OSI deal looks cheap; Superior up on new contract; Ford slips; Intel, AMD continue dive; market slows

By Evan Weinberger

New York, Jan. 3 - OSI Pharmaceuticals Inc. was poised to bring out the first new deal of the new year Thursday night, and its existing convertible fell. An analyst's concerns about the company didn't help matters as the stock took a thumping as well.

Superior Energy Services Inc. soared on news of lucrative new contracts.

Ford Motor Co. convertibles were down Thursday. The auto giant announced it had entered into serious negotiations about the sale of two units to an Indian car manufacturer, and Toyota passed the iconic brand into second place in the American market.

Intel Corp. and Advanced Micro Devices Inc. continued to move lower on the day.

Convertible markets remained seized up Thursday. That's normal for the first few days of a new month, let alone a new year, an analyst said. This year, there's something different, he said. "Now, on top of that, there's a real sense of where do we go from here," he said. "A trend needs to develop."

A trader contacted early in the day reported things were extremely quiet on his end and that colleagues on other desks reported the same thing. When asked why, the trader said, "I wish I knew."

Stock markets did little of note Thursday as well.

The Dow Jones Industrial Average picked up 12.76 points, or 0.10%, to close at 13,056.72.

The Nasdaq lost 6.95 points, or 0.27%, for a 2,602.68 close.

And the Standard & Poor's 500 probably summed up the day best. It took a doughnut, ending the day right where it began at 1,447.16.

OSI deal looks cheap

OSI Pharmaceuticals, Inc. launched $150 million in convertible senior subordinated notes due 2038 Wednesday after the market close.

The convertibles are talked at a 3% to 3.5% coupon and a 57.5% to 62.5% initial conversion premium.

There is a $22.5 million over-allotment option on the Rule 144A transaction.

The convertibles were set to price Thursday after the market close.

The convertibles will carry investor puts in years five, 10, 15, 20 and 25.

There is a contingent conversion subject to a 130% hurdle and contingent payment subject to a 120% hurdle.

"Looks cheap," a buyside analyst said.

Estimates on the cheapness ranged anywhere from 3.25% cheap to 6% cheap, depending on the volatility and credit spreads.

The convertibles come with embedded warrants providing 55% coverage, which will take outright investors out of the equation, the analyst said.

"It doesn't really do them any good," he said, noting that the warrants are really only good if the stock soars. "You could be dead before that happens."

A sellside analyst said that if the stock doesn't shoot up, investors would be "paying for something that might not ever come in to play."

This is why one fund manager said when looking over the deal terms that he had a "love/hate relationship" with warrants.

OSI is a Melville, N.Y.-based drug maker. The company plans to use around 30% of the proceeds to repurchase shares of its common stock; to buy back any outstanding issues of its 3.25% convertible senior subordinated notes due 2023 and for general corporate purposes.

OSI's 3.25% convertible senior notes due Sept. 1, 2023 closed Thursday at 106.9 versus a closing stock price of $44.74. They finished Wednesday 108.43 versus a stock price of $47.14.

The buyside analyst said that investors can look for strong volatility in OSI stock, with two drugs in phase 3 Food and Drug Administration trials and the success of its Tarceva cancer drug.

Of course, a Lehman Brothers analyst downgraded OSI Thursday because of its high stock price and competitive threats to Tarceva.

Still, the buyside analyst said that OSI is catching a good wave with its new convertible issue and was taking sensible steps to restructure its books. "They're being prudent in case their stock should plummet," he said.

And that's just what the stock (Nasdaq: OSIP) did Thursday, losing $2.40, or 5.09%, on the day.

Superior up on new contracts

Harvey, La.-based oil services contractor Superior Energy's convertibles surged Thursday on word that it had secured a $750 million contract to repair damaged oil wells in the Gulf of Mexico.

Superior's 1.5% exchangeable senior notes due Dec. 15, 2026 closed Thursday at 113.25 versus a closing stock price of $42.60. They closed Wednesday at 102.485 versus a stock price of $35.84.

Superior stock (NYSE: SPN) wasn't too shabby either, picking up $6.76, or 18.86%, on the day.

Ford has down day

Dearborn, Mich.-based Ford appears to have found a buyer for its Jaguar and Range Rover users. Ford chose a bid from India's Tata Motors for the two iconic British names.

And on Thursday, sales figures showed that Japanese car maker Toyota took over Ford's second-place position in the U.S. auto market.

Ford's 4.25% convertible senior notes due Dec. 15, 2036 did not react well to the news, closing Thursday at 96.72 versus a closing stock price of $6.45. They closed Wednesday at 98.2 versus a stock price of $6.60.

Ford stock (NYSE: F) lost 15 cents, or 2.27%, on the day.

Intel, AMD continue funk

Wednesday was a tough day for Santa Clara, Calif.-based chip leader Intel. Both its stock and convertibles were down on an analyst's downgrade.

The bleeding slowed a bit Thursday but continued. Intel's 2.95% junior subordinated convertible notes due Dec. 15, 2035 closed Thursday at 102.765 versus a closing stock price of $24.67. They closed Wednesday at 104.3 versus a stock price of $25.35.

Intel stock (Nasdaq: INTC) fell 68 cents, or 2.68%, on the day.

Sunnyvale, Calif.-based AMD, the world's number-two chip maker, was also down Thursday.

AMD's 5.75% convertible senior notes due Aug. 15, 2012 closed Thursday at 77.14 versus a closing stock price of $6.77. They closed Wednesday at 79.229 versus a stock price of $7.14.

AMD's 6% convertible senior notes due May 1, 2015 closed Thursday at 68.413 versus a stock price of $6.77 after closing Wednesday at 69.9527 versus a stock price of $7.14.

AMD stock (NYSE: AMD) got hammered, losing 37 cents, or 5.18%, on the day.

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