Human Genome premium expands; new PHH extends gains; Petroplus, Sino-Forest in focus

By Rebecca Melvin

New York, Jan. 12 - Convertible bonds continued to "feel better" on Thursday even though stocks took a breather, more or less, after several days of gains, and action in investment-grade paper, which dominated action, was mixed. But there were moves in some of the smaller, lower credit names that were notably better.

Human Genome Sciences Inc.'s 3% convertibles continued to trade strongly Thursday after climbing above par this week from the low 90s. That paper priced in early November at a discount to par.

The Human Genome convertible, a 75% delta name, moved in line on a dollar-neutral, or hedged, basis, but its premium expanded nicely, market sources said.

Hologic Inc. has also had a nice move in the past week, although it was pretty much unchanged on Thursday, with the Hologic 2% convertible due 2037 ending the session at 96.375 bid, 96.75 offered, a New York-based trader said.

PHH Corp.'s new 6% convertible due 2017, which jumped in strong action on its debut Wednesday, was called higher by another 0.25 point on a dollar-neutral basis on Thursday.

PHH shares pulled higher to end the day unchanged, and a market in the new convertible was quoted at 108.5 bid, 109.25 offered versus the closing underlying share price of $10.70.

The new PHH convertible gained between 3.25 points to 6 points on a dollar-neutral basis on Wednesday.

Elsewhere, a couple of distressed names were in focus. The Sino-Forest Corp. 4.25% convertibles were offered higher in the upper 30s after news that the holders of straight senior notes agreed to waive the default arising from the company's failure to release its third-quarter financial results in time.

The Sino-Forest 4.25% convertibles due 2016 were around 30 bid. They had fallen into the mid-20s from the mid-30s in December when the Toronto-listed company skipped an interest payment on that paper.

Petroplus Holdings AG, a troubled Switzerland-based refiner, saw its Petroplus 4% convertible trade around the 44 level, which was up from about 37.5 previously.

Investors were cheered by news that the company had a temporary agreement with lenders, and were meeting minimum expenses, while it still tries to negotiate to amend its revolving credit agreement.

"I've seen it all over the place, but yes, it's higher," a Connecticut-based analyst said of the Petroplus convertibles.

Human Genome 3% over par

Human Genome's 3% convertibles due 2018 traded at around 102 on Thursday and were last seen at 102 bid, 103.25 offered, compared to 103 on Wednesday, according to a market source.

A second source put the close at 101.5 bid, 102.5 offered.

Shares of the Rockville, Md.-based biopharmaceutical company ended the session down 33 cents, or 3.5%, at $9.11, pulling back slightly after a double-digit move higher on Wednesday.

The shares have gained almost 50% since a 52-week low notched Dec. 19 at $6.64.

In mid-December, the convertible bonds were trading at 87 to 88 with the stock at $7.00.

Recent strength was believed to have been derived this week from basically "benign" sales numbers on its Benlysta lupus drug reported at the J.P. Morgan health care conference in San Francisco on Monday. But shares actually fell slightly after that presentation before they jumped up on Wednesday.

Human Genome said it expects to post gross 2011 sales of $59.2 million for Benlysta.

The bonds are up 8 points in a mostly flat dollar-neutral move. There has been a little bit of expansion, but the premium has expanded significantly to about 47% currently from 30% when the bonds price in early November.

"They opened up," a trader said.

There were various causes mentioned for the big stock move up Wednesday, including short covering. But traders agreed that the prospects for Benlysta are ultimately what are going to be driving the stock and other securities.

Another positive was Piper Jaffray keeping an "overweight" on the shares even though the firm cut its Benlysta sales estimates and decreased its price target for Human Genome shares to $11.00 from $15.00.

Piper Jaffray thinks the stock has found a bottom and should start building from here.

Hologic was trading better, too, and its yield is 4% after having previously been at 5%. The stock rose 31 cents, or 1.6%, to $19.26 on Thursday.

Petroplus adds

Petroplus' 4% convertibles due 2015 traded at 44 and were seen at 44 bid, 47 offered.

Shares of the Switzerland-based petroleum refiner jumped 19 cents, or 16%, to $1.39 on Thursday.

David Epstein, an analyst with CRT Capital Group LLC, wrote in a note Wednesday that he believes the company "has a good shot" at avoiding bankruptcy or administration.

But there are "...risks that it mishandles the current situation or that any sell-off in the capital markets could make the task more difficult. If the company did go into bankruptcy or administration, we believe the professional fees, time value of money, addition of incremental liabilities, etc., would greatly reduce values...," Epstein wrote.

Petroplus is the largest independent refiner and wholesaler of petroleum products in Europe. The company is focused on refining and owns and operates five refineries, including the Coryton refinery on the Thames estuary in the United Kingdom., the Antwerp refinery in Antwerp, Belgium, the Petit Couronne refinery in Petit Couronne, France, the Ingolstadt refinery in Ingolstadt, Germany, and the Cressier refinery in the canton of Neuchatel, Switzerland. They have a combined throughput capacity of about 667,000 barrels a day.

Currently Petit Couronne and Antwerp have been shut down, and Cressier is expected to begin its shut down next week while Coryton and Ingolstadt are running at reduced throughput.

Mentioned in this article:

Hologic Inc. Nasdaq: HOLX

Human Genome Sciences Inc. Nasdaq: HGSI

Petroplus Holdings AG NYSE: PPHN.SW

PHH Corp. NYSE: PHH

Sino-Forest Corp. Toronto: Pink sheets: TRE

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