Advanced Medical's new issue jumps, spurring overall market; Continental rebounds, Liberty Media mixed

By Rebecca Melvin

Princeton, N.J., July 13 - The primary market saw Advanced Medical Optics Inc. bring a new issue of $150 million of convertibles on Wednesday, which appealed to the market and moved higher in active trade.

The convertibles of Continental Airlines Inc. were a top gainer among airlines. Also rising were JetBlue Airways Corp. and AMR Corp., which added points as oil prices came off and their stocks moved higher.

Liberty Media Corp.'s convertibles were mixed while Placer Dome Inc. extended gains after announcing the end of a strike.

Meanwhile, the convertibles of CV Therapeutics Inc. were essentially flat after the company announced, as expected, that it will redeem all of its 4.75% convertible subordinated notes due in 2007.

New issue zooms up

Both Advanced Medical Optics' new issue and its older 2.5% convertible advanced after the company priced at par 20-year notes to yield 1.375%, with an initial conversion premium of 12.53%.

The overnight deal priced at the aggressive end of talk, which was for a coupon of between 1.375% to 1.625% and an initial conversion premium of 12.50%.

"It's cheap with the low premium and high delta" said a New York-based sellside trader.

The size of the deal was not huge, and there is no greenshoe, so allocations weren't that large, one trader complained.

"But that's all right. They didn't need that much," a Connecticut-based buyside source said.

"This is something that the outright guys should be all over," he added, explaining that the fundamental story behind the company has appeal.

But, while from a hedge perspective some market participants weren't all that impressed, the new 1.375% issue opened strongly at 102, and traded up to 103.75 to 104, before pulling back a little to the 103.5 mark, where it closed, a syndicate source said.

The company's 2.5% convertible due 2024 jumped 2 points to 2.5 points to 105.5, the syndicate source said. Meanwhile, Advanced Medical Optics' shares traded off slightly in heavy volume, to end down 36 cents, or 0.9%, to $41.94.

J.P. Morgan, Morgan Stanley and UBS Investment Bank were joint bookrunners for the Rule 144A deal for the Santa Ana, Calif.-based company, which makes and markets ophthalmic surgical and eye-care products.

The company intends to use proceeds to repay an outstanding term loan under its senior credit facility. In May, the company acquired Visx Inc., a maker of laser eye surgery devices, for $1.25 billion in cash and stock in May. And in June 2004, it bought Pfizer's ophthalmic surgical business.

CV Therapeutics unmoved

The Palo Alto, Calif.-based biotech's planned redemption of its 4.75% notes didn't seem to promote its convertibles, which have been a favorite among traders recently.

But the company also announced after the close that it has initiated clinical trials for a new therapeutic approach to asthma.

The clinical program is for CVT-6883, a selective, potent and orally available A2B-adenosine receptor antagonist, intended to treat asthma with once a day dosing.

Ahead of the clinical trial news, a Connecticut-based buysider had mentioned the company's drug line up saying that he's waiting to see "drug results" come back.

"I'm more concerned with the long run," the buysider said.

Since CV Therapeutics sold nearly $150 million of 3.25% convertibles last month, its convertibles have been in play often and have trended higher.

Its 4.75% converts will be redeemed on Aug. 3 at a price of 101.357% plus a cash payment. There is $79.65 million outstanding principal amount on the notes.

On Wednesday, the newer 3.25s traded at 114.5 bid, 115.5 offered, and its 2.75% convertible due 2012 traded at 154.3 bid, 154.8 offered.

Airlines travel round trip

The convertibles of Continental Airlines gained more than 3 points, retracing Tuesday losses after an analyst judged that JetBlue's decision to start service from Newark Liberty International Airport to Florida and Puerto Rico, Continental's hub, would be only mildly negative for Houston-based Continental.

Prudential analyst Bob McAdoo said JetBlue will deploy about seven aircraft in the New York area, without needing more gates at Kennedy airport. It's possible Continental will move to match JetBlue's fares, which are on average 23% less for flights to Florida, but "given high oil prices and the other turmoil in the industry today, we doubt that Continental shares will be meaningfully impacted by this announcement," McAdoo said.

Nonetheless, Continental did announce extra flights and a fare sale to Florida on a limited number of seats from Oct. 5 to Dec. 14.

Of course another positive for airlines was lower oil prices, which shed 61 cents to close at $60.01 a barrel for crude oil for August delivery.

Continental's 5% convertible due 2023 traded up more than 3 points to 94.3 bid, 94.8 offered. Its 4.5% convertible regained more than a point to 88.9 bid, 89.5 offered.

JetBlue's 3.75% convertible traded up nearly 2 points to 105.5 bid, 106 offered, according to a New York-based sellside shop. Its shares added nearly 5% to $21.22.

AMR Corp., parent of American Airlines, saw its convertibles add back 1 point to 2 points. But the convertibles of Delta Air Lines Inc. traded flat to slightly higher.

Mixed trades for Liberty Media

The convertibles of Liberty Media Corp. were among the names that came up in the market Wednesday, with the company's notes exchangeable into Viacom shares trading off about one-quarter point, while its convertibles exchangeable into Motorola Inc. added a bit, apparently corresponding to moves in the underlying stocks, rather than to specific news.

Liberty Media 3.25% notes exchangeable into Viacom shares were down 0.25 point to 76.625 bid, 77.125 offered, while Viacom shares lost 24 cents, or 0.72%, to $32.95.

"I don't know, maybe someone doesn't like SpongeBob SquarePants," a New York-based convertibles analyst said when asked about activity in Liberty Media.

Viacom's Nickelodeon said Wednesday it has licensed several of its popular TV characters, including SpongeBob SquarePants, to fresh produce distributors, which will package fruits and vegetables featuring the characters.

Another sellside trader said, "We had outright sellers in the name."

Meanwhile, the Liberty Media 3.5% exchangeable due 2031, which converts into Motorola shares, edged up to 89.90 bid, 90.90 offered, versus Motorola Inc.'s closing share price, which was up 18 cents, or 0.9%, to $19.45.

Placer Dome extends gains

Placer Dome's convertible added another 0.5 point to 1 point after gaining 2 points on Tuesday on news that a 9-day strike at its Zaldivar copper mine in Chile had ended. The Vancouver, B.C.-based mining company said that mine management and the union representing mine employees have agreed to a 38-month labor contract.

Under laws in Chile, where the mine is located, employees have 48 hours to return to work, after which time the mine expects to return to full production.

Placer Dome's 2.75% convertible traded at 109.88 bid, 110.88 offered, compared to trades at 109.88 on Tuesday. Shares of Placer Dome ended up one cent at $15.93.

New issue in Asia

Uttam Galva Steels Ltd. said Wednesday that it has sold $30 million of 2% foreign currency convertible bonds with an initial conversion premium of 45%. Macquarie Bank Ltd. acted as the sole bookrunner of the five year bonds, which will be listed on the Singapore Stock Exchange.

The company said proceeds would be used for capital expenditure, general corporate purposes and other permissible purposes.

The Mumbai-based company makes cold rolled and galvanized steel products.

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