EMC, Amgen paper steady to higher; Savient extends gains; D.R. Horton, Lennar in trade

By Rebecca Melvin

New York, Feb. 2 - Investment-grade names led activity in the convertible bond market on Wednesday, with EMC Corp. and Amgen Inc. among the most actively traded paper, market players said.

Pricing in these bonds was steady, they said, with the Amgen 0.375% convertibles due 2013, or the Amgen B convertibles "the only game in town" - after the Amgen A paper matured this week - and steady at par to a little higher.

The EMC bonds looked about a point higher on the day, which was in line with their underlying shares. Together the EMC sister issues of 2011 and 2013 and the Amgen convertibles accounted for about 25% of volume in the convertible market, sources said, at least in the first half of day.

"The big ice storm meant that it was slower in the morning, but it picked up over the course of the day," a New York-based sellside trader said.

Despite the wicked winter weather that pummeled a large swathe of the country, market players seemed to have made it in to work.

"Surprisingly, it seems like most are in and weathered the storm well," a New York-based sellsider said.

Savient Pharmaceuticals Inc.'s 4.75% convertibles, which debuted on Tuesday, extended gains Wednesday, trading up to 108 for a combined two-day rise on swap from issue of 7 points.

Avatar Holdings Inc.'s 7.5% convertibles, which also debuted Tuesday, were seen at 105 bid, 107 offered, with the stock unchanged from issue. But Avatar was a small deal that didn't trade much. It was said to have been distributed by reverse inquiry to mostly non-traditional buyers, but that couldn't be confirmed by a syndicate source.

Massey Energy Corp. was still active and trading in line on a dollar-neutral basis, according to a West Coast-based sellside trader. That paper popped after word that Alpha Natural Resources Inc. agreed to buy it.

Overall, the market was firm.

"Everything was 'to buy' across the board, but offerings are beginning to flow in and I predict some down days next week," a New York-based sellside trader said.

A pair of homebuilders traded, including Fort Worth-based D.R. Horton Inc., which traded steady and also a couple points lower than previous levels, and Miami-based Lennar Corp., which was more or less steady, with a print at 114 versus $19.75 for the newer 2.75% Lennar paper.

The trades may have been inspired by Hovnanian Enterprises Inc.'s $75 million of tangible equity units, which are expected to price after the close of markets on Thursday.

"I see the correlation, but I don't think that's necessarily the case," a sellsider said about the homebuilders trading ahead of new homebuilder paper.

D.R. Horton reported last week a wider-than-expected loss for its fiscal first quarter on lower new-home orders and cancellations.

In economic news, private-sector payrolls expanded by a greater-than-expected 187,000 in January, according to the national employment report published by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers. Economists had expected a gain of 143,000 in January.

EMC, Amgen top-volume names

"They have been dominating," a sellsider said of the Amgen and EMC issues, with about 25% of the day's total volume between them.

These are large, benchmark-type names that are often very actively traded, however. Amgen is an outright name, while, EMC, on the other hand, is a big hedge name, not an outright play.

EMC's 1.75% convertibles due 2011 traded between 155.5 and 160 and were last at 159, which was up a point outright from Tuesday.

EMC's 1.75% convertibles due 2013 traded in a range of 163 and 166.5 and were last at 165.5, which was about a point higher than 164.75 last on Tuesday.

Shares of the Hopkinton, Mass.-based data storage equipment maker ended the day at $25.47, which was up 23 cents, or 0.9%.

Amgen's 0.75% convertibles due 2013 were at 100 bid, 101 offered. The Amgen paper doesn't really trade on hedge, with a delta somewhere between 0% and 20%; but shares of the Thousand Oaks, Calif.-based biotechnology giant were lower for much of the session, paring losses at the close to end little changed at $55.63.

"They are hanging in there. No one is getting rich on Amgen," a sellsider said.

In general, "people are looking for investment-grade paper, and getting into or out of it," a New York-based sellside analyst said.

Nevertheless, another sellsider said, "I think people are beginning to look at valuation, and the offers are starting to fill in."

He predicted some selling pressure may set in, possibly beginning next week. He didn't have any hard evidence for this call however.

"It feels as though it's getting toppy. It felt like things weren't going straight up, offers were filling in," he said of Wednesday's session.

Savient extends gains

Savient's 4.75% convertibles traded up on Wednesday with one sellsider quoting the paper at 108 versus a share price of $9.45, and another saying the paper traded at 108 versus a share price of $9.40.

A third market player said $1 million of the bonds traded at 108.025 versus a share price of $9.45, on a 75% hedge.

Trace data showed a low print of 105.38 bid, 105.82 offered versus a share price of $9.20, but that price was disputed.

"That print is low compared to everything else today in the name," a New York-based sellside trader said.

Shares of the East Brunswick, N.J.-based specialty biopharmaceutical company ended higher, jumping 42 cents, or 4.6%, to $9.57 by the market close.

D.R. Horton, Lennar in trade

D.R. Horton's 2% convertibles due 2014 traded at 117 versus a share price of $12.40 on Wednesday, according to a New York-based sellside desk analyst. But it was also lower in trade at 115.654, which was 1.2 points lower on the day, according to Trace data.

Shares of the company actually ended higher by 26 cents, or 0.5%, at $48.60 on Wednesday.

Last week, D.R. Horton reported a quarterly loss of $20.4 million, or 6 cents per share, which was larger than the 3-cent-per-share loss analysts had expected.

Lennar's newer 2.75% convertibles due 2020 traded at 114 versus a share price of $19.75, which was little changed on recent trades.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Avatar Holding Inc. Nasdaq: AVTR

D.R. Horton Inc. NYSE: DHI

EMC Corp. NYSE: EMC

Hovnanian Enterprises Inc. NYSE: HOV

Lennar Corp. NYSE: LEN

Massey Energy Corp. NYSE: MEE

Savient Pharmaceuticals Inc. Nasdaq: SVNT

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