SanDisk, Broadwing climb on debuts; Amkor, JDS Uniphase, Manor Care plan deals; Teva steady on loss

By Kenneth Lim

Boston, May 10 - The convertible bond market saw three new offerings start to book build on Wednesday on the back of strong debuts from SanDisk Corp. and Broadwing Corp.

SanDisk's new 1% convertible due 2013 traded about one point above par despite a slide in the common stock, while Broadwing's fresh 3.125% convertible due 2026 changed hands about 2 points above parity early in the day, market sources said.

Broadwing's convertible was priced late Tuesday within price talk.

"I didn't play either of them, unfortunately," said a buy-side convertible bond trader. "I didn't like the terms - the SanDisk coupon was too low and...for Broadwing, the borrow was a little bit tight. But people played it and it did well."

Following on from those, three new deals were announced.

But Amkor Technology Inc.'s proposed $150 million of five-year convertible senior subordinated notes was panned by analysts unexcited about its industry's prospects. The deal was announced Wednesday morning.

Also in the pipeline is JDS Uniphase Corp.'s proposed $375 million of 20-year convertible senior notes and Manor Care Inc.'s planned $250 million of 30-year convertible senior notes. All three new deals are expected to price Thursday after the market closes.

Outside the primary market, Teva Pharmaceutical Industries Ltd.'s convertibles slid outright but stayed firm on a dollar-neutral basis after the stock fell on the company's first-quarter loss.

Also in the biotech sector, Cell Genesys Inc., whose 3.125% convertible due 2011 had not traded since mid-April, saw renewed interest Wednesday after the stock climbed on positive drug approval developments. The convertible was seen trading at 91.5 against a stock price of $6.90 on Wednesday, similar to levels from trades on April 17. Cell Genesys stock (Nasdaq: CEGE) gained 6.49% or 42 cents to close at $6.89.

South San Francisco-based Cell Genesys said Wednesday that the Food and Drug Administration had given "fast-track" status to its GVAX treatment for advanced prostate cancer. The company specializes in developing cancer treatments.

Tevas hold firm on first-quarter loss

Teva Pharmaceutical's convertibles were lower on an outright basis but firm on a dollar-neutral basis on Wednesday after the stock slid on the company's first-quarter loss.

The Teva 0.25% convertible due 2026 was seen trading about four points lower outright at 98.5 versus a stock price of $40 on Wednesday. Teva stock (Nasdaq: TEVA) closed at $37.56, lower by 12.47% or $5.35. One convertible bond trader remarked: "I know the credit, and there's no issues. I would expect no widening at all."

Another convertible bond trader said Teva was "a rock credit-wise," and Wednesday's results announcement was "an opportunity to take advantage of the stock weakness," the trader said.

Teva said Wednesday that it swung to a $1.01 billion net loss in the first quarter from a profit of $259 million in the year-ago period. The company cited expenses from its $7.4 billion acquisition of rival Ivax Corp. for the loss. Excluding acquisition-related costs, the company's adjusted $286 million profit, or 37 cents per share, for the quarter still missed Wall Street estimates around 41 cents per share.

Israel-based Teva also said it expects $1.5 billion in adjust net profit excluding acquisition-related charges for 2006, and earnings per share between $1.82 to $1.90. Analysts were expecting earnings per share around $1.92 for the year.

A New York-based convertible bond analyst also noted that Teva is still the world's largest maker of generic drugs with a healthy pipeline of products.

Another convertible bond analyst said the poor results were mostly a "stock story.

"The company still expects adjusted profit of $1.5 billion for the year," the analyst said. "How many companies you know can do that?"

New SanDisks, Broadwings gain on debut

SanDisk's new 1% convertible due 2013 was seen trading at 101 against a stock price of $63.25 on its first secondary market session on Wednesday. The convertible, which was offered at par, was priced Tuesday within talk of a coupon between 0.75% and 1.25% and an initial conversion premium of 27.5% to 32.5%.

"We saw a lot of those this morning [Wednesday]," a sellsider said.

