Medivation treads water; Salix comes in on hedge since issue; Clearwire flat; Southwest adds

By Rebecca Melvin

New York, March 15 - Medivation Inc.'s $225 million of 2.625% convertibles treaded water on Thursday, adding slightly in trade with a $1 rise in the underlying shares, a New York-based trader said. The new Medivation debuted in the secondary market on Wednesday.

Salix Pharmaceuticals Ltd.'s $600 million of 1.5% convertibles which debuted Tuesday, were flat Thursday; but since issue, the bond is down about three-quarters of a point on a dollar neutral, or hedged, basis, the trader said.

Salix trading slowed Thursday compared to the previous two sessions, and the underlying shares were up almost 2%.

In the last two weeks, the convertible market has absorbed $2.16 billion of new issuance. The pricing of the latest batch of new deals was seen as generally rich by market players and favoring issuers, with coupons trending lower and premiums trending higher than before.

The pricing left a sour taste in some players' mouths. But an East Coast-based buysider told Prospect News that "these things are cyclical, at times favoring issuers and at other times investors. If we continue to see more issuance and higher interest rates, I would expect the secondary market to cheapen - which would then force the primary market to cheapen as well."

Back in established issues, Clearwire Corp.'s 8.25% convertibles traded actively at a level slightly lower than where a debt-for-equity swap announced Thursday was done, a Connecticut-based trader said.

The Clearwire convertibles have been gaining consistently for about the past week and were up about 5 points on a dollar neutral basis over the past week, the trader said. On Thursday, the bonds went out at about 80.

Also in trading were Southwest Airlines Co.'s 5.25% convertibles due 2016, which were issued by AirTran Holdings Inc., and they were higher by about 0.375 point on a dollar neutral basis.

Also active in trading were the AMR Corp. convertibles, which were down about a point on the day but still looked high at about 40 considering that they slumped to 16 immediately after the airline carrier's bankruptcy filing.

"We're all scratching our heads over that one," a trader said about AMR. His firm is digging into the name to figure out what is behind the run.

Overall, the convertible market was described as quiet as market players evaluated continuing gains in equities. As far as upcoming catalysts, one trader noted, "There's nothing. Europe is what it is, and longer-dated Treasuries are being sold because there's no QE3 coming, so people are loading up on equities."

Medivation treads water

Medivation's 2.625% convertibles due 2017 were seen 101.875 bid, 102.375 offered at the close, versus the $71.56 closing share price.

Trading in that name continued to revolve around the main underwriter Citigroup Global Markets Inc., a trader said.

Medivation shares added $1.01, or 1.4%, after slipping 86 cents, or 1.1%, on Wednesday.

The San Francisco-based biopharmaceutical company's oncology drug MDV3100 is in the same space as Dendreon Corp.'s Provenge drug, an analyst noted.

The company has been operating at a loss since 2008, although sales have been about $60 million. Positive outcomes for the MDV3100 trials have boosted Medivation stock to current levels from about $25.00 for most of 2011.

Salix comes in 0.75 point

The new Salix 1.5% convertibles due 2019 settled Thursday at about 103.75 bid, 104.25 offered versus an underlying share price of $51.97, which was the stock's close.

On a dollar neutral basis, that was flat on the day, a trader said.

Shares of the Raleigh, N.C.-based drug maker gained $0.98, or 1.9%, on the day.

The new Salix "has been very liquid," a trader said, adding that it is down about 0.75 point on a hedged basis from issue.

Now the paper has begun to settle into the hands in which it is likely to remain, and that being outright players given that it's six-year paper.

Clearwire exchange

Clearwire's 8.25% convertibles due 2040 traded early Thursday at 80.5 and were seen going out at about 80.

Shares of the Kirkland, Wash.-based wireless broadband services provider slipped three cents, or 1.3%, to $2.15.

Clearwire announced Thursday that a subsidiary will repurchase $100 million of the 8.25% exchangeable notes due 2040 and will fund the repurchase with proceeds from a sale of Clearwire class A common stock.

The exchangeable notes will be purchased for a total price equal to the aggregate purchase price of the class A common shares, which is $83.5 million.

The subsidiary will also pay accrued interest up to but excluding March 22.

The Clearwire convertible was active on the debt-for-equity swap, a Connecticut-based trader said, adding that the deal was done a little bit higher than where the convertibles were trading.

Southwest adds on hedge

Southwest Airlines' 5.25% convertibles due 2016 were 127.25 bid, 127.375 offered versus the closing share price of $8.45. That was up 0.375 point on a dollar neutral basis, with shares higher by 27 cents, or 3.3%.

"They were up today. It wasn't a massive trade, but it was good to see some new names in trade," a New York-based sellsider said.

Mentioned in this article:

AMR Corp. NYSE: AMR

Clearwire Corp. Nasdaq: CLWR

Medivation Inc. NYSE: MDVN

Southwest Airlines Co. NYSE: LUV

Salix Pharmaceuticals Ltd. Nasdaq: SLXP

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