Convertible market slips on thwarted rally in stocks; new issues mixed

By Ronda Fears

Nashville, Tenn., Dec. 6 - Convertible traders said the market culminated the day on a flat note as stocks were mixed and unable to sustain a rally that centered largely on the tech areas. New deals continued to stream into the market, however, although they saw mixed results out of the gate. At bat after the closing was Cambrex Corp. with a small $125 million deal that will bring the week's new issue tally to nearly $2 billion.

"The rally wasn't extended, but at least this wasn't a huge retreat. We are still above the important thresholds for both the Nasdaq and the Dow," said a convertible trader at a major investment bank in New York. "We are hoping that maybe we can stay leveled out here for a while, then maybe inch upward a bit more if the market with bear it."

Traders described the convertible market as flat as the Nasdaq fought the negative push to close in the black, edging up 7.43, or 0.36%, to 2054.27. The Dow Jones Industrial Average, however, succumbed and closed off 15.15, or 0.15%, to 10099.14.

Tech convertibles actually held on to most of their gains, traders said. More activity was seen in the biotech, drug and healthcare sectors where there has been so much consolidation recently, traders said, but the result was a mixed bag.

Millennium Pharmaceuticals Inc. and COR Therapeutics Inc. early Thursday announced that they have signed a definitive agreement for Millennium to acquire COR in a stock-for-stock exchange valued at $2 billion, eclipsing MedImmune's $1.5 billion stock merger earlier this week with Aviron.

COR Therapeutics' converts climbed along with the stock, while Millennium lost ground. Traders also noted that Aviron securities were giving back some ground. COR Therapeutics'5% convert due 2007 added 20 points on the day to 100.75 bid, 101.75 offered and the 4.5% convert due 2006 rose 15.75 to 96.5 bid, 97 offered as the underlying common soared $8.46 to $28.20. On the other hand, Millennium's 5.5% convert due 2007 dropped 2.5 points on the day to 84.5 bid, 85 offered as the stock lost $5.89 to $29.56.

Aviron's 5.25% convert due 2008 was quoted down 1.125 points on the day to 98.75 bid, 99.75 offered as the common dropped $1.01 to $47.76.

The focus on the biotech arena was intensified by two big new deals that priced and freed to trade Thursday from Invitrogen and Cephalon - both repeat issuers in the convertible market. Both also upsized their respective deals to $500 million.

Invitrogen upped its deal from $400 million to $500 million, pricing the deal at the aggressive end of yield price talk and in the middle of premium guidance. In the immediate aftermarket, the new 2.25% convertible due 2006 slid 0.5 point to 99.5 bid, 99.875 offered as the common stock dropped 21c to $64.78. Invitrogen's 5.5% convert due 2007 was quoted flat at 104.5 bid, 105.5 offered.

Cephalon boosted its deal from $300 million to $500 million, pricing it at the aggressive end of premium guidance and revised yield price talk. Cephalon is using proceeds, in part, to pay a portion of the $450 million cash purchase price for the French pharmaceutical company Group Lafon. The new Cephalon 2.5% convertible due 2006 gained 0.75 point in the immediate aftermarket to 100.75 bid, 101.25 offered as the common stock lost $1.43 to $67.81. Cephalon's 5.25% convertible due 2006 slipped another 0.5 point on the day to 114.25 bid 115.25 offered.

"Pricing terms may be richening a bit, but new deals had been coming too cheap in the aftermath of the Sept. 11 event," said a syndicate source, who was not working on any of the new deals that priced this week. "Terms need to come back into a better perspective. Too much discounting really hurts the secondary market in the long run, and that's not good."

Also out Thursday was Photronics Inc., also a repeat convertible issuer, with a small $175 million overnight issue, aiming to raise funds to repay the $49.5 million outstanding on its $125 million revolving credit facility. The deal also was upsized from $150 million, and priced at the aggressive end of yield price talk and in the middle of premium guidance. The new Photronics 4.75% convertible due 2006 gained 3.375 points from par to 103.375 bid, 103.875 offered while the common stock lost $2.16 to $27.95/ The Photronics 6% convertible due 2004 (B2/B), which sold at par in may 1997, lost 4.5 points on the day to 111 bid, 112 offered.

Other new paper from earlier this week was also mixed.

"You can see a weird trading pattern with new issues sometimes, especially if it's a small issue and there's not a lot of liquidity for whatever reason, a heavy continuing new issues calendar, or whatever," said a trader.

Tech Data's $250 million of 2% converts due 2021 were flat at 100.875 bid but the offer price edged up 0.125 point to 101.375 as the common stock closed up 68c to $45.89. Wind River's new 3.75% convertible due 2006 added 1.25 points on the day to 103.75 bid, 104.25 as the common stock gained 35c to $18.52. The Wind River 5% convertible notes (B-) due August 2002, a $140 million issue that sold at par in July 1997, were flat at 97.

United Microelectronics' convert continued to head north. The par zero-coupon convert added another 3.875 points on the day to 110.75 bid, 111.25 offered as the underlying common stock gained 36c to $9.62 in the U.S. markets.

Still, nothing changed on the Cambrex deal. Cambrex, a biotech name, is pitching $125 million of five-year convertible subordinated notes with price talk of a 3.5% to 4.0% yield and a 30% to 34% initial conversion premium. Cambrex shares closed Thursday down 87c to $36.98.

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