Tyco continues gains amid tender offer; MedImmune up ahead of earnings; issuance grows in April

By Kenneth Lim

Boston, April 30 - Tyco International Ltd. continued to gain slightly outright as the company's debt buyback plans struck an obstacle amid resistance form some bondholders.

Meanwhile, MedImmune Inc. rose a touch ahead of the company's first-quarter results announcement as convertible holders expressed confidence in a planned sale to AstraZeneca plc.

The rest of the convertible market was slow on Monday with investors wrapping up a generally lackluster month.

"It wasn't a very good month," a buyside convertible trader said. "Volatility came in and except for today stocks just climbed higher and higher. But the feeling out there is there this climb can't last forever and hopefully it cracks sooner than later."

The trader said the new deals that came in April did not improve the secondary market by much.

"If anything all that new paper was making the rest of the market softer," the trader said. "I think a lot of the more attractive deals were the smaller ones. The bigger deals like the Linear Technologies, General Mills and St. Jude were OK, but they weren't very cheap and a number of them didn't do much after the first day."

Linear Technologies Corp. brought $1.7 billion of 20-year convertible senior notes to market in two tranches in April. General Mills Inc. sold $1 billion of 30-year convertible senior notes while St. Jude Medical Inc. priced $1.2 billion of 20-month convertible senior unsecured debentures in April.

The primary market continued to improve in April, with convertible issuance improving 39.7% year-on-year to $9.92 billion for the month. The year-to-date total as at end-April stood at $36.925 billion from 81 new convertibles, 87.3% more than the $19.711 billion from 35 convertibles raised in the same period in 2006.

JPMorgan held on to its lead in the league tables with a year-to-date total of $6.238 billion, or 16.9% of the total convertible issuance so far in 2007. It helped to raise $323 million from three deals in April.

But narrowing JPMorgan's lead were Citigroup and Morgan Stanley, which moved up in the tables as two of the most prolific underwriters for the month. Morgan Stanley helped raise $3.35 billion from two deals to lead the pack in April, catapulting it from ninth place at the end of March to the third spot at the end of April. Morgan Stanley's year-to-date total is $4.543 billion from seven deals as at the end of April.

Citigroup's $1.55 billion from one deal in April helped it advance two rungs into the second spot with $4.658 billion through 13 deals so far this year. Citigroup was behind 12.62% of the new convertible proceeds so far this year, while Morgan Stanley brought 12.3%.

Tyco gains amid tender

Tyco's 3.125% convertible due 2023 rose about 2 points outright on Monday with the company's recently announced tender offer seen as a reasonable package despite reports that some holders of the company's longer-maturing straight debt may resist the buyback offers.

The convertible traded at 157.5 against a stock price of $33. Tyco stock (NYSE: TYC) closed at $32.65, up by 0.03% or 1 cent.

Tyco on Friday offered to buy back about $6.6 billion of its outstanding public debt. Its offer for the $750 million outstanding convertible series will pay 45.9821 times the 10-day volume weighted average price of the common stock plus $62.50 per $1,000 principal convertible. Tyco also made offers for its 6.875% senior notes due 2029 and its 7% senior notes due 2028, but some holders of those notes have decided not to tender their notes because the offered prices were below the make-whole price.

Tyco, a Pembroke, Bermuda-headquartered manufacturing and service company, said it was buying back its debt ahead of plans to split the company into three publicly traded entities.

But a sellside convertible analyst said the Tyco offer seemed reasonable for convertible holders.

"I can see why some of the bondholders wouldn't accept the tender, but I think most convertible holders will either accept the tender or convert them," the analyst said. "They're already in the money, and they don't have any make-whole, so there's no point in holding out for some kind of fundamental change."

The analyst said it does not make sense to hold on to the convertibles.

"They're paying for the tenders with debt, so it's not like they're going to be significantly debt-free after the tenders," the analyst said. "And if they're splitting the company and you're still holding on to some of their debt, depending on how they resolve it you'll probably end up with something with a wider credit spread because it's going to be three smaller companies with a sizable amount of debt."

"The best thing to do is probably accept the tender or convert them into shares," the analyst said. "The tender doesn't offer a lot of premium to the converts based on where they're trading now, but if you had the converts before they made the offer you can get cash plus a bit of profit that you can reinvest in something else. I think it's also possible to convert them into shares if you think the stock could go even higher and that after they split the company you might get more value in terms of possible distributions or the value of three new stocks."

The analyst said the apparent dissatisfaction of some 2028 and 2029 bondholders is not particularly troubling.

"A lot of times when companies are trying to do major restructuring like this you'll find some groups of investors very unhappy and very vocal," the analyst said. "It could be as simple as paying a bit more to appease these investors, and I think most bondholders will be satisfied if they can make some profit out of this. Whatever happens, it's probably still better to accept the offer, because if they end up having to pay more to the bondholders you'll have three mini-Tycos with even more debt when this is all over."

MedImmune gains on results

MedImmune's 1.375% convertible due 2011 and its 1.625% convertible due 2013 improved by about a quarter-point on Monday amid confidence about the company's first-quarter results and proposed sale to AstraZeneca.

The 1.375% convertible was marked at 175.25 against a stock price of $56.85, while the 1.625% convertible was marked at 178.125 against the same stock price. MedImmune stock (Nasdaq: MEDI) slipped 0.23% or 13 cents to close at $56.68.

"I don't know why they're up, frankly," a sellside convertible trader said. "I think what you're seeing is some people hoping for a good set of earnings."

MedImmune reported after the market closed that its first-quarter net income climbed to $160 million, or 66 cents per share, from $47 million, or 18 cents per share, in the year-ago period. MedImmune was expected to report its results Thursday before the market opened. Analysts had predicted a net profit of 56 cents per share.

A sellside convertible analyst said before the results were released that MedImmune was expected to report a strong set of earnings.

"They've already guided for a strong quarter, so I think most of that should already have been priced in," the analyst said. "I think there's probably a few optimistic investors out there who expect that if the results are really good, it's going to make it easier for AstraZeneca's shareholders to approve the takeover. Or even better, it might attract a better competing bid from someone else."

© 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.