later they traded at 96, compared with a close of 96.478 bid, 96.728 offered on Tuesday. Chiron shares dropped $2.48, or 6.53%, to $35.47.

Reeboks also recovers

Reebok International Ltd.'s 2% convertible also came back after losing about 0.5 point intraday. It went home at 104.5, compared with a close of 104.231 bid, 104.731 offered on Tuesday.

Shares of the Canton, Mass., footwear maker were down $0.26, or 0.61%, to close at $42.04 Wednesday.

Veeco gets looks

Veeco Instruments was attracting interest from both sides on Wednesday amid a dearth of news from the atomic force microscopy company, a New York sellside trader said. Its 4.125% convertible traded at 88.125 bid, 89.125 offered, compared with 88 bid, 88.5 offered Tuesday.

Veeco shares traded up 46 cents, or 2.91%, to $16.28 in slightly lower than average volume.

Overstock.com gains

Overstock.com Inc. found buyers Wednesday, traders said, with its 3.75% convertible bid up two points in the session. The internet discount retailer issued a news release to say that its board of directors approved an amendment of a previously announced $100 million three-year stock repurchase program to include the repurchase of its convertible senior notes. Under the amended program, shares and convertibles may be repurchased in open market transactions, restricted by blackout periods the company imposes during which Overstock.com insiders and employees may not trade their holdings.

Overstsock.com shares rose 36 cents, or nearly 1%, to $39.80.

Saks slumps on default

But another retailer, on the opposite side of the shopping spectrum, Saks Inc., saw its stock and 2% convertible notes trade lower after the high-end store operator said it received a default notice from a hedge fund.

Last week Saks said it would delay filing 2004 financial statements due to an internal investigation into whether vendors were improperly charged fees for failing to comply with Saks policies on markdowns at its Saks Fifth Avenue luxury department store unit.

The notice of default was given by a hedge fund that says it owns more than 25% of the $230 million 2% convertible senior notes due 2024, Saks said.

If Saks does not cure the default within 60 days, it could result in the acceleration of payment of some or all of its $990 million of senior notes, Saks said.

Saks said it has $324 million in cash on hand and will get about $620 million in proceeds from the pending sale of 47 Proffitt's and McRae's department stores, expected to close on or about July 5. The company also has a credit agreement with $650 million in unused funds, the company said.

Following the company's announcement, Standard & Poor's said it lowered its senior unsecured debt rating and corporate credit rating on Saks Inc. to CCC+ from B+.

Saks' 2% convertibles were seen at 107.375 bid, 107.875 offered, a trader said. Saks stock traded down 41 cents, or 2.22%, to $18.09.

Higher oil hits some issues

Northwest Airlines' convertibles dropped another 2 points to 3 points Wednesday amid higher oil prices. The carrier, which is the nation's fourth largest airline by passenger traffic, saw its convertible issues drop 3 points Tuesday after a Wall Street Journal report kindled fears that the company is close to bankruptcy due to high costs and S&P lowered its corporate debt two notches to CCC+ from B. Northwest's short-term rating was cut one notch to C from B-3.

But after the close the airline announced a reorganization of its marketing and sales functions in order to better reflect the airline's renewed commitment to developing travel products that best serve the needs of its business and leisure customers. But shares, after a 1.1% fall during the session, continued to slip in after-hours trading.

Calpine's convertibles recovered ground on Wednesday, however, after trading down 3 points Tuesday as further details of its strategy to reduce debt unfolded.

The 4.75s traded at 70 bid, 71 offered, a trader said, up from trades in the low-middle 60s Tuesday.

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