Charles River adds slightly on hedge; Energy Conversion higher; Molycorp upsizes, prices

By Rebecca Melvin

New York, Feb. 10 - Earnings news drove some trading during Thursday's convertibles session, but the market was generally lackluster, with a decidedly "macro tone," market sources said.

There was some action in Charles River Laboratories International Inc., and the bonds were up on both an outright and a hedged basis. But on an average hedge of 35% to 40%, it was up only about 0.25 point on hedge, a New York-based sellside trader estimated.

The Wilmington, Mass.-based medical research services company saw its shares pull lower Thursday after popping on earnings news Wednesday.

Energy Conversion Devices Inc. was a point higher at 82 after the Rochester Hills, Mich.-based solar company reported earnings that missed estimates.

Horizon Lines Inc. was active, but unchanged at 92.625 bid, 92.875 offered, amid no particular news surrounding the Charlotte, N.C.-based shipping company, sources said.

Covanta Holding Corp. was another name on the most-actives list for convertibles Thursday after the Fairfield, N.J.-based waste disposal and energy company reported earnings. The Covanta 3.25% convertibles Traced at 118 but weren't seen by trading sources queried.

Overall, it was a low-volume day, with things generally "better to sell," a New York-based sellside trader said.

Another sellside trader said the session had a "macro tone," with all eyes on the unstable Egyptian political scene and whether president Hosni Mubarak would concede to protestors' demands and step down after 30 years in office.

"The last color I saw on it was that he is not leaving, except on his own terms and his own timing, and that is a bad sign," the New York trader said.

In a televised speech late Thursday from the presidential palace in Cairo, Mubarak said that he decided to hand authority over to vice-president Omar Suleiman as per constitutional guidelines.

The transfer of powers of the presidency didn't appear to immediately defuse protestors' anger and marches calling for his immediate ouster continued.

There was no gray market reported in Molycorp Inc., which priced an upsized $180 million mandatory convertible late Thursday through the rich end of talk for the dividend and at the midpoint of talk for the premium.

"There wasn't a lot of interest," a New York-based sellsider said, referring to the Molycorp deal as a "speculative play on the stock."

The session was "lackluster," he said, with things "better for sale and not a lot going on."

A second sellsider said, "People are watching Egypt."

Charles River adds

Charles River's 2.25% convertibles due 2013 traded at 103.25 versus an underlying share price of $37.50 during Thursday's session.

That compared to Wednesday, when the 2.25% convertibles traded at 103.25 bid, 103.375 offered versus a share price of $38.00.

"A bunch traded in the middle of the day," a sellsider said. But they didn't represent a huge move, he added. "It was really no big deal."

With the stock at $37.40, the bonds traded just above 103, and it's theoretically on a 35% hedge, so maybe they were 0.25 point better on hedge, he explained.

The paper trades on a 35% to 40% hedge.

Shares of the Wilmington, Mass.-based company slid lower through the session, ending down 65 cents, or 1.7%, to $37.13. The move lower reversed an upward move on Wednesday after the research and drug discovery services company reported earnings.

For the three months ended Dec. 25, Charles River said it lost $343.6 million, or $6.04 per share, compared with profit of $17.6 million, or 27 cents per share, during the same period a year prior. Revenue fell 3% to $281.7 million from $290 million.

Excluding charges, the company earned 60 cents per share from continuing operations. Analysts had expected profit of 49 cents per share on $271.1 million in revenue.

In November, the company announced plans to cut jobs from its preclinical and research models and services businesses, along with corporate functions.

Revenue from the preclinical service business, which handles outsourced research for pharmaceutical and biotechnology companies, fell 6% to $113.3 million as demand from large pharmaceutical companies remained slow.

For the full year, the company lost $336.7 million, or $5.38 per share, compared with profit of $114.4 million, or $1.74 per share, in fiscal 2009. Adjusted profit for 2010 totaled $125.6 million, or $1.99 per share. Revenue fell to $1.13 billion from $1.17 billion.

Looking ahead, the company maintained a 2011 outlook for adjusted profit of between $2.20 and $2.40 per share with revenue remaining steady.

Charles River develops animal and other research models for the biotech industry.

Energy Conversion higher

Energy Conversion's 3% convertibles due 2013 traded at 82 on Thursday, which was a point higher than previous levels, a Connecticut-based sellside trader said.

And a second sellsider, also based in Connecticut, put the level at 82 to 83.

Shares fell 18 cents, or 4%, to $4.12 on Thursday.

The solar panel maker reported a narrower net loss of $7.6 million for its second fiscal quarter, compared to a net loss of $39.3 million, or $0.93 per share, for the 2010 second fiscal quarter.

Revenue rose 31% to $69.5 million for the fiscal second quarter, but the company said that sales for its fiscal third-quarter would be below estimates.

Sales will be $55 million to $65 million, which is well below analysts' $79.6 million estimate. But revenue for the fourth quarter is forecast at $115 million to $130 million, above the $82.8 million forecast by analysts.

Molycorp sells upsized deal

Molycorp priced an upsized $180 million of three-year mandatory convertible preferred stock after the market close on Thursday to yield 5.5% with an initial conversion premium of 20%, according to a syndicate source.

The Greenwood Village, Colo.-based producer of rare earth oxides also priced a full-sized deal of $675 million of common stock, or 13.5 million shares, at $50.00 per share.

The mandatories, which were initially talked at $150 million in size, priced through the rich end of original talk on the coupon, which was 5.75% to 6.25%, and at the midpoint of 17.5% to 22.5% premium talk.

J.P. Morgan Securities LLC and Morgan Stanley & Co. Inc. were the joint bookrunners for the offerings.

Proceeds will be used for working capital and general corporate purposes. Previously Molycorp said it expected to use proceeds to double the production capacity of its Mountain Pass facility in California.

Mentioned in this article:

Charles River Laboratories International Inc. NYSE: CRL

Covanta Holding Corp. NYSE: CVA

Energy Conversion Devices Inc. Nasdaq: ENER

Horizon Lines Inc. NYSE: HRZ

Molycorp Inc. NYSE: MCP

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