SanDisk higher after earnings; ViroPharma up 0.5 point on swap; new Cubist moves above par

By Rebecca Melvin

New York, Oct. 22 - SanDisk Corp. barely edged higher in active trade Friday, with the SanDisk 1.5% convertibles, which trade outright and on hedge, up just 0.5 point, and the SanDisk 1% paper, which trades primarily outright, moving up only slightly, after the Milpitas, Calif.-based maker of flash memory products reported better-than-expected third-quarter earnings.

"They were better to buy," a West Coast-based sellsider said of SanDisk, meaning the convertibles had more buyers than sellers, "but they didn't move a ton."

ViroPharma Inc. saw its convertible bonds gain on swap after the Exton, Pa.-based biotechnology company got bad news from U.S. regulators that the company's request to expand industrial scale manufacturing of its hereditary disorder drug Cinryze was not granted.

Great Atlantic & Pacific Tea Co.'s convertibles were lower in contrast to a strong upward move in their underlying shares on news that the ailing supermarket chain operator was closer to finalizing a new term loan. The development will give the company much needed breathing room for restructuring but would give the lenders a priority claim on assets in bankruptcy.

Cubist Pharmaceuticals Inc. saw its new 2.5% paper trade up to 101.25 as shares moved up, from below par Thursday with the stock lower. On a dollar-neutral basis, the paper, which priced late Tuesday was "ever so slightly better," a sellsider said.

In the primary market, Alon USA Energy Inc. revised its registration for a planned $60 million offering of perpetual convertible preferred stock, making it a direct placement as opposed to the public offering that last week was going to be underwritten by Deutsche Bank Securities.

Overall, Friday trading was tepid, market sources said.

SanDisk doesn't move much

SanDisk's 1.5% convertibles due 2017, which are traded outright and on hedge, were seen trading at about 95.5, moving up only 0.5 point from a previous level of about 95.

SanDisk's 1% convertibles due 2013 traded at 93.5, up from 93.125. These notes are traded primarily outright.

Shares of the NAND flash memory products maker were up strongly in premarket action, but they ended the session little changed, or down 10 cents, at $37.02.

"SanDisk is more of a yield play. Our experience with the 1% notes is that they have traded a long time on a yield basis, while the 1.5% notes, which we are not as involved with, are more of a hedge vehicle," a sellsider said.

"There's a large premium and you would have to have them on a pretty light delta," the sellsider added.

SanDisk reported strong revenue and profit margin for its third quarter; while revenue matched expectations.

The company said that its OEM business was outstanding and its retail business grew 20% year over year.

High demand for mobile devices including smart phones and tablets and e-books as well as growing global populations buoyed results, the company said. Net income was $1.30 per share compared to $1.05 per share estimated by analysts.

Revenue of $1.23 billion matched analysts' expectations. The company said 62% of its product revenue came from OEM and 38% from consumer retail, which grew 20% year over year.

For the fourth quarter, SanDisk expects revenue of $1.25 billion to $1.33 billion.

ViroPharma adds 0.5 point on swap

ViroPharma's 2% convertibles due 2017 traded at 105 on Friday compared to 108 previously. Shares of the company ended the session down 84 cents, or 5%, at $15.36.

Earlier in the session, the shares had been down 7% to 8%.

"They had some bad news, but they are doing better on swap," a sellsider said of the biopharmaceutical company.

"They are half a point better," the sellsider said.

The company was asked for more information before the Food and Drug Administration will clear its request to more than double the supply of Cinryze, which is used to treat hereditary angioedema, or swelling of various body parts.

ViroPharma said it is working with partner Sanquin to start responding immediately to the request, and it plans to start making industrial scale lots of the drug in the first quarter of 2011.

ViroPharma had sales of about $75 million of Cinryze in the first half of 2010, which accounted for a little more than a third of the company's revenue.

A&P weaker

A&P's 6.75% convertibles due December 2012 traded between 46 and 52 on Friday and were last seen at 49, according to Trace data, which was down 2.6 points from Thursday and down from 51.975 Monday.

A&P's 5.125% convertibles due 2011 were at 65, down a point.

Shares of the Montvale, N.J.-based supermarket chain operator gained 43 cents, or 15%, to $3.35 on Friday.

The company said it was several weeks away from finalizing a new term loan that would boost liquidity.

In a 10-Q filing, the company said there is "substantial doubt" about the company's "ability to continue as a going concern."

It recently closed 25 stores and plans to sell seven in Connecticut, and it reported a loss of $276 million for the seven months ended Sept. 28, compared to a loss of $145 million in the same 2009 period.

Same-store sales fell 6.6% during the quarter ended Sept. 28.

The company's regional banners include Pathmark, Food Emporium and Super Fresh.

Alon offering revised

Alon's $60 million of perpetual convertible preferreds will be placed directly by the company, according to a revised registration statement filed by the company.

"I think it was private, then public and now it's private again," a West Coast-based sellside trader said.

The sellsider said that he thought the reason that the deal wasn't able to get done last week via Deutsche Bank, as planned was because 76% of the company is held by one entity. "Investors didn't think that was so good," the sellsider said.

Alon Israel Oil Co. Ltd., the company's majority shareholder, has indicated its desire to purchase about $30 million of the preferreds, or half of the proposed deal amount.

Now the company itself plans to enter into one or more purchase agreements with investors, and the sale will begin as soon as practicable, according to the statement.

The planned 6 million shares of convertible preferreds have a liquidation preference of $10.00 per share.

Alon is a Dallas-based petroleum products refiner and marketer.

Mentioned in this article:

Alon USA Energy Inc. NYSE: ALJ

Cubist Pharmaceuticals Inc. Nasdaq: CBST

Great Atlantic & Pacific Tea Co. NYSE: GAP

SandDisk Corp. Nasdaq: SNDK

ViroPharma Inc. Nasdaq: VPHM

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