Brandywine lackluster on debut; Amkor reactions mixed to revised offer; Ford gains slightly

By Kenneth Lim

Boston, Sept. 29 - The convertible bond market was as quiet as expected for a Friday as the quarter drew to a close.

Brandywine Realty Trust's newly price convertible had a weak debut, trading below its reoffered price as investors shied away from its relatively low coupon and an overabundance of real estate investment trust paper.

Amkor Technology Inc. saw its convertibles head in two directions, with its soon-maturing 5% convertible continuing to trade well short of par amid concerns about the company's liquidity while its 2.5% convertible improved in the wake of a sweetened consent solicitation.

The convertible bond market was largely quiet as the third quarter ended.

"It's the end of the quarter, some folks have closed out their books, it'll probably get better next week," a sellside convertible bond trader said.

A buyside convertible bond trader said many of the trades on Friday were from investors adjusting their positions in reaction to movements in the equity market.

"There isn't much there that's really noteworthy," the trader said.

Ford Motor Co.'s 6.5% convertible preferred was up slightly in the morning as the stock flirted with early gains before falling back into the red. The convertible traded at 33.625 against a stock price of $8.20, and closed at 33.59 against an $8.09 stock price. Ford stock (NYSE: F) finished higher by 0.86% or 7 cents.

"There was a report about them possibly having to sell Ford Credit, but I don't think that necessarily moved anything," the sellside trader said. "It's no secret that their rating is hurting them, but you got to think about whether selling a stake is really going to help them long term."

Merrill Lynch equity analyst John Murphy wrote in a note Friday that Ford Motor Credit, the Dearborn, Mich.-based automaker's financing arm, could see a 19% drop in net earning for 2007 as it suffers from Ford's junk ratings. Selling a stake in Ford Motor Credit will help the unit preserve its profits, the analyst said.

Murphy maintained his sell recommendation on Ford stock.

Wyeth firm on dividend rise

Also on Friday, Wyeth's floating-rate convertible due 2024 was unchanged to modestly better on an outright basis as the stock continued to rally on the back of a common dividend increase.

The convertible, which currently pays a coupon of about 5.109%, changed hands at 109.25 against a stock price of $15.25. Wyeth stock (NYSE: WYE) closed at $50.84, up by 1.13% or 57 cents.

Wyeth on Thursday raised its quarterly common dividend to 26 cents from 25 cents.

The company on Friday also reported that its antibiotic drug Tygacil did not perform significantly better than an existing pneumonia treatment during trials. Wyeth said it will nevertheless seek to expand the allowed uses of Tygacil, which is already used to treat skin infections and intra-abdominal infections, to include community-acquired pneumonia. Community-acquired pneumonia refers to instances of the disease that is not contracted while staying in a hospital or care facility.

Wyeth is a Madison, N.J.-based drug maker.

Brandywine has bitter start

Brandywine's newly priced 3.875% exchangeable unsubordinated notes due 2026 slipped slightly outright on Friday with the stock, after the offering arrived at the cheap end of talk.

The exchangeable traded at 98.625 against a stock price of $32.80 on Friday, just below the note's reoffered price of 99. Brandywine stock (NYSE: BDN) declined 0.76% or 25 cents to close at $32.55.

Brandywine priced its $300 million deal Thursday after the market closed, with an initial exchange premium of 20%. The notes were talked at a coupon of 3.625%-3.875%, with the initial exchange premium and reoffer price already set.

The notes were issued by Brandywine subsidiary Brandywine Operating Partnership LP and exchangeable into common stock of the listed company. Brandywine Realty is guaranteeing the notes.

There is an over-allotment option for a further $45 million.

Merrill Lynch, Bear Stearns and Lehman Brothers are the bookrunners of the Rule 144A offering.

Brandywine, a Radnor, Pa.-based real estate investment trust that focuses on office and industrial properties, plans to use the proceeds to concurrently buy back $60 million of its common stock and to partially repay an existing revolving loan. It will also invest in government or short-term securities pending the redemption of its $300 million floating-rate guaranteed notes due 2009, which were issued in March, 2006.

Observers reported weak demand for the convertible.

"I haven't heard them all day," a sellsider said when asked about the deal.

A buyside convertible bond analyst, whose firm stayed out of the deal, said the deal did not seem exciting.

"Individually they're cheaper than the other REITs," the buysider said. "But I think their growth is slower also."

The buysider added that outright investors have little to like in the REIT sector these days.

"We're just not very interested in REITs right now," the buysider said. "We're not interested in the equity story. Just the valuation on the REITs in general, they're probably close to a top. I don't want to buy anything near the top...If I think they're near the top, I'd rather put my money in another sector."

Amkor reacts to new offer

Amkor's two convertible series went separate ways on Friday a day after the company sweetened an earlier consent solicitation in an attempt to keep bondholders appeased while its financial reports continue to be delayed.

The company's earliest-maturing convertible, the 5% convertible due March 2007, was mostly flat at 93 against a stock price of $5.50 on Friday. The later convertible, the 2.5% due 2011, improved about a point to 83 versus the same stock price. Amkor stock (Nasdaq: AMKR) closed lower by 6.19% or 34 cents at $5.15.

"Holders of the 5% are still more worried about whether they'll be able to get their money back in March," a sellside convertible bond trader said. "The 2.5% holders could potentially benefit more from the new offer."

Amkor on Thursday raised its proposed consent fee for the 5% convertible by a potential $1.50 per $1,000 note, to a potential $7.50 per note if the company does not file its reports by the end of the year. The holders of the 2.5% convertible could receive up to $12.50 per note, or $7.50 more than the earlier offer, if the company is still delinquent by end-December.

Amkor is a Chandler, Ariz.-based provider of semiconductor testing and assembly services.

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