MedImmune on deck, no gray seen; Equity Office Properties, American Medical new deals seen higher

By Ronda Fears

Memphis, June 22 - Even upward of $2 billion in fresh paper swirling around convertible desks Thursday really didn't inspire much interest, traders said. Moreover, players complained of lackluster volatility, albeit somewhat higher in recent sessions, against meager coupons coming on the new paper.

"Fed Funds are at 5% and these guys are bringing 1s," said a convertible trader at a hedge fund.

"With volatility as low as it is in the marketplace, there is nothing to bail these things out. As long as they can get by with this, they will. Dealers are going to have to get stuck with them; then things will start to change."

Another buyside trader, at a hedge fund in Connecticut, said the convertible market continued to feel weaker overall Thursday but there were not a lot of buyers, although some players were snooping around for volatility plays without much luck. He echoed the previous buyside trader's frustration with terms for new deals on the table.

Equity Office Properties Trust priced its $1 billion of exchangeables at the cheaper end of guidance, "as it should have," he said, but there was not a great deal of enthusiasm for it. "It got out the door OK," the trader said in early afternoon. "At first I saw it up a quarter-point or so, but I haven't seen a market in that for a while."

MedImmune, Inc. was on deck after the close with a two-part $1 billion deal, and traders saw no gray market to speak of for it, although with the par put coming up on the existing 1% convertible, it was higher and getting a fair amount of play.

"There is no coupon to speak of, talk is up 20% to 25% and there is not a lot of vol in the name," the trader said. "MedImmune's deal is maybe interesting on the cheaps, but only on the cheaps."

MedImmune sees no gray

MedImmune plans to price $1 billion of convertible bonds Thursday after the close, and buyside market sources said during the session they didn't see a gray market emerge for the paper.

The deal is in $500 million tranches, with price talk on the first, five-year tranche for a coupon of 0.875% to 1.375% with an initial conversion premium of 20% to 25%. The second, seven-year tranche is talked for a coupon of 1.125% to 1.635% with an initial conversion premium of 20% to 25%.

MedImmune has earmarked about half of the proceeds to go to repurchase of its existing 1% convertible senior notes that are putable at par July 15. Those convertibles have moved up to and are hovering around par, traders said.

In addition, MedImmune expects to use up to $150 million to buy back shares of common stock concurrently with the offering of the notes. MedImmune also expects to enter into convertible note hedge transactions with certain of the initial purchasers, their affiliates or other dealers.

Remaining proceeds will be added to working capital and used for general corporate purposes, including potential acquisitions, in-licensing and collaboration opportunities, and additional share repurchases, pursuant to the company's recently announced $500 million share buyback program.

Gaithersburg, Md.-based MedImmune (Nasdaq: MEDI) is a biotechnology company focused on the treatment of infectious and inflammatory diseases and cancer.

MedImmune shares lost $1.99, or 6.81%, to close Thursday at $27.24.

EOP comes at wide end

Equity Office Properties Trust priced its $1 billion of exchangeable senior notes at the wide end of price talk to yield 4% with an initial conversion premium of 18.76%. The deal had been talked to yield 3.75% to 4%, up 18% to 22%.

In the immediate aftermarket, traders said the issue gained about one-quarter point.

"Even a bad REIT beats the S&P," said a buyside source.

Equity Office (NYSE: EOP) is a Chicago office building real estate investment trust.

Bear Stearns analyst Ross L. Smotrich said in a report Thursday that an interesting area of the REIT industry is housed in commercial mortgage management.

"We think this is a very interesting time for commercial mortgage REITs, given the prevailing interest rate environment, as well as the liquidity within the industry chasing both debt and equity," Smotrich said in the report.

"Spreads remain tight and it is difficult to find accretive investments. However, valuations are cheap ... [having] under-performed over the past 18 months, due in part to a flattening yield curve, rising rates and spread compression."

EOP shares closed Thursday off 7 cents, or 0.19%, at $36.14.

American Medical trades up

With a fat coupon compared to other sizable deals to hit the convertible market recently, American Medical Systems Holdings Inc.'s new 3.25% convert saw heavy activity and moved up about a point Thursday out of the gate.

The Minnetonka, Minn.-based medical devices concern priced $325 million of 30-year convertible senior subordinated notes to yield 3.25% with an initial conversion premium of 27.5% - at the mid-point of talk for a coupon of 3% to 3.5%, up 25% to 30%.

"This is the best of the lot today," said a buyside convertible trader. "There is a nice handle and a little volatility."

American Medical (Nasdaq: AMMD) products target the urology, gynecology and urogynecology markets.

"The stock should firm up on the increasing amount of penile implants being installed," said a sellside market source, referring to American Medical's product line-up.

American Medical shares gained 6 cents, or 0.39%, on Thursday to end at $15.28.

Lifetime gains a point

In a smaller, but upsized, deal, Lifetime Brands, Inc.'s new convertible also was seen about a point higher in trade.

The $65 million of convertible senior notes priced to yield 4.75% with an initial conversion premium of 25.45%. It was priced Wednesday, a day earlier than originally expected, and was boosted from $50 million.

The deal priced at the cheap end of talk for the coupon, which was 4.25% to 4.75%, and at the rich end for the premium, which was 20% to 25%.

Westbury, N.Y.-based Lifetime (Nasdaq: LCUT) designs and markets kitchenware and home décor items under brand names such as Farberware, KitchenAid, Pfaltzgraff and Cuisinart.

Lifetime shares dropped 24 cents on the day, or 1.08%, to $22.08.

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