Gilead opens higher, comes in; Onyx, ViroPharma in trade; AGCO in line; A&P bounces around

By Rebecca Melvin

New York, July 27 - Gilead Sciences Inc.'s newly priced 1% convertibles and 1.625% convertibles were a little higher early Tuesday compared to the underlying stock's previous close, but the new duo each came in about a point after that.

The older pair of Gilead convertibles was weaker again as the convertibles aren't looking as cheap as the new issues, market sources said. Action in the four convertibles of the Foster City, Calif.-based biopharmaceutical company was the center piece of trade in the convertibles market Tuesday, accounting for more than a third of the volume on the day, traders said.

Other biotechnology names were also in trade, including Onyx Pharmaceuticals Inc., ViroPharma Inc. and Nektar Therapeutics.

Elsewhere, United States Steel Corp. was weaker after the Pittsburgh-based steel maker reported earnings and a less-than-rosy outlook.

AGCO Corp. traded in line with its underlying shares after the Duluth, Ga.-based maker of agricultural equipment reported better second-quarter earnings on improved margins.

Great Atlantic and Pacific Tea Co. Inc.'s two convertible bond issues bounced around Tuesday after plunging Friday on earnings that missed estimates.

After the close of markets Tuesday, Standard & Poor's cut A&P's credit ratings, a market source said.

Activity picks up

In general, there was a "decent amount of activity" in convertibles, which marks a change from earlier in the month and in June, when the market quieted substantially.

In equities, a rally stalled, with the Nasdaq Stock Market ending lower after three days of gains after a lower-than-expected reading of the Conference Board's Consumer Confidence Index dampened enthusiasm.

Consumer confidence pulled back to 50.4 in July from an upwardly revised 54.3 in June. A reading at about 51.0 was expected.

Looking ahead, investors will be watching for the U.S. Department of Commerce's release on Friday of the gross domestic product numbers. U.S. GDP is expected to slow to about 2.5%.

Gilead new paper slips about a point

Gilead's newly priced 1% convertibles, or the C paper, traded pre-market open at 102 versus a share price of $33.39, and Gilead's newly priced 1.625% convertibles were seen at about the same level.

Later a market on the Gilead Cs was 100.5 bid, 101 offered, and the market on the Gilead Ds was 101 bid, 101.75 offered.

A late market on the two new issues was quoted at 100.375 versus a share price of $33.25.

"The new C bonds traded up to 101.875, then came in hard. Volatility in this name is getting crushed," a New York-based trader said.

Other traders said both issues came in about a point.

Gilead priced $2.2 billion of the convertible senior notes, which mature in four years and six years, respectively. There is a greenshoe of $150 million each for the two issues.

The $1.1 billion of four-year paper priced at par to yield 1% with an initial conversion premium of 35%, and the $1.1 billion of six-year paper priced at par to yield 1.625% with an initial conversion premium of 36%.

Price talk on the two issues was for a yield of 1.125% and a premium of 35% for the 2014 paper and for a yield of 1.75% with an initial conversion premium of 35% on the 2016 paper.

Proceeds of the Rule 144A note offering, which were sold via bookrunners J.P. Morgan Securities Inc. and Goldman Sachs & Co, will be used to repurchase shares of its common stock, with some proceeds to fund convertible note hedge transactions and for general corporate purposes.

The warrants associated with the 2014 notes have an exercise price of $56.763, which is 70% higher than the closing price of Gilead's stock on July 26. And the warrants associated with the 2016 notes have an exercise price of $60.102, which is 80% higher than the closing price of Gilead's stock on July 26.

Older Gileads also lower

The older Gilead 0.5% notes due 2011, or the A paper, was at 102.5 versus a share price of $33.39, compared to 102.86 versus a share price of $33.55.

Gilead's 0.625% convertible bonds due 2013, or the B paper, traded at 108 versus a share price of $33.40, compared to 109 versus a share price of $33.15.

"The conversion prices on the older paper are so much lower than for the new ones," a New York-based sellside analyst said as to the reason why the older paper was higher priced. But that pricing was coming down some.

