Successful test spurs United Therapeutics; iStar, Countrywide down with financials; tough day for four new issues

By Evan Weinberger

New York, Nov. 1 - United Therapeutics Corp. convertibles took a major leap Thursday.

That was the good news. It's all downhill from here.

Molson Coors Brewing Co. convertibles were smacked for a loss on the day. So were iStar Financial Inc.'s convertibles. Countrywide Financial Corp. convertibles were down as well.

The convertibles market was relatively quiet as equity markets plunged. When stocks are tanking, and an investor has a solid convertible, "It's hard to pry paper out of guys' hands," one trader said.

An analyst said his desk was relatively quiet as well. "I would say given the amount of selling in the equity market, it could've been more active in the converts. But it wasn't," he said.

The era of good feelings following the Wednesday rate cut lasted for oh, about a couple of hours. Worries that the Federal Reserve won't reduce rates further; an unsettling earnings report from Exxon Mobil Corp. and the downgrade of Citigroup and Bank of America by a CIBC World Markets analyst had investors on edge. Fears of a pullback in consumer spending backed up by a Commerce Department report for September added to the concerns. One trade group reported slowing growth in U.S. manufacturing added to the fun, and the combined factors turned the trading day into a slasher movie.

The Dow Jones Industrial Average splattered to a close of 13,567.87, a loss of 362.14 points, or 2.60%.

The Nasdaq gushed 64.29 points, or 2.25%, all over the trading floor for a 2,794.83 close.

The Standard & Poor's 500 had 40.94 points, or 2.64%, chopped off the top for a 1,508.44 close.

The massive losses in the equity markets were probably not what Bunge Ltd., ProLogis, Vanda Pharmaceuticals Inc. and McMoRan Exploration Co. wanted to see Thursday, since the four companies were set to price new convertibles Thursday after the market close.

"I will say this: these four companies had impeccably bad timing," one analyst said.

One company announced a coming convertible issue Thursday morning. Mylan Laboratories Inc. launched $1.4 billion in mandatory convertible preferred stock due Nov. 15, 2010 Wednesday before the market open. The mandatories are talked at a yield of 6.5% to 7% and an initial conversion premium of 18% to 22%.

There is a $210 million over-allotment option on the registered transaction. The liquidation preference is $1,000, the same as the offer price. The deal is expected to price Nov. 13.

The mandatories are being issued at the same time as an offering of 40 million shares of common stock. There is a 6 million share over-allotment option on the common stock offering.

The mandatories have call protection for life. There is also full dividend protection and change-of-control protection.

Mylan Labs is a Canonsburg, Pa.-based pharmaceutical company. Mylan plans to use the proceeds of the mandatory and common stock offerings to finance its acquisition of Merck KGaA's generics business, which was announced Oct. 2.

Launching into rough seas

Bunge, ProLogis, Vanda and McMoRan would already have trouble standing out. When it comes to convertibles, two new issues are company, three's a crowd and four's a mob.

"People can't focus on all of them," an analyst said. "And they'll only know a lot about the one that looks the most promising."

Three of the four names are familiar to convertibles investors, another analyst said.

White Plains, N.Y.-based agribusiness Bunge is offering $750 million in mandatory convertible preference shares due 2010 talked at a 4.875% to 5.125% dividend and an 18% to 22% initial conversion premium. Bunge is an investment-grade company with an existing convertible, so investors are all ears, the analyst said.

Denver-based industrial real estate investment trust ProLogis is set to price $875 million convertible senior notes due Nov. 15, 2037 with a 1.875% coupon and a 20% initial conversion premium. The talk here is of a resale price of 98.25 to 98.75. ProLogis just did an offering of convertible senior notes in March with very similar terms.

New Orleans-based oil and gas driller McMoRan Exploration has $150 million in mandatory convertible preferred stock due Nov. 15, 2010 set to hit the street. The mandatories are talked to yield 6.75% to 7.25% with an 18% to 22% initial conversion premium. McMoRan is already being talked up as a plus bid before pricing.

