Adelphia bonds Earthbound, lose 6 points; Sirius, new paper active but slip to below par levels

By Ronda Fears

Nashville, Feb. 13 - Convertible players pretty much unofficially ended Friday at noon, taking off for a long, three-day weekend, as the markets will be closed Monday for Presidents Day. It wasn't uneventful, though, as Walt Disney Co. still was among the most active issues and three new deals rounded out a busy week that injected more than $3 billion of fresh paper into the market.

Sirius Satellite Radio Inc. sneaked in an upsized deal at 2.5%, up 41%, alongside Incyte Corp. and Invitrogen Corp, which were among a handful of biotechs recycling old convertible issues with new ones.

But those deals, as well as essentially the entire roster of new issues this week, closed at par or slightly under par.

It was a fairly busy morning for convertibles, dealers said, but it trailed off to a trickle quickly after noon.

In general, traders said the convertible market was better bid, although they acknowledged that the mood of the market was influenced by the University of Michigan data showing a sharp drop in consumer sentiment in early February.

The University of Michigan reported its consumer sentiment index fell to 93.1 from 103.8 in January. Wall Street expected the number to slip only to 103.1.

New paper continued to be the focal point for convertible players, although a sharp downward move was noted in the Adelphia Communications Corp. convertibles. Imclone Systems Inc. was quoted higher with the stock's sharp rebound, also, but traders said controversy still overshadows that name.

Sirius buyers target stock

Sirius Satellite's latest convertible was way oversubscribed and, almost to an order, buyers were aiming for the underlying stock, which has screamed higher by threefold over the past year. Still, there were skeptics of the story who remain leery of Sirius Satellite because of rival XM Satellite Radio Inc.'s edge from having a year's more time in business.

Sirius Satellite sold an upsized $250 million of non-callable five-year convertible notes to yield 2.5% with a 41% initial conversion premium, bumping it from $200 million. It priced at the cheap end of yield talk for a 2.0% to 2.5% coupon and at the cheaper end of premium guidance of 40% to 50%.

At the midpoint of the indicative terms, Deutsche Bank Securities analysts put the new Sirius Satellite convertible 1% cheap.

That was reflected in pre-market trading for the new Sirius Satellite issue, a buyside trader said, who saw it bid at 99.25 before the market open.

Morgan Stanley, bookrunner on the deal, closed the issue at 99.5 bid, 100.5 offered.

Sirius Satellite shares were pressured by the deal, ending the day off 15 cents, or 4.82%, to $2.96. That, in turn, pressured its existing 3.5% convertible due 2008, which lost about 10 points to around 244 bid, 245 offered.

A source familiar with the Sirius Satellite offering, said the books on the new deal were greatly oversubscribed and virtually all the buyers were making a move for the underlying stock of Sirius Satellite, which has been blasting higher.

Sirius Satellite stock is up almost 300% from a year ago when the company first tapped the convertible market. The 52-week range on the shares is 39 cents to $4.20.

"To put it in context, they [Sirius Satellite] brought another convertible last May when the stock was at $1.13," one dealer said.

A lot of people already have made money on this name, so there was a scramble to get involved, a buyside trader at a hedge fund in New Jersey said.

"This business model is fine," he said. "You just have to wonder how far this company can go. I really thought XM Satellite would have already made a move for Sirius by now."

XM Satellite, a bigger player in the satellite radio space as it has been in business about a year longer than Sirius Satellite, just announced a couple of weeks ago that it will redeem the remaining $45 million or so of its 7.75% convertibles due 2006, which have been deep in the money for some time.

But, the buyside trader also noted that Sirius Satellite has made some impressive strides recently, such as becoming an official carrier of the National Football League games, and just this week boosted its target for 2004 subscribers.

On Thursday, Sirius Satellite raised its subscriber forecasts for 2004 and announced a new agreement for retailer RadioShack Corp. and EchoStar Communications Corp.'s Dish Network to distribute its service.

The New York-based company now expects to reach 1 million users this year and sees annual revenue exceeding $70 million. Previously, the company forecast 860,000 subscribers and $60 million in revenue. Also, Sirius Satellite said it expects to reach the cash flow breakeven point of 2 million subscribers by the end of 2005.

Also, XM Satellite Radio reported a fourth-quarter loss but said revenue more than tripled as its subscriber base rose to 1.5 million.

Drug deals at par; Imclone up

A flattish level of par for Sirius Satellite was not unusual for all the new paper put into circulation for the entire week.

Invitrogen and Incyte, the two other deals coming out of the gate Friday, also ended near par levels.

Invitrogen sold $450 million of 20-year convertible notes at par to yield 1.5% with a 32.5% initial conversion premium - at the midpoint of guidance for a yield of 1.25% to 1.75%, up 30% to 35%.

Bookrunner UBS Investment Bank closed the new Invitrogen convertible at 99.375 bid, 99.875 offered, with the stock closed off 67 cents, or 0.87%, to $76.33.

Incyte upsized its deal amid strong demand to $200 million from $150 million and priced the seven-year issue to yield 3.5% with a 35% initial conversion premium - at the middle of guidance of 3.25% to 3.75%, up 32.5% to 37.5%. The deal just barely ended over par.

Bookrunner Morgan Stanley & Co. closed the new Incyte convertible at 100.375. The stock ended down 12 cents, or 1.44%, to $8.19.

Most of the biotech crowd was lower in the session, a sellside trader said, although Imclone staged a sharp comeback after a wild ride Thursday that riled lots of investors involved in that name.

The convertible trader said not much of Imclone's 5.5% convertible due 2005 traded but most of those holders are heavily involved in the underlying stock in one way or another and they were plenty upset over the situation Thursday in which the stock plunged more than $9 in a five-minute span just before news that the Food and Drug Administration had approved the cancer drug Erbitux, which Imclone is marketing with Bristol-Myers Squibb Co.

"Anyone long Imclone was just livid," the trader said.

"You should've seen the message boards. Oh, wow, were there some pissed off people."

Imclone shares regained everything lost Thursday and more, closing up $9.79, or 28.79%, to $43.79. The convertible was quoted up 2.75 points to 102.25 bid, 102.75 offered.

Adelphia drops back

Adelphia's bonds snapped back Friday, a convertible trader said, to a more reasonable level - par.

"They [Adelphia bonds] were coming back down to Earth, after a ridiculous run," the trader said. "We didn't hear any news specific to the convertibles, but it could just be that people are rethinking the whole situation or the sentiment was just a little more negative today."

Adelphia's bonds lost 6 points to around par, the trader said, and the convertible preferred lost 1.5 points to 2.5 points.

On Thursday, Adelphia's higher claim bonds were quoted at around the 106 level and lower-claim debt at 103.5 bid, 104.

On Wednesday, Adelphia had received court approval to pursue $8 billion in exit financing by paying a $150,000 work letter with Deutsche Bank.

Adelphia spokesman Paul Jacobson told Prospect News, though, "We're not committed to Deutsche Bank. They've expressed an interest in working with us, but we had to go to court to get permission to pay them."

The exit financing proposal faced resistance from the official committee of equity holders, which called it a waste of time and money in an objection. Instead, the equity committee suggested management should focus on selling assets, which could bring in enough to repay all of the creditors and provide some value for the stockholders.

The equity committee believes Adelphia's assets are worth $22.59 billion to $23.7 billion and that there are interested buyers.

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