Johnson Controls, Bank of America, Nasdaq, GM gain with stocks; CV Therapeutics quiets, holds firm

By Kenneth Lim

Boston, March 13 - The convertibles market benefited slightly from continued strength in the equity markets Friday, as the new issue from Johnson Controls, Inc. gained further in line with its common stock.

CV Therapeutics, Inc. was quieter but seen holding steady a day after the company was the target of a takeover bid by Gilead Sciences Inc.

General Motors Corp. also improved outright after the company said its cash flow was better than expected for the month.

The market in general was typically quieter for a Friday.

"It feels like it's a pretty slow day," a sellside convertible trader said. "It's a Friday, right? We've got maybe $500 million in trades that I see in total, down about 15% from what I normally see."

But investors found some cheer from the equity markets, which had another positive session to end the week.

"I think people are probably happy to see equity markets up," the trader said. "High yields are up about 3/8 of a point, but probably all on light trading."

Financials held on to their gains from earlier in the week as investors remained optimistic after reports of early profits and the major banks and speculation about possible regulatory action to ease pressure on financial institutions.

Bank of America Corp.'s 7.25% convertible preferreds rose as much as 20 points outright to trade at 405 as the common stock closed at $5.76. The common stock slipped 1.54% or $0.09 over the day.

Bank of America is a Charlotte, N.C.-based bank holding company.

Nasdaq OMX Group Inc.'s 2.5% convertible due 2013 gained about 2 points outright with a trade at 84 versus a stock price of $24. The common stock closed at $22.27, down by 6.94% or $1.66.

Nasdaq is a New York-based exchange.

"Financials have been doing well, so to speak," a convertible analyst said. "Most of them are doing better with the stocks after Citigroup said it was profitable in the first two months of '09. People are hopeful, but I think there's still a lot of doubt that the worst is over. It's too early to know if this has any legs."

Johnson gains with stock

Johnson Controls' new 11.5% mandatory preferreds, which have a par value of 50, eked out a slight gain Friday as the common stock improved along with the broader market.

The preferreds were marked at 52.15 against a common stock price of $9.70 for sale, while the 6.5% convertible bonds due 2012 were marked slightly higher at 106.5 bid, 107.5 offered versus a $9.42 stock price.

Johnson Controls common stock increased by 4.14% or $0.39 to close at $9.81 Friday. The Milwaukee-based company provides solutions for building efficiency, automotive interiors and power optimization.

"Stock's up, no surprise there," a convertible trader said.

The new paper continued to see good interest, the trader said.

"The market's starved for that," the trader said. "With maturities, puts, companies buying back their bonds, and in addition to that you've got high-yield shops coming in, you have a shrinking product with a growing source of capital."

But the market remains cautious about the issuer despite the appeal of the deal itself, the trader said.

"Structurally, it's interesting," the trader said. "It's short-dated, you like the coupon and the premiums. It's just the industry. It's an upstream company in the auto industry in particular, real estate. So there's nothing warm and fuzzy about that. That's why the bonds did better than the mandatories. People want to be higher up on the hierarchy."

CV Therapeutics holds firm

CV Therapeutics' 2.75% convertible due 2012 remained mostly unchanged at 116.5 versus a common stock price of $20.50, while its 3.25% convertible due 2013 remained at 98.

The Palo Alto, Calif.-based biotech company saw its common stock decline by 1.76% or $0.37 to close at $20.67.

"Those have quieted down a little bit," a sellside analyst said.

Gilead Sciences on Thursday offered $20 per common share to take over CV Therapeutics in a deal valued at about $1.4 billion. The offer was 25% higher than an earlier $16-per-share bid by Astellas Pharma.

Astellas on Friday said it has not decided on its next step.

The stock and convertible prices suggest that investors are optimistic about a deal being done, the analyst said.

"I would say it's pretty certain there will be a deal," the analyst said. "At $20 it's almost double where the shares were trading before the Astellas offer. Astellas could still make a counter offer, but I don't think that's going to be an issue. It's even better for the [2.75% convertible] holders. They're just going to convert and pocket the profit."

GM comments boost converts

General Motors' convertibles were mostly higher on Friday after the common stock rallied on the company's statements regarding its cash flow and cost-cutting efforts.

The 5.25% convertible due 2032 traded at 2.80, while the 6.25% convertible due 2033 was at 2.95, both up by a quarter-point. The 1.5% convertible due June 2009 was flat at 12.

General Motors common stock closed at $2.68, up by 22.94% or $0.50.

"There was some activity there, but I think it was mostly people keeping in line with the stock," a convertible trader said.

But the trader said the rally may be overdone.

"It's crazy," the trader said. "GM says it doesn't need to take another $2 billion for one month and people think they're out of trouble? Buy at your own risk."

Mentioned in this article

Bank of America Corp. NYSE: BAC

CV Therapeutics, Inc. Nasdaq: CVTX

General Motors Corp. NYSE: GM

Johnson Controls, Inc. NYSE: JCI

Nasdaq OMX Group, Inc. Nasdaq: NDAQ

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