Teva series Ds active in trade; Transocean ends lower; Biovail, Lincare better; PPL adds

By Rebecca Melvin

New York, June 22 - The convertible bond market was mostly quiet and weaker on Tuesday amid a sharp sell-off of the broader markets heading into the session's close.

"The equity market is terrible, just a sea of red now....and the market is very, very quiet. Trace volume is on pace to trail yesterday's abysmal showing," a New York-based trader said.

A surprisingly active issue, however, was the series D convertibles of Teva Pharmaceutical Industries Ltd. That name has been volatile lately, with the shares moving generally lower in recent weeks and steadily lower over the last three sessions.

Transocean Ltd. was weaker on Tuesday as equity investors primarily went on a roller coaster ride on news a federal judge ruled against the six-month moratorium on deepwater oil drilling in the Gulf of Mexico.

The ruling sent shares skyrocketing upward only to have them come back to earth just as sharply shortly afterward when the Obama administration said it would immediately appeal the decision.

Biovail Corp.'s convertibles extended gains on Monday's news that the Mississauga, Ont.-based specialty pharmaceutical maker is merging with Valeant Pharmaceuticals International, also a convertible issuer.

And Lincare Holdings Inc. saw its convertibles better in trade after the home respiratory therapy company announced that it had approved the start of the quarterly cash dividend of 20 cents, making the underlying shares one of the strong winners of the day.

Meanwhile, there was a slightly higher gray market on PPL Corp., which is expected to price $1 billion of mandatory convertibles after the close of markets on Wednesday. That paper was looking fairly valued and up about 0.25 point in the gray market.

Market subdued

Overall, the convertible market was described as "blah" by a New York-based trader.

"It's a tricky time. There are some good trades, but with the rough patches everyone has gone through over the last couple of years, it's very difficult convincing people to take on new positions, and there are very few things screaming 'buy' right now, with the possible exception of RIG."

In equity markets, the Dow Jones Industrial Average ended lower by 148.89 points, or 1.4%, to 10,293.52; the Nasdaq Stock Market fell 27.29 points, or 1.2%, to 2,261.80; and the S&P 500 stock index lost 17.89 points, or 1.6%, to 1,095.31.

The exact cause of the late stock slide was hard to pinpoint. Disappointing existing housing data early in the session didn't seem to have an immediate affect on markets.

But one source thought it was simply more of what the markets have been seeing recently, with no particular trigger Tuesday.

"Early rallies all come undone. Yesterday, the China yuan euphoria gave way to a more restrained view in the afternoon. Today, Gulf of Mexico drillers rallied on the LA [Louisiana] judge's decision to lift the drilling ban, and then gave it all back when the Administration said it would appeal. Add to that the looming prospect of financial reform, a bad existing homes sales report, an upcoming FOMC meeting, and bad technicals, and this is what you get," the New York-based trader said.

The S&P 500 stock index failed to hold support at the 1,111 or the 1,105 range top, causing it to ratchet lower, the trader said.

Teva Ds active

Teva's 1.75% series D convertibles due 2026 traded actively on Tuesday, ending the day at 114.631, having traded as low as 110 and as high as 115, according to Trace data.

The Teva Ds have been volatile of late, bouncing around as it trends lower with their underlying shares.

Sources weren't sure of the reason behind the activity. According to one trader, $78 million of the bonds traded, which was especially significant given that it was a low-volume trading day.

Another New York-based trader said he wasn't sure why investors were "evaluating" the bonds.

Shares of Teva, an Israel-based drug company, ended lower by 71 cents, or 1.4%, at $52.04 on Tuesday.

The convertibles of Amgen Inc. were also active, sources said.

Transocean settles weaker

Transocean's 1.625% series A convertibles due 2037 were seen closing at 97.3 on Tuesday, which was a tad lower compared with 97.4 on Monday and nearly 0.5 point lower compared to trades at 97.75 on Friday.

Transocean's 1.5% series B convertibles due 2037 were seen settling at 91.1, which was 0.5 point lower compared to the indicated settle of 91.6 on Monday.

The Transocean 1.5% series C convertibles due 2037 were also seen 0.5 point lower at the close Tuesday, indicated at 85.5 compared to 86.1 on Monday, according to a pricing source.

Shares of the Vernier, Switzerland-based company settled lower by $1.42, or 2.7%, at $52.49.

"It all came and went so fast that it didn't really seem to have much of an impact," a New York-based trader said of the headline news that a federal judge ruled against the Administration's deepwater drilling moratorium.

A second trader said that the bonds responded in like step with shares, so they went up but came right back down.

Transocean, along with energy names in general, jumped Tuesday after a federal judge ruled against a six-month drilling moratorium that president Obama imposed after the BP plc operated rig explosion and oil leak.

Oilfield services companies and workers involved in offshore drilling took their case to court, seeking to reverse the drilling moratorium in the Gulf of Mexico, and the New Orleans-based judge ruled in their favor, saying that a deepwater drilling ban was not the appropriate response to the spill.

News of the ruling sent stocks and bonds of the companies involved soaring, but they came back down just as hard and ended lower on the day after the White House said it would immediately appeal the judge's ruling.

PPL up slightly in the gray

PPL's $1 billion convertible mandatory was looking to be fairly well-received, sources said, even though not all thought it was necessarily cheap.

"I got it somewhat cheap, but not as cheap as you expect mandatories," a trader said.

A gray market in the name was seen at 100.12 bid, 100.25 offered, according to one source, while others called it plus 0.25 point.

"An interesting quirk of this deal is that the common has a high dividend, which means the mandatory has to have a really high dividend. There is generally an appetite for things that have high current yield. For brokers, high current yield is one of the easiest things to sell," a New York-based trader said.

The deal, which is expected to price after the close of markets Wednesday, is coming with a concurrent stock offering.

Proceeds will fund a portion of the purchase price of the company's $7.6 billion acquisition of E.ON U.S., LLC, the parent company of Louisville Gas and Electric Co. and Kentucky Utilities Co.

Credit Suisse, Barclays Capital, JPMorgan, Bank of America Merrill Lynch and UBS are the joint bookrunners of the equity unit offering, with Citigroup Global Markets Inc., Morgan Stanley & Co. Inc. and Wells Fargo Securities acting as the senior co-managers.

Allentown, Pa.-based PPL produces and distributes electricity to about 6 million customers in Pennsylvania and the United Kingdom.

Mentioned in this article:

Biovail Corp. NYSE: BVF

Lincare Holdings Inc. Nasdaq: LNCR

PPL Corp. NYSE: PPL

Teva Pharmaceutical Industries Ltd. Nasdaq: TEVA

Transocean Ltd. NYSE: RIG

Valeant Pharmaceuticals International NYSE: VRX

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