Integra LifeSciences flat to lower; Vertex quiet after surge; Intel, Microsoft in trade

By Rebecca Melvin

New York, April 22 - Convertible bonds were quiet on Monday amid a lack of market moving headlines and ahead of a pretty heavy earnings-news week for convertible names. Equities dipped lower after a higher start and then turned up again, but were essentially a non-issue in Monday's convertibles market, sources said.

There was optimism that after last week's pick up in volatility and volume that the convert market might come alive again for the rest of the week following a typical, slow Monday.

"It finally feels like spring vacations are finally over, and maybe after last week's vol., things will get moving," a New York-based trader said.

A few biotechnology names were in focus. Among them Integra LifeSciences Holdings Corp.'s 1.625% convertibles traded at steady to slightly lower levels amid a 1.6% decline in the underlying shares of the Plainsboro, N.J.-based life sciences company.

The convertible is a yield play. But traders noticed that the shares seem to have stemmed sharp losses that started April 10 on news that the company was initiating a voluntary recall of products, lowering quarterly revenue guidance and evaluating guidance for the full year.

There was not much follow-on trade in Vertex Pharmaceuticals Inc.'s convertibles, which screamed higher on Friday on both an outright and dollar-neutral, or hedged, basis as shares of the Cambridge, Mass.-based specialty drug company surged 62% on favorable results from a mid-stage study of its cystic fibrosis drug.

"People are waiting to see if it [Vertex] is provisionally called," a New York-based trader said. "It will stay around current levels unless there is a big move in the stock."

The Vertex 3.35% convertible senior notes were seen around 169 bid, 170 offered versus an underlying share price $82.33 on Monday, compared to 173 bid, 173.25 offered versus $84.00 on Friday. Before the cystic fibrosis drug news, the bond was around 118 bid, 120 offered.

Two Gilead Sciences Inc. convertibles were active in trade, including the Gilead 1% convertibles due 2014 and the Gilead 1.625% convertibles due 2016. These in-the-money convertibles trade regularly and are sensitive to moves in their underlying equities. They are said to have taken the place among convertibles players of such issues as Medtronic Inc's.1.625% convertibles, which matured earlier this month, and Amgen Corp.'s 0.375% convertibles, which matured in February.

Gilead is another liquid, high-quality credit name, and "they are always active," a trader said.

Elsewhere, there were several technology names trading in tandem with stronger underlying equities.

Intel Corp. and Microsoft Corp. were both trading, a New York-based convertibles analyst said.

But elsewhere, AK Steel Holdings Inc.'s convertibles were quiet ahead of earnings due out early Tuesday for the West Chester, Ohio-based steel products maker.

Also among industrial or materials-related names reporting earnings Tuesday was United Technologies Corp., which has a mandatory convertible.

In the financial sector, Janus Capital Group Inc.'s 3.25% convertibles due 2014 printed at 105, which was down 0.25 point outright, according to Trace data, ahead of the Denver-based asset management company's earnings expected Tuesday. Traders queried said that they don't typically see the Janus convertible.

Equities couldn't decide which direction to move on Monday. They started out higher, moved lower and then reversed course again. The Dow Jones industrial average ended up 19.66 points to 14,567.17; the S&P 500 stock index added 7.25 points, or 0.5%, to end at 1,562.50; and the Nasdaq stock market gained 27.49 points, or 0.9%, to 3,233.55.

Integra flat to weaker

Integra LifeSciences' 1.625% convertibles due 2016, which are not callable, were seen at 95.25 bid, 96 offered at the close, a trader said.

Shares of the Plainsboro, N.J.-based life sciences company closed down 26 cents, or 0.8%, at $32.31 in decent volume.

The underlying shares were slightly weaker, but Integra's convertibles are a yield play and don't trade in tandem with the shares.

"It's not a bad set up," a New York-based trader said of the Integra convertibles' hedging possibilities. "It's a good company."

The paper, which has 3.5 years left until maturity, has a "decent yield for our market."

"It's out of the money, and trading on pure yield," the trader said, adding that it has a premium of 70%.

The strike on the conversion price is $57.44.

Integra makes and markets surgical implants and medical instruments for neurosurgery, extremity reconstruction and orthopedics.

On April 10, it announced a recall of products associated with a deviation from approved production processes. It said in a release that there were no adverse patient events attributable to the recalled products, but that the recall would affect Integra's revenue and profits for the first and second quarters and that it was evaluating full-year guidance, which may be negatively affected, and which will be updated when it reports earnings May 2.

In the meantime, the company said it expects first-quarter revenue to be lower by about $8 million to $11 million to the range of $194 million to $197 million.

In addition the company expects to record incremental expense during the first quarter, including scrap related expenses, that were estimated at $2.5 million to $4.5 million.

The company now expects a net loss for the first quarter.

The company also said that it will not be able to meet all of the demand for affected products during the second quarter. Revenue for the second quarter revenue was forecast at between $205 million to $211 million.

Intel, Microsoft in trade

Intel's 2.95% convertibles due 2035 traded during Monday's session and were seen at the close around 107.5 bid, 108.25 offered versus an underlying share price of $22.88. The bonds trade on about a 50% delta.

Shares of the Santa Clara, Calif.-based chip giant were up 44 cents, or nearly 2%.

The Intel 2.95% convertibles have been trading more actively following Intel's earnings release last week, an analyst said.

Intel posted weaker-than-expected earnings, missing estimates by a penny; but the company also revised its expected capital expenditure spending, but didn't alter guidance for the rest of the year, which was seen as positive by investors.

On Monday, Intel's sister convertibles, a 3.25% convertible due 2039, was not heard in trade.

Microsoft's short-dated 0% convertibles, which mature in June, traded Monday around par at 100.75 bid, 100.95 offered.

Mentioned in this article:

AK Steel Holdings Inc. NYSE: AKS

Integra LifeSciences Holdings Corp. Nasdaq: IART

Gilead Sciences Inc. Nasdaq: GILD

Intel Corp. Nasdaq: INTC

Janus Capital Group Inc. NYSE: JNS

Microsoft Corp. Nasdaq: MSFT

United Technologies Corp. NYSE: UTX

Vertex Pharmaceuticals Inc. Nasdaq: VRTX

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