Little moved amid stock gains; Countrywide, CV gain, Kinetic Concepts falls below par; Huntington prices

By Rebecca Melvin

New York, April 16 - The convertible bond market was stable in quiet trade Wednesday despite a surge in equities that pushed the major stock indexes up more than 2%, with the Nasdaq Stock Market up by 2.8%.

Stocks were spurred by better-than-expected earnings from J.P. Morgan Chase.

"I would say the tone was stable," a Connecticut-based sellside convertibles trader said. "Stocks were up and credit was firmer, but there were no special issues trading."

The sellsider said Countrywide Financial Corp. convertibles were up by about 0.5 point and CV Therapeutics Inc. expanded as its shares surged 18%, but neither name was of particular note in the trading day, he said.

Also in trade were the 2.25% convertibles of Cheniere Energy Inc., which were lower with a double-digit drop of its underlying shares after the developer of liquefied natural-gas said it outsourced marketing of its Sabine Pass throughput and that its president Stan Horton left the company to pursue other interests.

The new 3.25% convertibles of Kinetic Concepts Inc., which priced late Tuesday, traded early at 101, versus a stock price of $40.25. But the issue slipped below par by afternoon, trading at 99.5 versus $39.20, sources said.

In the primary market, Huntington Bancshares Inc. priced $500 million of perpetual convertible preferred shares after the market close, having announced the issue ahead of the open.

The issue came at the cheap end of talk, yielding a coupon of 8.5% and an initial conversion premium of 20%.

In anticipation of later pricing, there was an early bid at 100.5 in the gray market, with an offer at 102. But no trades were said to have occurred.

Meanwhile interest was high for a new issue of non-convertible preferred shares to be priced by J.P. Morgan, sources said. "I had a couple of calls from people asking if they should buy it and flip it," a Connecticut-based sellside trader said.

Financials prefer preferreds

The $500 million of perpetual convertible preferred stock priced by Huntington Bancshares late Wednesday has the same structure as other convertible preferreds issued by financial companies lately, including the one priced by Wachovia Corp. on Monday, a syndicate source noted.

Huntington's is perpetual shares with a $1,000 par that are non-callable for five years, with forced conversion after that subject to a 130% hurdle.

Ahead of actual pricing, this one looked about 2.5% cheap, using a credit spread of 800 basis points over Libor and a volatility of 25%, according to a New York-based sellside trader.

In fact, the shares priced at the cheap end of talk, which was for a dividend of 8% to 8.5% and an initial conversion premium of 20% to 25%.

Morgan Stanley & Co. and Lehman Brothers Inc. were joint bookrunning managers.

Proceeds are earmarked for general corporate purposes, including increasing liquidity and capital.

Huntington Bancshares is a regional bank holding company headquartered in Columbus, Ohio.

Despite posting lower-than-expected earnings, cutting its dividend and revising its outlook downward, Huntington's shares initially jumped 11% Wednesday, with gains coming amid an overall market rally.

Huntington cut its 2008 earnings outlook to $1.45 per shares to $1.50 per share from an earlier range of $1.57 a share to $1.62 a share.

The dividend yield on the common is now 5.7%, down from a previous yield of 11.4%.

Shares of the company (Nasdaq: HBAN) closed higher by 7.1% at $9.96.

Countrywide adds 0.5

The floating-rate convertibles of Countrywide Financial, which figure prominently in trade practically every day, were up about 0.5 point as their underlying shares gained 5% while the sector as q whole moved higher for a second consecutive day.

On Wednesday, data showed applications for mortgages gained last week.

The convertibles of Fannie Mae were also cited higher in trade.

The Mortgage Bankers Association said its mortgage application index rose 2.5% to 743.4 in the week ended April 11, up from 725.6 the previous week. About half of the increase was due to refinance applications. The gain came as interest rates eased slightly.

Shares of Calabasas, Calif.-based Countrywide (NYSE: CFC) spiked midday and remained at high levels until the close, adding 24 cents, or 5.1%, to $4.99.

Countrywide's three-month Libor minus 350 basis point series A convertible senior debentures due April 15, 2037 were seen late Wednesday at 90.625 bid, 90.75 offered versus the $4.99 close. About a week ago the paper was at a similar level versus a closing stock price of $5.90. Countrywide three-month Libor minus 225 basis point series B convertibles due also in 2037 were seen at about 87.25.

The Fannie Mae 5.375% series 2004-1 convertible perpetual preferred stock traded early at 71. Shares of the Washington, D.C.-based government-sponsored mortgage finance firm surged $1.83, or 7.1%, to $27.78

Cheniere faces drag

Cheniere Energy's 2.25% convertibles traded at 65.5 versus a share price of $13 on Wednesday, a level not significantly changed from previous levels, although its underlying shares fell 9.2% Wednesday.

Shares of the Houston-based company (AMEX: LNG) closed down $1.31 at $12.89.

A sellside trader noted that the issue has a borrow problem given that it is a small-cap company and that has affected the price. "The borrow is extremely difficult," he said.

Last year, when the stock was higher, it traded on a 75 delta. Last May the bond was breaking even at the 66, 67 level.

The developer of liquefied natural gas terminals holds a 90.6% interest in Cheniere Energy Partners, which controls the Sabine Pass LNG regasification terminal, located in Cameron Parish in Louisiana.

Sabine Pass is the largest LNG terminal in North America. According to analyst Carl Blake with independent research firm Gimme Credit, the liquefied natural gas industry was in good shape when Cheniere began building the terminal in 2005. But Sabine Pass received its first cargo of LNG just last week at a time when there is little certainty about the future of the LNG market or the viability of Cheniere's merchant LNG strategy.

CV Therapeutics gains ground

The convertibles of CV Therapeutics expanded about a point on Wednesday after the Palo Alto, Calif.-based biotechnology company announced it would sell half of its North American rights to the stress agent drug Lexiscan to TPG-Axon Capital for $175 million upfront and up to $10 million in future milestone payments.

CV Therapeutics' 3.25% convertibles due 2013 were bid at 71 on Wednesday after being offered at 70.5 on Tuesday, according to a sellside trader.

Its sister issue, the 2% notes due 2023, traded Wednesday at 88.75.

Shares of CV Therapeutics (Nasdaq: CVTX) closed up $1.31, or 17.6%, at $8.76.

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