Airline, retail convertibles attract bids; Platinum Underwriters launches $150 million preferreds

By Rebecca Melvin

Princeton, N.J., Nov. 28 - The convertible bond market was fairly active for what was essentially a Monday after a long holiday weekend, traders said, with better bids in several airline and retail names, as well as a few select names like Teva Pharmaceuticals Industries Ltd. and Ivax Corp.

The airline sector benefited from lower oil prices on Monday. AMR Corp., the parent of American Airlines, was up on an outright basis and slightly better on a hedged basis. Continental Airlines Inc. was also higher outright. But the convertibles of JetBlue Airlines Corp. traded essentially flat with its shares closing little changed as well.

In retail, the convertibles of TJX Cos. Inc., Dick's Sporting Goods Inc., Best Buy Co. Inc., toy and game company Hasbro Inc. and gaming company International Game Technology saw action in the market Monday as their underlying shares jumped early on positive retail sales news but then mostly reversed course as some conflicting sales data crossed radar screens, a New York-based sellside trader said. Best Buy shares, however, started the day lower.

"People seemed to focus on the early numbers at first, and then there were some conflicting reports that weren't as rosy," he said.

The National Retail Federation released survey data on Sunday that showed a 22% increase in holiday shopping over the long Thanksgiving weekend generating almost $28 billion in sales.

But ShopperTrak, which monitors store traffic in malls, said consumers spent less last weekend at around $8.01 billion Friday, down 0.9% from last year.

Among other names mentioned in trade was Flextronics International Ltd., which provides electronics manufacturing service to OEMs, and which was slightly better by about 0.25 point on Monday.

Despite a shortened stock markets session on Friday, the convertibles market was mostly quiet then and trading Monday on some news that was available late last week.

The Ivax convertibles, for example, were in trade Monday after the company said late Wednesday that it was waiving its contingent conversion feature for its in-the-money 1.5% convertible notes due 2024 and 1.5% convertible notes due 2025 effective Dec. 1. The Miami-based generic drug maker also said that it has begun a cash tender for its 4.5% convertibles.

Other names trading in line with their underlying shares included Micron Technologies Inc. and Amgen Inc.

In the primary arena, Platinum Underwriters Holdings Ltd. launched an offering of series A mandatory convertible preferred shares, which was expected to total about $150 million. The issue was expected to price on Thursday.

Airlines add as oil falls

The convertibles of AMR gained a little more than a point on Monday as oil prices eased in the face of mild weather across the northeast United States, which is the biggest market worldwide for heating oil.

Crude oil futures fell more than $1 a barrel, while light sweet crude for January delivery dropped $1.36 to $57.35 a barrel on the New York Mercantile Exchange.

"When energy prices go down, airlines go up," a New York-based sellside desk analyst said.

Nevertheless, profit taking set in later in the session, sending the shares of much of the sector lower again, but the shares of Fort Worth-based AMR and Houston-based Continental Airlines remained higher.

AMR's 4.25% convertibles traded early in the session at 114 bid, 114.5 offered, versus a share price of $17.30. Shares actually closed up 29 cents, or 1.7%, at $17.37.

Forest Hills, New York-based JetBlue saw its 3.50% convertibles trade at 88.875 versus a share price of $19.00, unchanged from Friday.

After the close, JetBlue said in an 8-K filing that it had signed a 30-year lease agreement on Nov. 22 with the Port Authority of New York and New Jersey for the construction and operation of a new terminal at John F. Kennedy International Airport.

Under the lease, JetBlue is responsible for the construction of a 635,000 square foot 26-gate terminal connected to the Saarinen Building, a parking garage, roadways and an AirTrain Connector.

Teva, Ivax gain after waiver, EU approval

The convertibles of Teva Pharmaceuticals saw buyers on Monday and were higher by about 0.50 point, while the convertibles of Ivax were also better in trade after Ivax, which is being acquired by Israel-based Teva, said that it has waived the contingent conversion provision on its 1.5% convertible senior notes due 2024 and the 1.5% convertible senior notes due 2025 starting Dec. 1.

The company said that it took the action to allow the in-the-money convertibles to be exchanged for stock ahead of its merger with Teva. The 1.875% convertible senior notes are already convertible.

Ivax is also tendering all outstanding 4.5% convertible and estimates the total purchase price to be $285.75.

Following the merger, the 4.5% convertibles not tendered will no longer be convertible into Ivax common stock and instead will be convertible 50% in cash and 50% in Teva American Depositary Receipts.

In other news, the companies said on Friday that they received permission from the European Commission to proceed with their merger creating the world's largest generic drug making company.

The companies said they are continuing to work with the U.S. Federal Trade Commission on its review of the deal and still expect the deal to close in late-2005 or early 2006.

On Monday Ivax 1.5% convertibles due 2024 traded about 3 points higher at 125 versus a share price of $30.13, which was down 31 cents, or 1%, on the day. Previously the Ivax 1.5s due 2024 were seen at 122.

The Ivax 1.5% convertibles due 2025 traded 1 point higher at 132.5, compared with 131.27 bid, 131.77 offered on Friday, according to one New York-based sellside shop.

The Ivax 4.50% convertible traded at 100, compared with 100.875 bid, 101.375 offered on Friday, according to the same sellside shop, and the 1.875% convertibles weren't seen in trade but were recently about 145.

The Teva 0.25% convertibles traded at 120 versus a share price of $41.30. Teva shares closed down 75 cents, or 1.79%, at $41.26.

Platinum to sell mandatory convertibles

Price talk for the Platinum Underwriters' mandatories launched Monday was for a dividend of 6% to 6.5% with an initial conversion premium of 23% to 27%.

Concurrently with the series A mandatory convertible preferred offering, the company is offering about $220 million of common shares, of which the company is offering about $100 million and shareholder RenaissanceRe Holdings Ltd. is offering its total holding of about $120 million.

There is an over-allotment option of up to an additional $22.5 million of shares.

Merrill Lynch is bookrunner and Goldman, Sachs is acting as a co-manager for the preferreds.

Platinum Underwriters intends to use proceeds from both offerings to make contributions to the capital and surplus of its reinsurance operating subsidiaries and for general corporate purposes.

Platinum Underwriters is a Bermuda-based reinsurance company. It recently estimated its gross loss related to Hurricanes Katrina and Rita at $396.9 million, or at about $274.8 million including $56.1 million of recoveries from retrocessional reinsurance and restatement premiums earnings of $19.6 million.

On Nov. 9, the company issued a press release stating that its initial losses from Hurricane Wilma, which made landfall in Mexico and southern Florida this autumn, were estimated at $135 million.

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