Shares of Sunnyvale, Calif.-based SanDisk (Nasdaq: SNDK) declined 0.28% or 18 cents to end at $63.17 on Wednesday. SanDisk makes flash memory cards used in consumer electronics such as digital cameras.

Broadwing's new 3.125% convertible due 2026 was seen around 102 after the deal was upsized and priced within talk of a coupon between 2.75% and 3.25% and an initial conversion premium of 25% to 30%. The size of the deal was increased to $150 million with an over-allotment option of $30 million from $125 million with a $25 million greenshoe.

Broadwing stock (Nasdaq: BWNG) closed at $12.90 on Wednesday, down by 2.86% or 38 cents.

A market source said the deal saw good interest from fundamental and hedged investors.

"Those did really well," said a buy-side convertible trader.

Austin, Texas-based Broadwing provides of communication network services.

Amkor deal viewed with caution

Amkor Technology's planned $150 million of five-year convertible senior subordinated notes was met with caution on Wednesday, with one buysider citing concerns about the state of the semiconductor chip test and assembly service provider's industry.

The convertible is talked at a coupon of 2.375% to 2.875% and an initial conversion premium of 27.5% to 32.5%, and pricing is expected Thursday, market sources confirmed.

The deal is also being offered concurrently with a $300 million sale of 10-year senior notes.

Citigroup Global Markets is the bookrunner for the registered off-the-shelf deal.

Amkor stock (Nasdaq: AMKR) closed at $11.97 on Wednesday, lower by 3.78% or 47 cents after the deal was announced.

"I don't like it," the buysider said. "It's like buying at the top of the cycle. It's a tough business with very high capex, very short lead times, and the volatility is pretty high, and so usually what you want to do is buy them when they're hated. Right now it looks like they're very in favor with investors."

The buysider also said the company is "still flirting with bankruptcy" with its existing 5% convertible bond due in 2007.

Chandler, Ariz.-based Amkor will use the proceeds from the convertible offering to redeem, repurchase or retire part of its outstanding 10.5% senior subordinated notes due 2009. Proceeds from the straight bond offering will be used to tender for Amkor's outstanding 9.25% senior notes due 2008.

JDS Uniphase offering 'interesting'

JDS Uniphase's proposed $375 million of 20-year convertible senior notes could be "interesting," the buy-side convertible analyst said.

San Jose, Calif.-based San Jose on Wednesday announced the deal, which is talked at a coupon of 0.5% to 1% and an initial conversion premium of 20% to 25%, market sources confirmed. There is an over-allotment option of $50 million, and pricing is expected Thursday.

JP Morgan and Merrill Lynch are the bookrunners of the Rule 144A offering.

At first glance, "it's recovering situation," the analyst said. "The market is turning up on them, that one is not looking too bad."

JDS Uniphase is an optical networking equipment supplier. It has earmarked the proceeds of the offering for general corporate purposes, which may include repaying existing debt.

JDS Uniphase stock (Nasdaq: JDSU) slid 1.17% or 4 cents on Wednesday to end at $3.39 before the deal was announced.

Manor Care to price $250 million deal

Manor Care Inc. on Wednesday also announced $250 million of 30-year convertible senior notes talked to yield 2% to 2.5% with an initial conversion premium of 10% to 15%.

The convertibles are being offered at par, and pricing is expected Thursday after the market closes.

There is no over-allotment option.

JP Morgan is the bookrunner of the Rule 144A deal.

Manor Care is a Toledo, Ohio-based provider of short-term post-acute and long-term health care. The company will use the proceeds from the offering to buy back $244 million of its common stock, including about $125 million expected to be sold by purchasers of the convertible notes.

Manor Care stock (NYSE: HCR) closed at $45.18 on Wednesday before the deal was announced, up slightly by 0.62% or 28 cents.

Manor Care's offering is the latest in a wave of new convertibles issued by U.S.-listed companies over the past week. SanDisk, Broadwing and Netherlands-based Qiagen NV also priced their offerings Tuesday.

"Yeah, that's going to keep you busy," a buysider said.

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