CV Therapeutics' new deal gains, supporting biotechs; Mirant trades in heavy volume; General Mills eases

By Rebecca Melvin

Princeton, N.J., June 29 - The new convertible from CV Therapeutics Inc. traded actively, with some buyers flipping the new issue, which moved up early to as high as 106, and remained at the 105.5 bid, 106 offered level until the close, according to syndicate sources. The deal seemed to support other biotech convertibles, with Cephalon Inc., for example, firm in early trading Wednesday.

Mirant Corp. convertibles traded mostly flat in heavy volume and the bankrupt Atlanta-based energy company's stock jumped amid courthouse news.

General Mills Inc. paper was also actively traded as its price eased slightly on earnings news, but Calpine Corp. traded mostly higher.

CV Therapeutics' new deal was seen as cheap, although the upsized offering of $130 million of 3.25% convertibles with a 25% initial conversion premium, sold at the expensive end of guidance.

Price talk was for a coupon of 3.25% to 3.75% and an initial conversion premium of 20% to 25%. The deal was originally expected to be $100 million.

"It priced at the aggressive end, but it modeled out a couple of points cheap," a New York-based sellside desk analyst said.

A Chicago-based buyside source said the deal looked as much as three or four points cheap using a credit spread of 500 basis points over Libor and 35% stock volatility.

Another sellside shop modeled the deal using a credit spread of Libor plus 450 bps - roughly equivalent to Treasuries plus 490 bps - with a stock volatility of 38%. This gave a theoretical value for the new bonds of 104.65%, said an analyst with the firm.

The Chicago buyer said his allocation for the deal was small and he sold it because "it was too close to fair value."

Sold via bookrunners Lehman Brothers and Merrill Lynch & Co, the convertible senior subordinated notes due 2013 have a greenshoe of 15%, or 19.5 million.

The notes were sold in conjunction with an upsized offering of 7.3 million shares of common stock. The converts priced Tuesday using the stock offering price of $21.60, which may have added an extra point of cheapness, a syndicate source said. The stock offering price was at a discount to its Tuesday close of $22.05.

The Palo Alto, Calif.-based biotechnology company plans to use part of the proceeds to repurchase some or all of the $79.6 million 4.75% convertible subordinated notes due 2007. Proceeds will also fund a three-year escrow account for interest payments and be used for general corporate purposes.

CV Therapeutics' existing 2.75% convertible due 2012 was 0.5 point higher at 138.589 bid, 139.089 offered, compared with a close of 138.049 bid, 138.549 offered on Tuesday. The biotech's 4.75% bonds due 2007 closed essentially unchanged at 98.75 bid, 99.25 offered, according to one sellside shop.

Shares of CV Therapeutics closed unchanged at $22.05 a share, after rising in early trading.

CV supports biotechs

The new issue appeared to lend support elsewhere in the biotech sector, where Cephalon saw trades of at least two of its convertibles.

"I think the success of the CV Therapeutics deal is going to reprice the whole biotech convert market higher," said a Connecticut buyside source.

He went on to explain that Cephalon 2% convertibles due 2015 were trading on a "pretty heavy hedge," generally between 80% and 90%, because the bonds are long dated and have less price support.

Also they have a relatively low conversion premium, which means a heavy hedge can be used without worrying about too much premium contraction on the upside.

The Cephalon 2s traded Wednesday at 98 versus a stock price of $38.50.

The Frazer, Pa.-based biotech's 0% convertibles A tranche due 2033 are most likely hedged at a lower level of about 40% to 50%, the source said. And the 0% B tranche is slightly heavier.

The 0% convertible A tranche traded at 87.75 versus a stock price of $38.50 on Wednesday, according to a sellside desk analyst.

Last week, Cephalon entered into an agreement with Alkermes Inc. to jointly develop, manufacture, and market sustained-release forms of naltrexone, including Vivitrex, which is under development as a once-monthly regimen for the treatment of alcohol dependence. Naltrexone is a non-addictive agent that binds to opioid receptors in the brain.

Subsequent to the deal and for a defined amount of time, Cephalon has the exclusive right to negotiate with Alkermes for the right to market the products outside of the United States.

Cephalon made an initial payment of $160 million to Alkermes; and if the drug is approved in the United States, Cephalon will pay an additional $110 million. It will pay up to an additional $220 million if certain sales goals are met.

Meanwhile, Thousand Oaks, Calif.-based Amgen Inc.'s 0% convertible traded at 72.812 bid, 73.312 offered, down slightly from Tuesday, when it closed at 72.857 bid, 73.357 offered, on a stock price of 61.79. Shares of the company closed Wednesday down 1.2% at $61.06.

Cambridge, Mass.-based Genzyme Corp.'s 1.25% convertible was seen at 104.25 versus a stock price of $60.50.

Mirant valuation doubted

Mirant's convertibles traded robustly following conclusion of the company's valuation hearing and a shareholder group's backing of expert testimony during the hearing on Tuesday. The developments boosted trading volume of the two convertibles Wednesday, but left their prices essentially unchanged.