Onyx, ViroPharma in trade

Onyx Pharmaceuticals' 5% convertibles due 2016 traded at 100.5 versus a share price of $26.00, and the paper was later seen at 99.5, which was up 0.25 point from Monday.

Shares of the Emeryville, Calif.-based biopharmaceutical company were down 2% on Tuesday after surging 21% on Monday on favorable clinical data.

ViroPharma's 2% convertibles due 2017 changed hands at 88.5 versus a share price of $11.50 on Tuesday. Shares of the Exton, Pa.-based biotechnology company opened higher but slipped to a lower close, settling down 7 cents to close at $11.39.

ViroPharma, which hasn't seen its convertibles trade actively of late, is slated to report earnings on Wednesday.

Nektar, which is also set to report quarterly results on Wednesday, saw its convertibles change hands at 98 versus a share price of $13.50.

Shares of the San Carlos, Calif.-based drug development company settled up 26 cents, or 1.9%, at $13.79.

AGCO in line

AGCO's 1.75% convertibles due 2033 traded at 1.65 points of premium on Tuesday, which was in line with the underlying shares, and compared to a 1.59-point premium on Monday.

Shares of the agricultural company added 49 cents, or 1.5%, to $34.11. The company said second-quarter profit was up almost 10% on improved margins, which offset a decline in sales.

Net sales were about $1.7 billion for the second quarter, down 1.5% compared to 2009's second quarter.

Net income rose to $62.9 million, or 86 cents a share, compared to net income of $57.4 million, or 61 cents a share, a year earlier.

Analysts had been expecting a second-quarter result of 56 cents a share on revenue of $1.68 billion.

Weaker U.S. sales were offset partially by stronger performance in South America, the company said in a news release.

The company's 2010 outlook in global sales is mixed compared to 2009, the company said.

In South America, strong industry conditions are expected to continue in the second half of 2010, but relatively flat compared to a strong second half of 2009.

North American industry demand is expected to remain stable for the remainder of the year. Market conditions are expected to remain weak but stable in Western Europe during the second half of 2010. Comparisons to 2009 will be more favorable in the second half of the year due to weak conditions in Western Europe in the second half of 2009.

AGCO is targeting adjusted earnings per share in a range from $1.85 to $2.00 for the full year of 2010. Net sales are expected to range from $6.7 billion to $6.8 billion. Gross margin improvements are expected to be partially offset by higher engineering expenses for new product development and Tier 4 emission requirements, as well as higher pension costs.

Earnings per share projections exclude restructuring expenses that are expected to be incurred in the company's European operations and are estimated to be approximately $0.06 per share for the full year of 2010.

A&P bumps around

A&P's 5.125% convertibles due 2011 were last at 66 bid, 69 offered on Tuesday, which was up from 63 bid, 65 offered on Monday. That compared to 64.25 on Friday, when the 5.125% convertibles plunged more than 30 points.

A&P's 6.75% convertibles due 2012 traded late at 49 after earlier trading at 43, and compared to Monday when the paper printed at 40 bid, 42.5 offered.

Shares of the Montvale, N.J.-based grocery store ended down a penny at $2.70 on Tuesday.

A Connecticut-based sellsider said he wasn't sure what was causing the late rise on Tuesday.

There were no headlines, he said. But "many distressed guys are looking closely at the name due to the dearth of distressed credits."

A&P dropped Friday after reporting wider losses and appointing another chief executive, its second this year. Nevertheless, it reported revenue in line with expectations.

Mentioned in this article:

AGCO Corp. Nasdaq: AGCO

Gilead Sciences Inc. Nasdaq: GILD

Great Atlantic and Pacific Tea Co. Inc. NYSE: GAP

Nektar Therapeutics Nasdaq: NKTR

Onyx Pharmaceuticals Inc. Nasdaq: ONXX

ViroPharma Inc. Nasdaq: VPHM

United States Steel Corp. NYSE: X

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