Reoffered Annaly steady; Chiquita down after earnings; Human Genome unfazed by hostile bid

By Rebecca Melvin

New York, May 9 - Annaly Capital Management Inc.'s newly priced 5% convertible senior notes traded Wednesday steady to up slightly from a steeply discounted deal price as the underlying shares of the real estate investment trust rose.

Annaly priced $750 million of three-year convertible senior notes that were reoffered at 98 and traded between 98 and 98.25, market sources said.

Many financially related new issues in the last couple of years have come at a discount to par, including Prospect Capital Corp.'s 5.375% convertibles, which were reoffered at 97.75 last month.

Annaly's existing 4% convertible senior notes due 2014 were pulled into trade Wednesday and viewed as the more appealing issue for convertible arbitrage players compared to the new Annaly.

Back in established issues, Chiquita Brands International Inc. traded down during the session by 3 or 4 points after the Cincinnati-based banana and fresh produce marketer and distributor reported that it swung to a loss in the latest quarter. Jefferies downgraded Chiquita shares to "hold" from "buy."

News that GlaxoSmithKline plc will take its unsolicited $2.6 billion bid for Human Genome Sciences Inc. hostile, or directly to shareholders in a tender offer this week, didn't spur a significant move in the Human Genome convertibles.

Meanwhile, Dendreon Corp.'s convertibles extended losses to trade at 77 bid, 77.375 offered, down from 77.75 Tuesday and 80 bid, 80.5 offered Monday. The Seattle-based biotechnology company reported a disappointing quarter and outlook this week.

Equities also extended losses, ending down for the fifth out of six sessions as news regarding Europe's sovereign debt worried investors.

The yield on the 10-year Spanish bond climbed above 6% after that country said it will demand banks set aside another €35 billion against loans to the ailing building sector. Large bank losses have raised fears that Spain may need an international bailout.

The Dow Jones industrial average ended the session down 97.03 points, or 0.8%, at 12,835.06, Standard & Poor's 500 stock index ended down 9.14 points to 1,354.58, and the Nasdaq Composite index shed 11.56 points to 2,934.71.

Annaly Capital to price

Annaly Capital priced $750 million of three-year convertible senior notes early Wednesday that were reoffered at 98 and came with a 5% coupon and a 15% initial conversion premium.

The new bonds traded mostly between 98 and 98.25, with late trades at 98.125, market sources said.

"We were surprised that they had to bring it at a discount. We thought it was going to do fine yesterday and it looked kind of boring," a West Coast-based trader said. He used a credit spread of 400 basis points over Libor and a 15% vol. to value the deal.

Annaly shares ended higher by 5 cents, or 0.3%, at $16.52 on Wednesday.

Convertibles players suggested that the shares were doing better after the offering because holders view it as enhancing the New York-based company's ability to reinvest profitably.

The company borrowed at 5% and can invest in mortgage and other assets that can yield much more.

"You've got that return on investment and positive carry for two to three years of safe trade given that the market thinks that rates are going to stay where they are," a sellsider said.

Nevertheless, the deal was not viewed as one that convertible hedge players got involved in.

"The old deal is much cheaper and a better arb play," the sellsider said. "It has that quirky dividend ratchet that compensates for any dividend. I think it's the only bond like that."

The sellsider was referring to a quarterly adjustment in the conversion ratio and strike price of the older Annaly 4% convertibles, which traded at 120 bid, 120.5 offered, versus about $16.52 on Wednesday.

"It didn't move that much," the trader said.

The new Annaly has a $112.5 million, or 15%, over-allotment option.

Joint bookrunners were Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and UBS Securities LLC.

The senior unsecured convertible notes due 2015 are non-callable with no puts and have contingent conversion at a price trigger of 110%. They have standard takeover and dividend protection.

Proceeds will be used to purchase mortgage-backed securities for the company's investment portfolio and for general corporate purposes.

Annaly Capital is a real estate investment trust based in New York that owns and manages a portfolio of mortgage-backed securities.

Chiquita drops after earnings

Chiquita's 4.25% convertibles due 2016, of which there is about $200 million outstanding, were pulled into trade on Wednesday and moved lower to 81 bid, 83 offered. Trades earlier in the day were made at 84 to 85, a West Coast-based trader said.

Chiquita shares plunged $2.32, or 29%, to $5.70 on Wednesday.

"The stock is off and those bonds are coming for sale," the trader said. "All day, people were trying to get their arms around it."

Chiquita reported a first-quarter loss of $11 million, or 24 cents per share, compared to earnings of $24 million, or 52 cents per share, in the year-earlier period.

Excluding items, the company posted earnings of 4 cents, which was significantly below the 32 cents per share that analysts on average had expected.

Revenue fell 3% to $520 million. Lower pricing in North America and lower European exchange rates were cited for the deterioration.

The Chiquita bonds have a 234% premium and trade outright as essentially a high-yield instrument. At 83, the yield on the paper is 9%.

Human Genome steady to lower

Human Genome's 3% convertibles due 2018 traded last at 127.5 versus the underlying share price of $14.59. Earlier, the paper had traded at 126.25 when the shares were lower at about $14.35.

Human Genome shares pared losses but still ended down 3 cents, or 0.2%, on the day at $14.59.

Human Genome's 2.25% convertibles due 2012 weren't heard in trade.

Convertible players said that the profile on the bond didn't change on the news Wednesday that GlaxoSmithKline is going hostile with its initial $13 a share bid for Human Genome.

Rockville, Md.-based Human Genome rejected Glaxo's bid as too low last month.

The delta on the 3% bonds depends on the holder's view on whether or not a takeout is viewed as likely, a market source said. But Wednesday's news did not change the current situation that there is a $1.50 potential downside from where shares are currently trading.

One sellsider said he has been trying to encourage outright holders to sell at this level. "I feel that there's no one else but Glaxo [to acquire the company], and I've seen these companies, Illumina is a case in point, that can ward off the bids and then the stock is left much lower than where the bid originally was."

In a statement Wednesday, Glaxo said it wouldn't participate in Human Genome's strategic review process. Glaxo said its current offer represents a premium of 81% over Human Genome's closing share price on April 18, when the Glaxo offer was publicly disclosed.

Glaxo and Human Genome jointly sell a drug for lupus that they developed together and they share financial interest in other drugs for diabetes and heart disease.

Mentioned in this article:

Annaly Capital Management Inc. NYSE: NLY

Chiquita Brands International Inc. NYSE: CCQB

Dendreon Corp. Nasdaq: DNDN

Human Genome Sciences Inc. Nasdaq: HGSI

Prospect Capital Corp. Nasdaq: PSEC

© 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.