Cubist, Amylin in focus, unchanged in trade; Alliance Data, Covanta steady after earnings

By Rebecca Melvin

New York, Oct. 21 - Quarterly earnings news drove much of Thursday's market focus in convertibles, although health care names remained in focus as well, a day after Cubist Pharmaceuticals Inc. priced $400 million of new notes and Amylin Pharmaceuticals Inc. convertibles were under pressure because regulators unexpectedly rejected the company's proposed Bydureon diabetes drug.

Both Cubist and Amylin convertible issues traded essentially unchanged on Thursday from Wednesday, market sources said.

"Health care still seems to be in focus after Cubist and Amylin," a New York-based sellside trader said.

Alliance Data Systems Corp. was trading actively at mixed to flattish levels after the Dallas-based credit card processing company reported higher net income and revenue but lowered its fourth-quarter forecast.

Covanta Holdings Corp. saw its 3.25% convertibles trade pretty much unchanged to slightly higher after the Fairfield, N.J.-based waste disposal and energy company reported third-quarter profit that beat expectations.

Saks Inc. saw its newer 7.5% convertibles trade slightly lower, but still at double par, as underlying shares slipped on news that Italian investor Diego Della Valle raised his stake in the high-end retailer to 19.05% from an 11.12% stake previously reported.

In the broader markets, equities ended just north of the flat line after giving up the lion's share of earlier gains. Stocks were much higher in the early going after initial claims came in at 452,000, beating expectations of 455,000 and falling 23,000 from last week's figure.

Cubist, Amylin unchanged

Cubist's new 2.5% convertibles due 2017 traded unchanged, right around par, where they ended the session on their debut Wednesday.

Cubist's older 2.25% convertibles due 2013 traded around 104.50.

Shares of the Lexington, Mass.-based drug developer slipped for a third straight day, shedding another 35 cents, or 1.5%, to $22.67.

Cubist's chief executive commented Wednesday that he was confident of Bydureon as a product, and that it will be the focus on an additional study, with the company working with the FDA to bring the product to market.

Amylin's 3% convertibles due 2014 traded pretty much at the same level at which they closed Wednesday, just below 86, a New York-based sellside trader said.

Amylin's 2.25% convertibles due April 2011 were little changed at just under par.

Shares of the San Diego-based drug discovery company recouped 45 cents, or 4%, to $11.48 on Thursday after plunging 46% on Wednesday.

Covanta trades flat to higher

Covanta's 3.25% convertibles due 2014 traded at 112.75 versus a share price of $15.65, which was unchanged compared to Trace's 112.77 notched on Tuesday. The 3.25% convertibles were seen closing higher at 114 versus a share price of $16.03, which was up 36 cents, or 2.3%, on the day.

Covanta is a pretty interesting name to convertible players, with a 2014 term, decent yield of almost 3% and a modest premium of 22%, sources said.

The Fairfield, N.J.-based company said it earned $20.2 million, or 13 cents a share, for its third quarter, compared with $40.9 million, or 26 cents a share, in the year-earlier period.

Excluding items, Covanta earned 28 cents a share, which compared to 27 cents a share expected on average by analysts.

Revenue rose 7% to $437 million.

The company said higher recycled metal prices helped pull up earnings, but it cut its full-year reported earnings forecast to 37 cents per share to 47 cents per share, compared to a previous outlook of 55 cents a share to 75 cents a share.

Alliance Data little changed

Alliance Data's 4.75% convertibles due 2014 traded last at 150, which was unchanged on the day, but earlier in the session it had changed hands lower at 144.

This paper has been bid up in recent months as investors weighed whether this name as well as other deep-in-the-money, high-coupon issues might be "flushed out" or redeemed, by issuers due to big price moves since issue.

The Saks 7.5% convertibles due 2013, which have also been tagged as a candidate for a flushout, were slightly lower Thursday, changing hands at 200.5 versus a share price of $10.15, compared to a previous level around 204.

Alliance Data's 1.75% convertibles due 2013 were seen at about 102.45, compared to 101.6 on Wednesday.

Shares of the Plano, Texas-based credit card processor wavered near the flat line for much of Thursday but closed up 83 cents, or 1.3% at $63.48.

The company said it earned $53 million, or 96 cents a share, compared with $45.8 million, or 83 cents a share, in the year-earlier period. Revenue rose to $702.4 million from $481.4 million.

Core earnings were $1.55 per share in the third quarter, which compared to a $1.51 a share, before items, that analysts had been expecting.

In addition, the company forecast fourth-quarter earnings of $1.40 per share, when analysts had been expecting $1.55 a share.

Mentioned in this article:

Alliance Data Systems Corp. NYSE: ADS

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Covanta Holdings Inc. NYSE: CVA

Cubist Pharmaceuticals Inc. Nasdaq: CBST

Saks Inc. NYSE: SKS

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