McMoRan is offering 11 million shares of common stock at the same time, and the company's chairman, James R. Moffett, is indicating that he will buy up to 4.5% of both offerings.

"The convert buyers are pretty familiar with the story," the analyst said of the three companies. But, he added, luck and timing were not on their side. "It wasn't a good day" to launch new convertibles, he said.

McMoRan stock (NYSE: MMR) picked up some change in the midst of the carnage. The stock added 37 cents, or 3.04%, to close at $12.55 Thursday.

ProLogis (NYSE: PLD) was slammed for a $3.41, or 4.75%, loss and a close of $68.33 Thursday.

Bunge had the worst run up to pricing. The stock (NYSE: BG) tumbled $12.08, or 10.49%, for a $103.11 close.

Vanda offering criticized

That leaves Rockville, Md.-based Vanda, which had a tough week running up to pricing. On Tuesday, the company announced that its drug intended to treat severe sleepiness didn't keep people awake, or at least not enough to make the drug worthwhile.

Vanda isn't scheduled to release third-quarter earnings until Nov. 8, which means analysts won't have a good handle on the company when the issue prices, an analyst said.

To top it off, the stock (Nasdaq: VNDA) was sucked into a $3.85, or 25.67%, sinkhole and a close of $11.15.

None of this is boding well for the proposed $100 million in convertible senior notes due Nov. 15, 2014. The convertibles are talked at a coupon of 3.875% to 4.375% and an initial conversion premium of 17.5% to 22.5%.

"It's just really bogus," the analyst said. "I mean the whole thing is just really stinky. You couldn't bring a crappy issue in a more crappy way."

The analyst pointed to a headline he saw relating to the Vanda offering: "A Convert? Some Would Prefer a Hole in the Head."

"They're gonna have to find a strategic investor," a trader added. "When something gets that toxic, that's what you really need."

New drug lifts United Therapeutics

Silver Springs, Md.-based United Therapeutics announced Thursday that Viveta, an inhalable drug that fights pulmonary arterial hypertension (PAH) met its main goal. That was to increase exercising lung capacity for people afflicted with life-threatening PAH.

That breathed life into United Therapeutics' stock and convertibles. The company's 0.5% convertible senior notes due Oct. 15, 2011 closed at 137.143 versus a closing stock price of $94.11. They closed Wednesday at 110.83 versus a stock price of $68.44.

United Therapeutics' stock (Nasdaq: UTHR) jumped $25.67, or 35.91%, on the day.

Financials down

With financial stocks leading the broader markets down, both iStar and Countrywide had tough days Thursday.

iStar's Libor plus 50 basis points convertible senior floating-rate notes due Oct. 1, 2012 closed Thursday at 93.7 versus a closing stock price of $29.50. They finished trading Wednesday at 96.16 versus a stock price of $30.51.

Stock in the New York-based real estate financing REIT (NYSE: SFI) slumped $1.01, or 3.31%.

Calabasas, Calif.-based Countrywide, America's largest home lender, saw both of its convertibles and its stock sink.

Countrywide's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Thursday at 85.432 versus a closing stock price of $14.43. They finished Wednesday at 86.952 versus a stock price of $15.52.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 15, 2037 closed Thursday at 82.88 versus a stock price of $14.43. They closed Wednesday at 84.35 versus a stock price of $15.52.

Countrywide stock (NYSE: CFC) fell $1.09, or 7.02%, on Thursday.

Molson Coors tapped

Montreal-based brewer Molson Coors saw its 2.5% convertible senior notes due July 30, 2013 close Thursday at 120.471 versus a closing stock price of $54.81. They closed Wednesday at 123.207 versus a stock price of $57.23.

Molson Coors stock (NYSE: TAP) spilled $2.42, or 4.23%, on Thursday.

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