Iconix falls outright, flat to lower on hedge; Allegheny flat; Amylin up on lawsuit's end

By Rebecca Melvin

New York, April 25 - Iconix Brand Group Inc.'s convertibles fell on an outright basis and were flat to down a point on a dollar-neutral, or hedged, basis, depending on hedge, on Wednesday after the consumer brand owner reported earnings that missed estimates and cut full-year guidance, market sources said.

Allegheny Technologies Inc. moved up on an outright basis but was unchanged dollar neutral after the Pittsburgh-based specialty steel maker reported first-quarter earnings that were flat on revenue that was up 10%.

Health care names seemed to be in focus, rather than technology names, which have dominated trade the last few sessions. Human Genome Sciences Inc., Dendreon Corp., Gilead Sciences Inc.'s 1% convertibles, Molina Healthcare Inc. and Omnicare Inc.'s 3.75% convertibles, were among some of the health-related names mentioned in trade.

Amylin Pharmaceuticals Inc. was also active and the convertibles of the San Diego-based diabetes drug maker gained about 0.375 point outright on news that billionaire investor Carl Icahn dropped a lawsuit against it related to a corporate governance issue that blocked investors from ousting directors who rejected a Bristol-Myers Squibb Co. takeover offer.

Symantec Corp. was getting the once over and was in trade a day after preliminary estimates of fourth-quarter earnings hammered the underlying shares of the Mountain View, Calif.-based security software company.

One trader said the Symantec bonds did well, opening up about 1.5 points on a 50% hedge, but at the current pricing, "they look like a hedge play rather than an outright one, given trade around 106.5 bid versus an underlying share price of $16.29."

Meanwhile, Xilinx Inc. reported lower earnings, but a better outlook after the market close, which boosted the underlying shares of the San Jose, Calif.-based chip maker in after-hours trade by more than 7%.

Iconix flat to lower on hedge

Iconix's 2.5% convertibles due 2016 traded at 92.75 bid, 93.25 offered versus an underlying share price of $14.75 during the session.

Late in the day, a 93.25 trade was reported as buyers stepped back in, sources said.

Shares of the New York-based consumer brands marketing outfit fell $2.49, or 14.6%, to $14.53 in heavy trade.

The paper had been 96 versus an underlying share price of $17.02, and it closed at 92.875 versus the $14.53 close on Wednesday, putting the bonds down 3.25% outright and down 1.2 points on a dollar-neutral basis, according to a New York-based analyst.

The bonds more or less held up but were a point lower dollar neutral, the analyst said. He said the delta slid to 36.5% from 44.2% on Tuesday.

"The stock got hammered, but the credit it pretty good," the analyst said.

A second source said that the bonds were more or less in line on a dollar-neutral basis, using a 50% delta.

"At these levels, I guess if you're a long-term yield-oriented holder you can hang on. But if you're looking for major stock upside participation, this is not your bond," the convertibles source said.

Iconix's 1.875% convertibles due June 30 traded unchanged at 99.8. These bonds have a very short maturity and therefore were unfazed by the news.

Citing lackluster business in a few of its men's clothing brands, Iconix reported first-quarter earnings of $0.43 per share, down from $0.45 per share in the same quarter last year, and short of the $0.46 per share that analysts were expecting.

Revenue fell to $88.5 million, which was below the $94.7 million that analysts were expecting.

In addition, Iconix reduced its full-year forecast to $1.65 to $1.74 per share from $1.77 to $1.84 per share.

Its men's business lines, including Rocawear, Ecko and Ed Hardy, were blamed for the lower performance.

Allegheny unchanged on hedge

Allegheny's 4.25% convertibles due 2014 traded higher by 3%, or 3.5 points, on an outright basis, but they were unchanged dollar neutral.

The bonds ended up at about 127.125 at the close versus the $42.79 closing share price, compared to 123.5 on Tuesday versus a share price of $40.33.

Allegheny shares gained $2.46, or 6.1%, on Wednesday.

The bonds are held on about a 62% delta.

The company earned $56.2 million, or 50 cents per share, compared with $56.3 million, or 54 cents per share, in the same quarter last year.

The recent quarter's per-share results were based on about 116.4 million outstanding shares, while those of the year-ago period were based on about 109 million.

Revenue rose 10% to $1.35 billion from $1.23 billion, boosted by contributions from a recent acquisition and strong demand from key growth markets.

Analysts had expected a profit of 49 cents per share on $1.36 billion in revenue.

Amylin adds 0.375 point

Amylin's 3% convertibles due 2014 traded up to 100.75 bid, which was higher by 0.375 point on the day.

The convertibles closed at 100.625 bid, 101.25 offered, compared to 100.375 bid, 100.625 offered on Tuesday, a New York-based sellside trader said, adding that the bonds were 0..375 better.

Amylin shares rose 65 cents, or 2.5%, to $26.20 on news that Icahn, its third largest shareholder, withdrew a suit that he had filed in complaint for the company rejecting a $22.00 per share, or $3.5 billion Bristol-Myers takeover bid.

On Monday, Amylin shares shot up $3.14, or 14% to $26.06 on a Reuters report that Amylin has hired advisers Credit Suisse and Goldman Sachs to explore a sale of the company.

Looking ahead, the company may ultimately get taken out by Bristol Myers and then the bonds convert into Bristol Myers debt. Given that the company has hired advisers, there is likely to be a development on that front within the next month or two, the analyst said.

Symantec in focus

Symantec's 1% convertibles due 2013 traded at 106.5 versus an underlying share price of $16.29 on Wednesday.

Symantec shares added 28 cents, or 1.8%, to $16.29, after sliding by as much as 12% on Tuesday.

"That's 0.94% yield and a 25% premium for the notes that have only 14 months left before they mature," a trader said.

"I don't know why an outright investor would own these; you need the stock to get to $20.37 to break even. Anything below $19.12, you lose 6.5 points," the trader said.

The trader said it is very unlikely that the bonds will return anything above par, so it's definitely a short play, not for outrights.

Mentioned in this article:

Allegheny Technologies Inc. NYSE: ATI

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Iconic Brand Group Inc. Nasdaq: ICON

Symantec Corp. Nasdaq: SYMC

Xilinx Inc. Nasdaq: XLNX

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