Biotechs, chips lead convertibles mostly higher; Charming Shoppes, Henry Schein trade higher

By Rebecca Melvin

Princeton, N.J., July 8 - The convertibles market was mostly higher Friday, led by issues in sectors like biotechnology and semiconductors. But activity was muted, with trades appearing as so many laundry lists, including names like Charming Shoppes Inc., Henry Schein Inc. and CSX Corp.

A relatively quiet summer session allowed market participants to mull the overall economic picture as stock markets continued to rebound after the shock of Thursday's terrorist attacks in London.

"The rebound in equity markets is surprising," a New York-based convertibles sellside trader said. "Convertibles have improved, and I guess some volatility may be the catalyst in the market to jump start some trading."

But although a pick up in equity volatility has been part of the rallying cry for a convertibles turnaround, others say it isn't all that simple.

"It's a quirky market. Convertibles are supposed to better with volatility. But with certain volatility they don't do well. They don't do well when there is sentiment against securities," a Connecticut-based buysider said. He added that he thinks that the convertibles market has already turned a corner, and at the same time he is skeptical about the bounce back in stocks.

A New York-based desk analyst agreed, saying that the equity rebound is fragile at best.

"We have the rebound because people felt that the London bombings would not likely have a lasting impact," the analyst said. "I mean most of the Underground is up and running today and people are back to work. People are saying that they are okay with that. But if something else were to happen that showed a bigger concerted effort" it would all evaporate.

Word also circulated that a new hedge fund started last week in New York.

Sandelman Partners LP, led by Jonathan Sandelman, opened shop, according to one source. But Sandelman's chief financial officer Chris Zaback wouldn't confirm that the firm had opened a hedge fund.

"We have really decided not to comment to the media," Zaback told Prospect News.

Sandelman was formerly global head of debt and equities at Banc of America Securities, where he focused strongly on equity derivatives. He left the firm in 2004 and was reported at that time to have intentions of starting his own hedge fund.

The report comes after the spring and early summer saw redemptions from convertible hedge funds and much talk that some managers were abandoning the sector altogether.

Biotechs blaze up

Many biotechnology convertibles made gains Friday and the sector overall saw company shares surge as a change of sentiment appears to be evolving.

Favorable industry reports have come out in recent days and the companies' earnings reports coming up later this month are expected to be strong.

"But trading is due to sentiment more than anything else," a Connecticut-based sellside trader said.

"I don't know that these are really trading based on the earnings, or whether they are trading due to development," he added, explaining that the development stages which the drugs are in influence trading.

"People start trading these things in packs. They take a position. People are putting money into all these biotech and healthcare funds, and there's small cap in there too [among the sectors in favor]," the trader said, adding that one name he particularly favors is Curagen Corp. "It's probably the cheapest convert out there."

On Friday, Curagen's 4% convertible due 2011 added four points to 79.64 bid, 82.64 offered. Its 6% convertible due 2007 was indicated at 90 bid, 92 offered. Shares of the New Haven, Conn.-based genomics drug company surged 54 cents, or 10%, to $5.97.

"People are wondering how [the company] is going to refinance the 6% due in 18 months," the trader said.

Also on Friday, Celgene Corp.'s 1.75% convertible due 2008 added six points to 182.65 bid, 183.15 offered. The Summit, N.J.-based drug discovery company's stock added $1.67, or 4.1%, closing at $42.42.

Meanwhile, Amgen Inc.'s 0% convertible due 2032 extended gains from Thursday when recent favorable clinical trial news from the Thousand Oaks, Calif.-based biotechnology company and an upgrade to "buy" from UBS caused both the convert and the stock to rise.

Amgen's 0% edged up another 0.3 point to 73.97 bid, 74.47 offered, compared to 73.657 bid, 74.157 offered on Thursday.

Generic drug maker Ivax Corp. also saw a boost in its recently issued 1.5% convertible due 2025.

Chips edge higher

Advanced Micro Devices Inc. and RF Micro Devices Inc. were among semiconductor convertibles that traded flat to slightly higher Friday, also amid a change in sentiment, one New York sellside trader said.

Sunnyvale, Calif.-based AMD added 0.5 point to its 4.75% convertible due 2022 to trade at 102.984. Shares of the company were up 21 cents, or 1.12%, at $18.94.

The convertible of Greensboro, N.C.-based RF Micro edged slightly higher Friday after a gain Thursday when the company boosted revenue guidance, citing stronger-than-expected demand for cellphone parts.

The 1.5% convertible due 2010 was up a fraction of a point to 96.562 bid, 97.062, compared with a close Thursday at 96.414 bid, 96.914 offered.

Guidance boosts retailer

The convertible of Bensalem, Pa.-based Charming Shoppes added 2½ points Friday on continued strength related to a report of strong June sales and higher guidance.

The women's plus-size apparel retailer said Thursday that its June sales were up 22% over a year ago, at a record level. The company also boosted guidance for its full year ending in January. Its shares gained 7% on Thursday.

Charming's 4.75% convertible senior notes due 2012 were up 2.5 points to 124.96 bid, 125.96 offered. Its shares added 35 cents, or 3.26%, to $11.08, after surging 7% Thursday.

The convertible of Henry Schein added 0.5 to 0.75 point over the last two days, a trader said.

The 3% convertible due 2034 traded at 112.67 bid, 113.67 offered Friday, compared to 111.50 earlier this week. Its shares traded up 56 cents, or 1.35%, to $41.95.

CSFB recently initiated coverage on the Melville, N.Y.-based medical supplies distributor; but no other particular news appeared to be driving the gains.

Also in play on Friday amid a lack of particular news was CSX's 0% convertible due 2021, which was up 0.75 point to 88.25, versus a stock price of $43.30.

But for an up day it was mostly quiet. "It's still a Friday in the summer. And even though it's raining, there are folks that decided - maybe weeks or months ago - that they weren't coming in today," a desk analyst in New York said.

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