Dendreon slips a point on hedge; Medtronic Bs add as As hit maturity; Sunrise deal on tap

By Rebecca Melvin

New York, April 14 - Dendreon Corp. was higher outright but lower on a hedged basis Thursday after an analyst's citation of positive data boosted the underlying shares of the Seattle-based biopharmaceutical company, a New York-based sellside analyst said.

The weight on Dendreon has been typical of action in the convertible bond market recently, sources said.

"In general, things have been coming in - not massively so - but particularly in the above-par stuff. Premiums are contracting," a New York-based sellside trader said.

The trend, he said, is being driven by overvaluation in the market, as well as low volatility and possibly because of the time of year.

"Typically, the first quarter is the best quarter of the year for convertibles; new money gets deployed. Now with valuations not that great, and as volatility continues to come in in a number of names, some are susceptible," the trader said.

He noted that other than a short-lived spike in March, volatility has been low.

Medtronic Inc.'s 1.625%, or B, convertibles due 2013 edged up Thursday ahead of the impending maturity of Medtronic's 1.5%, or A, convertibles, which come due on Friday.

With the $2.2 billion Medtronic A issue coming out of the market, investors who have been using the paper as a place to park cash will need to find other large, liquid, investment-grade names as safe havens.

The Medtronic A tranche "has been a cash substitute for some time," a New York-based sellside trader said.

The fact that it is maturing means "accounts using it will need to find $2 billion of new cash substitutes."

Investors will be on the look out for bonds with maturities a year or less and with investment-grade rating, he said.

"There's not that much of that, so some stuff that's ugly might get a little uglier," he said.

Elsewhere, Best Buy Co. Inc. was in trade and a point or two lower along with shares after the Richfield, Minn.-based consumer electronics retail chain said it plans to downsize many of its U.S. stores and open smaller ones in a move away from "big box" retailing, as that strategy appears to be suffering at the hand of building internet sales.

But WebMD Health Corp.'s 2.25% convertibles due 2016 traded up a little outright to 96.5 versus a share price of $51.50, compared to 96.25 versus a share price of $51.10 on Wednesday.

In the primary market, Sunrise Senior Living Inc. launched a $75 million offering of 30-year junior subordinated convertible notes that was seen pricing - with favorable pricing but a not-so-hot structure from an investor's perspective after the market close Thursday.

Meanwhile, Canada priced late Wednesday and Thursday two smallish "bought" deals, including Artis Real Estate Investment Trust's upsized C$80 million of 5.75% seven-year convertible debentures with an initial conversion premium of 35%; and Exchange Income Corp.'s upsized C$50 million 6.25% seven-year convertible senior secured debentures with an initial conversion premium of 40%.

Dendreon comes in a point

Dendreon's 2.875% convertibles traded at 112 versus a share price of $41.00 on Thursday, which was in a point from Wednesday when the paper traded at 109 versus a share price of $38.75.

The convertibles' move didn't match that of the shares, which jumped $2.79, or 7%, to $41.57.

A sellside analyst said that positive data supported the shares. Data from Guidepoint on the company's prostate cancer drug Provenge was positive, an analyst at Royal Bank of Canada said in a note.

Best Buy edges toward par

Best Buy's 2.25% convertible senior notes due 2022 traded at 102.75 versus a share price of $29.40. The paper was later seen at 101.847.

Shares fell 79 cents, or 2.6%, to $29.46.

There was news out today regarding revision to the Big-box strategy," a New York-based sellside analyst said.

As more consumers research and buy electronics online and as competition from discounters persists, big-box stores are struggling to maintain market share.

Best Buy's net income fell 16% during the most recent quarter, which included the holiday season, while revenue dropped 2% to $16.26 billion.

Revenue in stores open at least a year, a key measure of a retailer's financial health, fell 4.6% during the quarter.

Best Buy is refocusing on mobile wireless stores as they have proven profitable given the popularity of smartphones and sales of add-ons like phone plans and accessories.

Best Buy also plans to expand its online-only selection and aims to double its online revenue in three to five years.

Sunrise Senior on tap

Sunrise Senior, a provider of senior living services based in McLean, Va., planned to price $75 million of 30-year paper that was talked to yield 4.75% to 5.25% with an initial conversion premium of 18% to 23%.

"I call that bond a preferred in bond clothing. It's junior, it's long dated and it has no bond floor to speak of. The bond floor is 40 cents to 45 cents on the dollar if you're lucky," a New York-based sellside trader said.

"There are accounts that like to buy those and set that up," he said. In its favor is the fact that the stock borrow, which has been difficult in the past, didn't appear to be a problem.

"People will want to set that up on a heavy 95% to 98% delta," a second sellside trader said.

The $500 million market cap company is offering a $75 million deal. It doesn't have $300 million in short interest, "so looking at those numbers, the borrow should be OK," a trader said.

But the long-dated structure with no puts and a possible forced conversion feature were considerable detractions, sources said.

The notes are non-callable with no puts.

They are freely convertible until April 6, 2016 and then Sunrise may terminate conversion rights if shares are equal to or exceed 130% of conversion for at least 20 out of 30 consecutive trading days.

There is a greenshoe of $11.25 million. And proceeds will be used for general corporate purposes, including paying down joint-venture debt and acquisition of joint ventures.

Stifel Nicolaus & Co. Inc. is the bookrunner of the Rule 144A offering, with KeyBanc Capital Markets LLC as a co-manager.

Mentioned in this article

Artis Real Estate Investment Trust Toronto: AX.UN

Best Buy Co. Inc. NYSE: BBY

Dendreon Corp. Nasdaq: DNDN

Exchange Income Corp. Toronto: EIF

Medtronic Inc. NYSE: MDT

Sunrise Senior Living Inc. NYSE: SRZ

WebMD Health Corp. Nasdaq: WBMD

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