Convertibles 'better to buy'; Transocean paper sees strength; Hologic improves; Onyx quiet

By Rebecca Melvin

New York, July 8 - The convertible bond market was called "better to buy" Thursday, meaning that there were more bidders - which can typically materialize with a better tone in the broader markets - but with nebulous sellers, sources said.

"It seems like it's harder to get anyone to part with things," a New York-based sellside trader said, adding that the "tone was better" amid a generally quiet convertibles market Thursday.

Nevertheless, one sellsider said his shop had had "better order flow than we've seen in a while."

Equity gains provide support

Some of that better tone was attributable to stocks, which rallied into the close, ending near their highs for the day for the second day for a row.

The S&P 500 stock index has been up for three consecutive days, which is the first time since April.

Other than Transocean Ltd., which is an energy sector name, a lot of the top-volume convertibles names fell into the consumer non-cyclical sector category, which was the sector that helped pull stocks higher.

Those consumer names trading in convertibles included Amgen Inc., Archer-Daniels-Midland Co., and Hologic Inc.

Tranocean, which falls specifically into the oil-services category, continued to get better, which was surprising to at least one trader, who said he was used to this name moving two steps forward and one step back.

Transocean's strength was attributed, at least in part, to the gains in stocks Thursday.

Hologic was better, too, partly due to better tone, a trader said. The diagnostic imaging and surgical products company's convertible is a large, busted issue, with a drop of equity sensitivity and a takeover potential kicker.

It's widely held, so whenever the market is feeling a little better, it often comes into play, a trader said.

Onyx Pharmaceuticals Inc. wasn't heard in trade, but the name was in focus after a stock upgrade to "outperform" from BMO Capital Markets caused the underlying shares to jump 6%.

Transocean stronger

Transocean's 1.625% series A convertibles due 2037 traded at 97.125 on Thursday.

The Transocean 1.5% series C paper due 2037 traded at 87.5.

Transocean's 1.5% series B paper due 2037 wasn't heard in trade.

By mid afternoon about $95 million of the Transocean bonds had traded between the three issues, and it was the highest volume name of the day.

Sources said that better market tone was helping this paper, which trades outright. But shares of the Switzerland-based oilfield services company picked up 93 cents, or 1.8%, to $52.07 on Thursday. And another offshore oilfield services company, Hornbeck Offshore Services Inc., was also notably better. But Nabors Industries Inc., a land-based oilfield services company, saw its shares lower.

In headlines Thursday, the Obama administration said it will immediately issue a revised ban on deepwater drilling if an appeals court bars it from reinstating the six-month moratorium imposed after the disastrous oil rig explosion in April that left oil flowing into the Gulf of Mexico.

But there were also headlines that BP plc, the company responsible for the oil well, are closer than ever to completing a relief well that is expected to be able to stop the flow.

BP told the Wall Street Journal that stopping the well between July 20 and July 27 was possible "in a perfect world with no interruptions."

Elsewhere, Standard & Poor's Global Fixed Income research group put out a report on credit stress in corporate America, which found that in light of falling consumer demand and a backdrop of economic and credit market turbulence, sectors most negatively affected as of June 25 were media and entertainment, oil and gas exploration and production, and retail/restaurants.

Among convertible names in the oil sector are Transocean, Hornbeck, Nabors and Cameron International; in the gaming companies and hotels sectors are MGM Mirage, Equinox Holdings Inc. and Gaylord Entertainment Co.; and in the media and entertainment sector is Omnicom Group.

Hologic improves

Hologic's 2% convertibles due 2037 traded at 86 on Thursday, which was up as much as 0.75 point on the day.

Some sources said the Hologic bonds trade outright, but one source reported a trade at 86 versus a share price of $14.00.

Shares of the Bedford, Mass.-based diagnostic imaging and surgical products company for women's health care needs added 21 cents, or 1.5%, to $14.23 Thursday.

The paper was about 0.625 point to 0.75 point better on Thursday on an outright basis, which is how Hologic trades, a New York-based sellsider said.

A few months ago there was takeover buzz on this name, but nothing ever developed on that. The company on Wednesday had moderately good news about one of its devices, a diagnostic test for the detection of 14 high-risk human papillomavirus (HPV) types associated with cervical cancer.

Hologic priced $1.725 billion of the 2% convertibles in December 2007.

"It's pretty widely held, and fairly busted, with a drop of equity sensitivity, but it's a yield play," a New York-based trader said.

"The stock would have to triple to get in the money, but there's a little bit of perception that it could get there. There're different reasons the stock would go up, but it could be related to perceived credit improvement," the trader said.

Onyx quiet after share upgrade

Onyx's 4% convertibles due 2016 were seen last trading in size at 91.5. That is dramatically off its recent highs in April in the 110 area.

Shares of the Emeryville, Calif.-based biopharmaceutical company also sunk precipitously in the last three months, having traded in the $30.00-per-share range in early April and trading earlier this week at $19.00 a share.

On Thursday, BMO senior analyst Jason Zhang, who covers the biotechnology industry, upgraded Onyx to "outperform" from "market perform," based on the growth potential in the Asia Pacific markets for Nexavar in the two-year to five-year timeframe.

The current pressure on Onyx shares is partly due to expectations that the carfilzomib phase 2 trial data could be disappointing, but once that overhang is in the rear view mirror, investors' focus should shift back to Nexavar, Zhang wrote in a report Thursday.

Mentioned in this article:

Hologic Inc. Nasdaq: HOLX

Hornbeck Offshore Services Inc. NYSE: HOS

Nabors Industries Inc. NYSE: NBR

Onyx Pharmaceuticals Inc. Nasdaq: ONXX

Transocean Ltd. NYSE: RIG

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