Genzyme reoffered at 99.25, trades up to 100.25; other new issues active, but flat

By Ronda Fears

Nashville, Dec. 4 - New paper put into circulation was the focus Thursday in the convertibles market. But, while volume was heavy, traders said the price changes were more sideways, or flattish.

Outside of that, there were some drug names moving and still some airline paper getting shuffled around. Beyond what was going on Thursday, the market also was keeping a watchful eye on Intel Corp.'s guidance update.

Traders at the shops involved with new deals said "a lot" of trades took place on recent deals, like overnighters from Genzyme Corp. and Dominion Resources Inc., and Fairmont Hotels & Resorts Inc., CMS Energy Corp. and even the small Concord Communications Inc. deals from earlier this week.

"But there wasn't a lot of price swing, it was sideways movements," one trader said.

Genzyme's was reoffered below par by sole bookrunner UBS Investment Bank at 99.25, and moved swiftly to par and beyond. But buyside sources said there's no widespread anticipation that pricing power will shift away from issuers.

"I think that we will have a little more muscle if there's a slew of deals this month, but there's nothing anyone can do about the outside factors that guide these things, interest rates being the biggest," said a manager at a huge hedge fund in Connecticut.

"The Genzyme deal set up just fine, really. Of course, we would like to have more, but then we [fund managers] always say that. You just have to be realistic, and when you look at what's out there in the market, unless you're a high-yield player, you'd rather be buying something like this new Genzyme deal."

Genzyme sold $600 million of 20-year convertible notes, with five years of call protection, with a 1.25% coupon and 47.5% initial conversion premium - at the cheap end of price talk of 1.0% to 1.25%, up 47.5% to 52.5%. Proceeds of the deal are largely earmarked to redeem the company's $575 million of 3% convertibles when the issue becomes callable May 20.

UBS closed out the new Genzyme at 100.25 bid, 100.5 offered.

Genzyme shares fell $1.74, or 3.6%, to $46.56 on hedging activity related to the overnight tranaction, and, as expected, the 3% convertibles dropped. One sellside shop quoted the Genzyme 3% issue down 1.625 points to 99.875 bid, 100.375 offered. The call price is 100.75.

Dominion also priced aggressively. The $200 million of 20-year convertible notes, non-callable for three years, sold at par to yield 2.125% with a 22% initial conversion premium - at the aggressive end of price talk for 2.125% to 2.625%, up 18% to 22%.

Morgan Stanley, a joint bookrunner on the new Dominion deal, closed it at 100.125 bid, 100.375 offered. The underlying stock ended up 42 cents, or 0.7%, to $60.75.

On the heels of those deals, capital markets sources said there is a very healthy pipeline of new deals coming up in the next few weeks as the year winds down.

Fund managers and buyside traders are hearing the same and are watching with bittersweet anticipation.

"We need the deals because there's so much money, new money, in the asset class, just this week, and that's going to grow, I think," said a hedge fund manager in New York.

"We are hearing the calendar is full through the rest of the year, probably some of those deals that were talked about before Labor Day and then never came, for one reason or another.

"It's good to have new money in the market, but sometimes it can really be a thorn in your side when you know you could push for more [in relation to deal terms], if the books weren't 10 times oversubscribed."

Another scary part about buying new deals you know are rich to begin with, he said, is that you can't count on flipping it in the immediate aftermarket to make a quick profit and step away.

Fairmont's new 3.75%, up 45% convertible was very popular, he noted, but it has just "floundered around 104.5 for two days now." The issue priced right at about fair value, he said, and "is a decent convert to own, but we'd like to be more hopeful. Maybe some people are holding out to see what else is coming down the pike."

Joint bookrunner Citigroup closed the Fairmont convertible Thursday up 0.375 point at 104.875 bid, 105.375 offered, while the stock gained 5 cents, or 0.19%, to $26.81.

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