Central European Distribution, Savient extend losses; Newer Human Genome premium rises

By Rebecca Melvin

New York, Nov. 14 - Convertible bonds drawn into trade Monday were mostly lower in tandem with the broader markets and in the absence of many company-specific headlines, market sources commented.

The broader markets were hurt once again by the ongoing debt crisis in Europe, and trading volumes were light in both stocks and convertibles.

"Convertibles are generally weaker on light volume," a trader said, citing "uncertainty over Italian sovereign debt yields."

The yield on the Italian 10-year moved closer to 7% on Monday, a level which it crossed last week, but from which it subsequently eased.

Trade in Central European Distribution Corp. was notable in that it was more active and moved down harder than the convertible market in general and more than the underlying Central European shares.

There was no apparent news driving the trade; and sources said it was simply a large block that finally traded.

Savient Pharmaceuticals Inc. was also taking a leg lower, trading at 62 near the end of the day, having earlier traded at 64. Savient shares underperformed the market on Monday, dropping 6%.

Several other biopharmaceutical companies were in trade. The newer Human Genome Sciences Inc., which priced Nov. 2, looked to be pretty steady price wise, with a rising premium level.

Regeneron Pharmaceuticals Inc., which priced in October, also traded. It also was little changed, with the underlying shares higher.

Cubist Pharmaceuticals Inc.'s 2.5% convertibles traded at 140 versus an underlying share price of $36.45. That paper is well in the money, having a conversion price of $29.18.

In the primary market, a new deal materialized after the session closed. Los Angeles-based aircraft leasing company Air Lease Corp. launched a $300 million Rule 144A offering of seven-year convertibles, with pricing set for late Tuesday.

Central European weakens

Central European's 3% convertibles due 2013 traded down another point or more to 46.50 to 46.70, from a previous level of 48. Both prices were against a stock price of about $3.00, although the pricing of the convertible isn't tied to the stock.

Shares of the Polish vodka maker slipped another 4 cents, or 1.3%, to $3.01.

Central European seemed to be an exception to the general market malaise, with the force of its move felt as a top volume name.

There didn't appear to be any market-moving news, only the fact that a significant block finally traded, a Connecticut-based sellsider trader said.

"Volume begot volume," the trader said.

A second sellsider said there was a large buyer in the market.

The move lower represents the continuation of a slide that began more than a week ago when the paper took a 15-point after the beverage maker and distributor reported earnings that missed estimates and lowered its outlook for the second time this year.

Investors were unnerved after the company, which has shed more than a third of its market value this year, cut its full-year outlook for earnings to 24 cents to 45 cents a share and reduced projected revenue to $850 million to $950 million. That is down from previous guidance - which was also cut - of 80 cents to $1 of profit on sales of $900 million to $1.05 billion.

Central European also said net income was $4.2 million, or 6 cents a share, compared to $8.5 million, or 12 cents a share, for the year-earlier period, and missed estimates. But revenue rose 45% to $228.9 million and was better than the $220.9 million expected.

The company ended September with $111.2 million in cash, down from $122.3 million at the start of the year.

Human Genome premium rises

Human Genome's 3% convertibles due 2018 were seen around 99.5 at the close, according to one sellsider. But they also traded at 99.157 during the session, which was down 1.4 points from the previous level, according to Trace date.

The 3% convertibles came to market on Nov. 2 at a discount of 99.

Shares of the Rockville, Md.-based biopharmaceutical company lost 15 cents on Monday, or 1.6%, to settle at $9.39, and they are down from $10.25 when the convertibles priced.

"They are fine," a New York-based trader said of the pricing. They have a lot of premium, but they will do fine.

The 3% bonds have a premium that has risen to 42% from 30% at issue, according to a syndicate source. "But they'll do fine."

Regeneron steady, Savient off

Regeneron's 1.875% convertibles due 2016, which priced Oct. 17, traded at 93.5, which was about unchanged on where they had been, while the underlying shares of the Tarrytown, N.Y.-based biopharmaceutical company edged up. Shares closed at $53.99, which was up about $1, or 2%.

The reason behind the improvement: "They can't go down every day," a sellsider quipped.

But the sellsider said that he would rather own the Regeneron convertibles over the newish Human Genome paper because they have "a little more yield and a similar premium."

He said the yield on Regeneron is about 3.4% to 3.5%.

Meanwhile, Savient's convertibles slipped further, ending the session down to 62 from 64.

The Savient 4.75% convertibles due 2018, which priced Jan. 31, 2011, traded at 64 versus an underlying share price of $2.60 during the session, according to a New York-based sellside analyst.

Shares of the East Brunswick, N.J.-based biopharmaceutical company fell 16 cents, or 6%, to $2.75.

The shares have lost almost 75% of their value in the last year and were downgraded by JMP Securities last week to "market underperform" from "market perform" on expectations of lower sales of its gout drug, Krystexxa.

Air Lease to price

Air Lease launched a $300 million offering of $1,000 par seven-year notes after the market close Monday for pricing after the market close Tuesday.

The Rule 144A deal was talked to yield 2.875% to 3.375% with an initial conversion premium of 33.5% to 38.5%, according to a market source.

There is a $45 million greenshoe.

J.P. Morgan Securities LLC was said to be the lead bookrunner, with Nomura, Barclays Capital Inc. and Citigroup Global Markets Inc.

Proceeds will be used to fund the acquisition of commercial aircraft and for general corporate purposes.

Air Lease is a Los Angeles-based aircraft leasing company with business in Asia, the Pacific Rim, Latin America, the Middle East and Eastern Europe.

Mentioned in this article:

Air Lease Corp. NYSE: AL

Central European Distribution Corp. Nasdaq: CEDC

Cubist Pharmaceuticals Inc. Nasdaq: CBST

Human Genome Sciences Inc. Nasdaq: HGSI

Greenbrier Cos. Inc. NYSE: GBX

Regeneron Pharmaceuticals Inc. Nasdaq: REGN

Savient Pharmaceuticals Inc. Nasdaq: SVNT

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