Convertibles quiet; Beckman Coulter recoups a little; King Pharmaceuticals down a point

By Rebecca Melvin

New York, Aug. 9 - The convertible bond market was extremely quiet again on Monday after a dull Friday, with many players away from their desks as the summer slowdown seemed to grind into full swing and amid hesitation common ahead of a meeting of the Federal Open Market Committee, which is set for Tuesday.

Investors are eying the possibility of the Federal Reserve restarting some of its economic stimulus measures.

Trace volume for round-lot convertibles trades totaled only $343.7 million as of 4:15 p.m. ET Monday, according to a New York-based sellside analyst.

Biomedical testing instruments maker Beckman Coulter Inc. was among the most active issues in convertibles, with one sellsider reporting bids of 101 in the Beckman paper and trades going off at 101.5 and 101.7, which was slightly above previous depressed levels.

Omnicare Inc.'s convertibles were steady to weaker after Moody's Investors Service changed its outlook to negative on the name following the company's disappointing second-quarter earnings last week.

King Pharmaceuticals Inc.'s 1.25% convertibles changed hands at 90.75 even though underlying shares added 4% after the company reported lower profit that beat estimates.

There was no new issuance in the primary arena.

The $350 million Teleflex Inc. offering of 3.875% convertibles, which priced last Tuesday, traded Monday at 103.5 versus a share price of $53.90.

Overall volume was tepid, but pricing was seen as generally stable.

"This is going to be the worst day of the year," a sellsider said regarding convertibles trading volume a few hours before the market close Monday.

"There's nothing to talk about because nothing is happening. We're going out with different things, but there are no responses," the sellsider said.

The equity markets ended higher on the day in low volume ahead of the Fed meeting, which investors anticipate will result in plans to resume stimulus of the economy.

The Fed is expected to issue its assessment after its meeting Tuesday.

Analysts said the FOMC is likely to leave the Federal Funds rate near zero, but the central bank could signal plans to restart some programs such as its purchase of mortgage-backed securities or Treasury bonds.

"It's not a big deal," a sellsider said regarding the potential resumption of Fed stimulus programs.

Beckman Coulter adds a little

Beckman's 2.5% convertibles due 2036 traded at 101.7 and at 101.5, which was slightly higher than previous levels, but below the 109.75 versus a share price of $61.13 notched prior to the company's latest earnings report.

Shares of the Brea, Calif.-based biomedical testing equipment company closed up 27 cents, or 0.6%, to $46.39 in light volume.

"We got some indications today with bids above 101," a Connecticut-based sellsider said.

As of mid-afternoon, trading of Beckman Coulter accounted for $35 million of bonds out of a total $235 million that changed hands, according to Trace data, a sellsider said.

The convertible paper of the BBB company has a 63% premium.

"If the play is for the stock, it still has a pretty high premium," the sellsider said.

Omnicare lower after earnings

Omnicare's 3.25% convertibles due 2035 traded Monday at 83.75 versus a share price of $21.00, according to a New York-based sellsider, which was about even on Friday's level.

The paper trades mostly outright and wasn't overly influenced by shares of the Covington, Ky.-based geriatric pharmaceuticals company, which slid $1.31, or 6%, to $20.43 in heavy volume on Monday. The share weakness came after Moody's said it changed the outlook for Omnicare to negative from stable following news that the company's second-quarter earnings were below expectations.

That slide came on the heels of Thursday's drop, after the company said quarterly earnings were down to $11.6 million, or 10 cents a share, from $38.7 million, or 25 cents per share, during the same period a year earlier. Revenue fell 1% to $1.52 billion from $1.54 billion.

"The bonds have an almost 7% yield to put, and premium is over 200%. It's a yieldy name - that's why you don't get a lot of hedge interest," a sellsider said.

The Moody's action came on the heels of the unanticipated news that long time CEO Joel Gemunder has retired from the company, Moody's said in its release.

The agency said it affirmed Omnicare's corporate family rating at Ba3 and maintained its SGL-1 rating, reflecting its good liquidity.

The negative outlook reflects concerns that fundamental operating conditions, including a declining bed count and lower census at nursing homes, will contribute to higher-than-anticipated leverage, Moody's said.

A key concern is the unexpected decline in script volume and the effects on Omnicare's purchasing power and competitive pricing, the agency added.

King Pharma down a point

King Pharmaceuticals' 1.25% convertibles due 2026 were at 90.75 on Monday, down 1 point from previous levels.

The maker of drugs for cardiovascular and thyroid disorders reported that its profit was down amid continued sales weakness but results were better than expected.

King reported a second-quarter profit of $18 million, or 7 cents a share, down from $37.9 million, or 15 cents a share, a year earlier. Excluding amortization and other impacts, earnings fell to 17 cents from 32 cents a share as revenue decreased 17% to $370.9 million.

Analysts estimated earnings of 16 cents a share and $361 million in revenue.

"It's an outright name, with a yield to put of over 5%. It has a neutral delta hedge," a Connecticut-based sellsider said.

Mentioned in this article:

Beckman Coulter Inc. NYSE: BEC

King Pharmaceuticals Inc. NYSE: KG

Omnicare Inc. NYSE: OCR

Teleflex Inc. NYSE: TFX

© 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.