CIT active but stays still; Medtronic continues slide; St. Jude down; Nektar tumbles as Pfizer pulls drug

By Evan Weinberger

New York, Oct. 18 - CIT Group, Inc.'s new mandatories were the big movers Thursday, their first day of trading.

Medtronic Inc. continued to slide due to the heart defibrillator recall from Monday. Separately, St. Jude Medical Inc. sunk on earnings that actually beat expectations. And Nektar Therapeutics Inc. stumbled on word that Pfizer Inc. had dumped a diabetes drug the two companies were developing.

Yahoo! Inc. continued to move up a day after the company's earnings were released, resulting in opinions the numbers weren't as bad as investors inspected. Countrywide Financial Corp. convertibles ended the day mixed even as a Securities and Exchange Commission probe into trading activity by the company's chief executive officer gained steam.

By far the most active issue of the day was CIT's new issue. "[We've been] pretty busy today in this new CIT unchanged, pretty heavy volume with two-sided flow," a trader at one desk said.

CIT priced $600 million in 7.75% senior unsecured mandatory convertible units due Nov. 15, 2015 with a 20.7% initial conversion premium Wednesday night. The mandatories came in at the cheap end of talk, which was for a coupon of 7.5% to 8% and an initial conversion premium of 17.5% to 22.5%.

There is a $90 million greenshoe on the issue, which settles Tuesday.

The mandatories have a threshold appreciation price of $42 and a maximum settlement ratio of 0.7147. The minimum settlement ratio is 0.5952.

Holders of the new CIT mandatories will be required to purchase CIT common stock by Nov. 17, 2010. The mandatories have call protection for life, and there are no puts. There are standard takeover and dividend protections.

The mandatories will be issued in $25 units. The mandatories will trade on the New York Stock Exchange under the symbol CIT PrZ.

CIT is a New York-based commercial and consumer finance company. The company plans to use the proceeds of the deal for general corporate purposes.

Coming in from across the pond, Pharming NV launched €50 million to €75 million in senior unsecured convertible bonds due Oct. 31, 2012 Thursday. The convertibles are talked at a coupon of 6.5% to 7% and an initial conversion premium of 20% to 30%.

Settlement will be Oct. 31.

There is a put on Oct. 31, 2010, and the convertibles are callable beginning Nov. 1, 2010 subject to the Optional Redemption Notice being at least €75,000.

There are change-of-control, dividend, default and anti-dilution protections and a negative pledge.

Pharming is a Leiden, Netherlands-based pharmaceutical manufacturer. Proceeds will be used to terminate Pharming's existing licensing agreement with Paul Royalty Fund II, LP.

Equity markets took a long, winding path Thursday to end up pretty much where they started. The trading day began with word that Bank of America, the nation's second-largest bank, lost 32% in the third quarter due to trading losses and write-downs on loans, including mortgages. Rising oil prices and jumping new jobless claims also greeted investors Thursday morning. Bargain hunters came in to rescue the Dow Jones Industrial Average, Nasdaq and Standard & Poor's 500 from their depths.

In the end, the Dow lost 3.58 points, or 0.03%, to close at 13,888.96.

The Nasdaq closed up 6.64 points, or 0.24%, at 2,799.31.

The S&P 500 came in down 1.16 points, or 0.08%, to a close of 1,540.08.

CIT back where it started

CIT's new mandatories took a similar route to the stock markets on their first day on the market. An early quote had the mandatories trading slightly below par, at between 24¾ and 24 7/8 with a trader saying that they'll "be fine. The stock will bounce back."

As the day wore on, the mandatories broke slightly above par. Traders said most of their action on the day was in the CIT deal. "The CIT was trading the entire day," one trader said. "It's hard to tell, but there was decent volume. They were down most of the day. They finally traded up."

The mandatories ended their first day at around $25 - par - versus a closing stock price for CIT of $34.95.

CIT stock (NYSE: CIT) slipped 3 cents, or 0.09%, on Thursday.

