New Affymetrix mixed; Navistar unmoved by poison pill; L-3, United Technologies better

By Rebecca Melvin

New York, June 20 -Affymetrix Inc.'s newly priced 4% convertible traded both above and below par on its debut in the secondary market on Wednesday after pricing at the cheap end of revised coupon talk and as the underlying shares of the Santa Clara, Calif.-based molecular diagnostics company remained steady.

The new Affymetrix seemed to close near their highs of the session at 100.5 bid, 101 offered versus a closing share price of $4.70, according to a New York-based trader.

A second source saw the new paper at 99 bid, 99.75 offered during the day.

Elsewhere, the convertible bond market was fairly quiet, although volumes have picked up from early last week's depressed levels, one trading source said.

Navistar International Corp.'s convertible bonds were essentially unchanged after the Lisle, Ill.-based engine and heavy-duty truck maker announced that it has taken a poison pill against a potential hostile takeover. The company has had activist investors building holdings in recent weeks.

"I think this relieves credit fears. The credit must be doing OK, or I don't think they would stand in the way of a deal," a New York-based trader said about Navistar's poison pill.

L-3 Communications Holdings Inc.'s 3% convertibles traded up a little bit on what one trader chalked up to a "big buyer in the market" for the New York-based intelligence and surveillance company.

Meanwhile, United Technologies Corp.'s 7.5% mandatories due 2015 were also a bit better after $1 billion of those securities were priced by the Hartford, Conn.-based building and aerospace technology company last week.

Equities traded mixed even as the U.S. Federal Reserve, as expected, extended Operation Twist, a stimulus program whereby the central bank shifts holdings toward longer-term Treasuries to keep long-term borrowing costs down. The program, which was slated to end June 30, has been extended to the end of the year.

Markets were expecting at least this action and possibly more, sources said. But the Fed said that it is prepared to take further action if necessary.

Under the extension of Operation Twist, the Fed expects to buy and sell about $267 billion of Treasuries, the Federal Reserve Bank of New York said in a release.

New Affymetrix trades flat

Affymetrix's newly priced 4% convertibles due 2019 traded at par and at both below and above par against steady shares that closed little changed at $4.70.

One source put the close around 100.5 bid, 101 offered. Another source said the bonds had been at 99 bid, 99.75 offered at one point during the session.

"It traded all over the place," one trader said.

A second trader said identifying a credit spread for the company is difficult because it's a business that is in the process of reinventing itself.

The $105 million of new convertibles is being used, in fact, to fund its acquisition of eBioscience Holding Co. Inc., which will allow Affymetrix to branch into immunology and oncology research and diagnostics.

Currently, Affymetrix's credit spread is seen around 800 basis points to 900 bps, "it's pretty much anyone's guess and you're in that range, that is pretty much a guessing game," a trader said.

The Santa Clara, Calif.-based provider of technology for pharmaceutical research and diagnostics priced its $105 million of senior convertible notes at the cheap end of revised talk for the coupon, which was 3.75% to 4%, and at the revised price point for the premium. Originally, price talk was for a lower coupon of 3.25% to 3.75% and a higher premium of 27.5% to 32.5%.

Joint bookrunners were Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC, with Bank of America Merrill Lynch Inc. and Robert W. Baird & Co. Inc. acting as the co-managers.

The "reinvented company will not be the same old Affymetrix," and it's "to be determined" how successful it will be.

Its $315 million acquisition target, eBioscience, is a San Diego, Calif.-based immunology and oncology research and diagnostics company.

Navistar in on hedge

Navistar's 3% convertibles due 2014 traded on swap on Wednesday at 94.36 versus an underlying share price of $28.39, a New York-based trader said, adding that the trade went up on a 30% delta.

That trade compared to a sale at 95 versus an underlying share price of $29.52 on Tuesday.

"That looks like it was into the bid side to yesterday's sale, so it was down 35 cents, but still in the spread," the trader said.

As per the bond action, he didn't think that the poison pill should affect the bonds at all.

Navistar shares were down $1.00, or 3.4%, at $28.38, however.

"If they are worried about financing debt then they shouldn't be getting in the way of a takeover, especially when stronger credits like Volkswagon, have been thrown out there," the trader said.

The poison pill adopted by shareholders is aimed at keeping outsiders from gaining a stake of 15% or more.

The company made its move after hedge fund MHR Fund Management LLC last week disclosed that it now holds 13.6% of the company's shares, which is an even larger position than billionaire investor Carl Icahn's 11.9% stake.

L-3, United Technology better

L-3's 3% convertibles due 2035 traded up slightly to 97.75 during Wednesday's session and went out at 97.625 bid, 97.875 offered, compared to 97ish previously.

Shares of the Broomfield, Colo.-based fiber communications services provider ended up 19 cents, or 0.3%, at $73.45 in light volume.

"There was a big buyer" in the yield name - one that players have come up with given a lack of ideas in the convert space, a trader said.

"I hear that people are struggling for ideas," he said.

The L-3 convertible has about $689 million outstanding of a $700 million issue, and there are credit default swaps on the name that market players set the convertibles up against, the trader said.

In addition, news is expected out on the company within the next few weeks regarding a potential spin off of one of its larger divisions.

United Technologies' 7.5% mandatories were about 20 cents higher on the day at 52.5 bid, 52.75 offered. Last week they traded at 51 compared to their 50 par.

United Technologies' shares ended lower by 49 cents, or 0.6%, at $75.91 on Wednesday.

"They are getting a little bit rich," a New York-based trader said. "There is still outright interest to buy and I think we will start seeing some hedge fund sellers if the [mandatories] keep going higher."

Mentioned in this article:

Affymetrix Inc. Nasdaq: AFFX

L-3 Communications Holdings Inc. NYSE: LLL

Navistar International Corp. NYSE: NAV

United Technologies Corp. NYSE: UTX

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