Teva edges higher amid outright interest; Peabody eases; Fleetwood aims to extend 5% convertibles

By Rebecca Melvin

New York, Aug. 28 - Teva Pharmaceutical Industries Ltd. edged higher by about 0.5 point on Thursday amid outright interest, traders said, and coal producer Peabody Energy Corp. was weaker in tandem with lower oil and natural gas markets but ended nearly unchanged.

The convertibles market was notably quiet, however, with very little trading even as the equity markets rallied after the Commerce Department reported that second-quarter gross domestic product rose at an annual rate of 3.3%, nearly double the initial estimate of 1.9% and higher than economists' 2.7% forecast.

Earnings posted by two convertible issuers also failed to spur trades in those names: Fleetwood Enterprises Inc., which posted a much wider loss on depressed RV sales, said it plans to refinance its 5% convertibles, replacing it with one or two different debt or equity-linked instruments before December, when the issue becomes putable.

Energy Conversion Devices Inc. reported better-than-expected revenue, but its shares moved lower anyway, sending its 3% convertible down at one point of the session to 103.87 versus a share price of $75.43, from about the 106 level.

Teva adds 0.5 point

Teva, which is a name that has seen a lot of trade recently, was "up small," a sellside trader said Thursday. Another trader said he saw "strong outright interest."

The Teva 1.75% convertibles due 2026, known as the D tranche, traded between 113.625 bid, 114.125 offered versus a $47.60 share price, which was little changed from Tuesday's level, but its shares (Nasdaq: TEVA) lost 24 cents, or 0.5%, albeit in slim volume.

Teva's 0.25% convertibles due 2026, known as the C tranche, were seen little changed at 106.5, while the Teva 0.5% convertibles due 2024 were steady at 127, and the Teva 0.25% convertibles due 2024 were at 137.5.

Montvale, N.J.-based Barr Pharmaceuticals Inc., which has agreed to be acquired by Israel-based Teva, announced Thursday that it received final Food and Drug Administration approval to sell a generic version of Ortho McNeil Janssen's Razadyne (galantamine hydrobromide). Barr intends to launch its generic Razadyne tablets product immediately, the company said in a release.

The Barr acquisition, which is still subject to various regulatory approvals, is expected to be completed by the end of the year.

Peabody eases, ends unchanged

Peabody's 4.75% convertibles due 2066 traded at 129.14 Thursday after closing Wednesday at 130.25. Shares of the St. Louis-based coal producer (NYSE: BTU) were down more than 3% in the session, but they retraced mid-session losses to close nearly unchanged, or down 0.2%.

Crude oil fell more than $2 a barrel after the International Energy Agency said it would tap strategic stockpiles if tropical storm Gustav disrupts energy production in the Gulf of Mexico.

And natural gas prices in New York plunged as much as 10% after the energy department reported that inventories gained nearly twice the average for this time to 2.757 trillion cubic feet in the week ended Aug. 22.

One of the reasons given for the huge injection is that power generation demand has been weak. Peabody Energy mines and markets predominantly low-sulfur coal, which is used primarily by electric utilities.

Fleetwood eyes refinancing

Fleetwood's 5% convertibles due 2023, which are putable Dec. 15, were at 93, where they've been for most of August, versus a share price that barely budged as well and closed at $2.14.

The 6% preferred stock due 2028 at 12.75 also remained unchanged. The company has suspended dividend payments on these in an effort to save some cash.

The Riverside, Calif.-based producer of recreational vehicles and manufactured homes said its loss from continuing operations for the fiscal 2009 first quarter was $27.8 million, or $0.41 per share, compared with a loss from continuing operations of $2.3 million, or $0.04 per share, for the first quarter of last year.

Revenue fell 41% to $289.9 million, from $488.3 million in the prior year.

It also said it will "address the December redemption by working with investors to replace the existing debentures with one or more alternative debt or equity-linked securities in advance of the December 2008 due date."

"Such alternative instruments," it continued in the release, "would likely have terms that are less advantageous to Fleetwood than the existing debentures, including a higher coupon and some additional dilution to common shareholders, but this would allow us to minimize the use of cash in order to maintain as much necessary operating flexibility as possible in the current environment."

This was a change from late last year when it said it had the cash to meet the put, and from earlier this year when it said it would do a half cash/half stock settlement.

Revenue for its last quarter declined 51% for the RV Group and 15% for the housing group.

"It's a negative for the preferred I think, just delaying the dilution again. They could have, should have dealt with this at 7!" an East Coast-based sellside trader said.

"They had many suggestions and opportunities to do so! Management is lame!" he continued.

Investors who had been fairly confident that they would be getting cash are likely to want a pretty large coupon increase, sources said, especially in light of the company's poor financial prospects.

"It's not very positive for the preferred. If they had dealt with the debt, then it would have been senior, but now it's shuffled to the back," the sellsider said.

Nevertheless, the paper wasn't seen in trade with traders citing the fact that it was the Thursday before Labor Day weekend for the lack of activity.

In the conference call, the chief financial offer said that the company had made a lot of progress in generating the cash to meet the $100 million required for the 5% debt; however, rapidly deteriorating conditions mean that there is a need to conserve cash as much as possible so that it can emerge at the end of the cycle a strong competitor.

Energy Conversion wavers

Energy Conversion Devices' 3% convertible senior notes due 2013 last traded at 105 or 106, and "nuked" down intraday to 103.87 versus a share price of $75.43, before ending little changed.

Shares of the Rochester Hills, Mich.-based solar company (Nasdaq: ENER) closed off their lows, down $1.79, or 2.3%, at $76.55.

The company swung to a profit for its fiscal fourth quarter on revenue that more than doubled to $82.4 million from $38 million in the year-earlier period.

The stock was down perhaps due to a lower outlook on gross margins or because it won't ramp up until the second half of 2009, a Connecticut-based sellside analyst surmised. But nevertheless, "I love that company; they are like rock stars."

The solar company is unique in the field as it has a proprietary manufacturing process and a thin-film solar module, which is able to integrate easily into building materials.

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