Expert testimony presented by Anders Maxwell, the equity committee's witness, held that inaccuracies in the Blackstone Group valuation report prepared for Mirant masked at least $1.74 billion of value in its business plan forecasts and used improper methodologies to undervalue its domestic and foreign cash flows.

The shareholder rights group stated in its press release that using Blackstone's own valuation method with accurate and current figures showed that a valuation in the range of $12 billion to $13.7 billion was more accurate for Mirant.

Mirant announced plans earlier this month to sue its former corporate parent, Southern Co., for $2 billion in a case relating to transfers of funds made from Mirant to Southern prior to its being spun off in 2001. The suit is filed in the U.S. Bankruptcy Court for the Northern District of Texas where its Chapter 11 reorganization case is being heard.

Mirant's 5.75% convertibles traded Wednesday at 78.50 bid, 79 offered, a Connecticut-based trader said. Its 2.5% convertible traded at 77.50 bid, 78.50.

General Mills disappoints

General Mills' 0% convertible due 2022 edged lower after the Minneapolis, Minn.-based food company reported fourth-quarter earnings and 2006 guidance below analyst expectations on Wednesday.

Fourth-quarter earnings rose 65% to $460 million, or $1.14 per share, from $278 million, or 68 cents per share, a year ago. But the increase was driven by $329 million General Mills got from selling businesses including its stakes in Snack Ventures Europe and Lloyd's barbecue entrees.

Not counting those gains, or an accounting rule change, debt repurchases and other items, General Mills would have earned 64 cents per sharer. Revenue was $2.72 billion, down about 3%.

Analysts surveyed by Thomson Financial were looking for 65 cents per share on revenue of $2.69 billion.

The news was followed by downgrades from, among others, Merrill Lynch, which lowered its investment rating on General Mills' stock to "neutral" from "buy."

General Mills' 0s traded at about 70.625, versus a stock price of $50.50 early in the session. The stock closed down $3.40, or 6.72%, to $47.21.

More sales for Calpine

Several Calpine convertibles were seen up about one point at the close after the power producer said it will sell all of its U.S. domestic oil and gas exploration and production assets to Rosetta Resources, Inc., an indirect subsidiary, for $1.05 billion.

Calpine said Rosetta Resources is selling 45.3 million shares for $725 million in private placement, and will use the proceeds, plus $325 million from a new credit facility, to buy all of Calpine's domestic exploration and production assets.

Calpine 4.75s traded up about 1.5 points Wednesday to 72.75. Its shares closed down 12 cents, or 3.3%, to $3.48.

Euro pharmas active on Lonza

Big Pharma names in Europe were seeing heavy activity along with several convertible issues in those names, a trader in London said Wednesday. In addition to the Lonza new deal and Novartis' executive departure to Millennium, the market source observed that the European pharma issues were "in focus" because of reports that the U.S. Food and Drug Administration plans to require labeling information about possible psychiatric side effects to a category of attention deficit hyperactivity drugs.

The labeling requirement, the sellsider said, would affect Johnson & Johnson, which makes Concerta, and Novartis, which makes Ritalin, and possibly Shire Pharmaceuticals, which makes Adderall, and Eli Lilly & Co., which makes Strattera.

Shire's dollar-denominated 2% convertible due 2011 traded at 100 bid, 100.125 offered, unchanged on the day, the trader said. The underlying shares gained 0.50p, or 0.08%, to end at 610.50p.

In addition to Lonza, two other Swiss drug names were active Wednesday, he said, including Serono SA and Roche Holdings AG. Roche, he said, hit lots of radar screens as Lehman Brothers upped its target for the company and it was among Goldman Sachs & Co.'s picks of European pharmaceutical companies.

Roche shares zoomed CHF2.30 higher, or 1.45%, to close at CHF161.40, and the trader said the Roche zero-coupon convertible due 2021, also a dollar-denominated issue, gained about 0.875 point to 68.5 bid, 69.

Lonza gains 0.75 point in trade

Swiss drug manufacturer Lonza stamped a new CHF380 million convertible bond with a 1.5% coupon and 33% initial conversion premium - at the cheaper end of price talk for a 1.125% to 1.625% coupon and in the middle area of premium guidance of 30% and 35%.

The issue, which launched at CHF330 million with the capability of getting bumped to CHF380 million, took off in the immediate after market and joint bookrunner Deutsche Bank Securities traded the issue up 0.75 point on Wednesday, closing it out at 100.625 bid, 100.875 offered.

Barclays Capital Markets convertible analysts had pegged the issue around 0.45% cheap at the middle of guidance, using a credit spread of 65 basis points over Libor and 18.5% stock volatility.

Lonza has earmarked proceeds to refinance debt due in 2006 and general purposes. Lonza shares also rose Wednesday, adding CHF1.50, or 1.5%, to settle at CHF70.85.

Ronda Fears contributed to this report

© 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.