Medtronic continues slide

The effects of this week's recall by Minneapolis-based Medtronic continue to be felt in the company's stock and convertibles. On Monday, the medical device maker was forced to recall heart defibrillators due to faulty wiring. The wiring problem was linked to at least five deaths.

Medtronic's 1.5% convertible senior notes due April 15, 2011 closed Thursday at 103.023 versus a closing price of $48.94. They closed Wednesday at 104.144 versus a stock price of $49.72.

Medtronic's 1.625% convertible senior notes due April 15, 2013 closed Thursday at 103.235 versus a stock price of $48.94. They closed Wednesday at 104.939 versus a stock price of $49.72.

Medtronic stock (NYSE: MDT) continued its week-long slump, losing 78 cents, or 1.57%, on Thursday.

St. Jude's convertibles down

St. Paul, Minn.-based medical device maker St. Jude posted its earnings Thursday, and they beat market expectations. The company's third-quarter profits leapt 32%, or 46 cents per share, for a total of $160.2 million. Those numbers beat Thomson Financial's estimate, based on a poll of analysts, of 45 cents per share.

And yet, St. Jude's stock and convertibles were down on the day.

The company's 1.22% convertible senior debentures due Dec. 15, 2008 closed Thursday at 101.285 versus a closing stock price of $43.12. They closed Wednesday at 103.032 versus a stock price of $45.55.

St. Jude stock (NYSE: STJ) fumbled $2.43, or 5.33%, on the day.

Nektar Therapeutics not exuberant

San Carlos, Calif.-based Nektar was walloped by news that Pfizer, the world's largest drug maker, discontinued the inhalable insulin therapy Exubera Thursday. Nektar had developed the delivery technology for the diabetes treatment, which received regulatory approval in January 2006.

The treatment never caught on, and the costs associated with it helped contribute significantly to Pfizer's 77% drop in third-quarter earnings. "Nektar has been very disappointed in Pfizer's performance in marketing Exubera," Nektar president and CEO Howard W. Robin said in a statement released by the company. "Pfizer has publicly acknowledged its organizational difficulties and resulting poor performance in launching Exubera."

Robin added that Nektar was "reviewing all of its options" regarding Pfizer's decision to stop selling Exubera.

Nektar's 3.25% convertible subordinated notes due Sept. 28, 2012 dropped to 81.3171 versus a closing stock price of $6.67. The convertibles closed Wednesday at 83.9271 versus a stock price of $8.08.

Nektar stock (Nasdaq: NKTR) was beaten to a pulp Thursday, losing $1.41, or 17.45%.

Yahoo! continues rise

Just a day after posting a loss that wasn't quite as bad as analysts thought, Sunnyvale, Calif.-based internet services provider Yahoo!'s convertibles continued their strong rise.

Yahoo!'s zero-coupon convertible senior notes due April 1, 2008 closed Thursday at 144.075 versus a closing stock price of $29.53. They finished trading Wednesday at 140.635 versus a stock price of $28.82.

Yahoo! stock (Nasdaq: YHOO) added 53 cents, or 1.84%, on the day.

Countrywide probe jumbles convertibles

Late Wednesday, word arose that the SEC was investigating stock sales executed by Calabasas, Calif.-based Countrywide CEO Angelo Mozillo in recent weeks. On Thursday, Sen. Charles Schumer (D-N.Y.), a member of the banking committee, called for a wider SEC investigation of Countrywide's lending practices.

As major banks continued to announce poor third-quarter earnings linked to problems in the mortgage sector, stock in America's largest home lender tumbled Thursday. Countrywide's convertibles, on the other hand, ended the day mixed.

Countrywide's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Thursday at 89.042 versus a closing stock price of $16.51. They closed Wednesday at 89.513 versus a stock price of $17.35.

Countrywide's Libor minus 225 bps series B convertible senior debentures due April 15, 2037 closed Thursday at 85.4905 versus a stock price of $16.51. They finished trading Wednesday at 83.0086 versus a stock price of $17.35.

Countrywide stock (NYSE: CFC) tumbled 84 cents, or 4.84%, on Thursday.

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