Pioneer bringing new convertibles; doubts plague Countrywide; Schering-Plough down on drug test

By Evan Weinberger

New York, Jan. 14 - Countrywide Financial Corp. convertibles rose Monday, but their levels betray a small hint of doubt that the mortgage lender's takeover by Bank of America may not come through.

Intel Corp. and EMC Corp. convertibles rallied with the tech sector on strong preliminary earnings from International Business Machines Corp.

Schering-Plough Corp. preferreds were beaten down on a study showing the company's popular cholesterol-fighting drug did little to fight against heart attacks and strokes.

Standard Pacific Corp. convertibles sunk on a potential management shakeup. A trader thinks investors getting out of Standard Pacific are going the wrong way.

Overall, however, the day was relatively quiet, traders and analysts reported. There was one general rule throughout trading - apparently for several weeks, a trader said. "Things are still trying to figure themselves out," he said. "If you're a financial name, your credit is soft and people are better sellers."

Equity markets were not soft Monday, however. IBM put out its preliminary fourth-quarter earnings report Monday.

IBM said it expects to post a 24% jump in earnings over the fourth quarter of 2006, beating expectations.

That news was the engine for a strong day on Wall Street.

The Dow Jones Industrial Average jumped 171.85 points, or 1.36%, to 12,778.15.

The Nasdaq surged 38.36 points, or 1.57%, to 2,478.30.

The Standard & Poor's 500 closed at 1,416.25, a gain of 15.23 points, or 1.09%, on the day.

Pioneer bringing deal

After the close, Pioneer Natural Resources Co. launched $400 million in convertible senior notes due Jan. 15, 2038.

The convertibles are talked at a 2.875% to 3.375% coupon and a 60% to 65% initial conversion premium.

There is a $60 million greenshoe.

The convertibles are set to price Tuesday after the market close.

They have call protection until Jan. 15, 2013 and are putable on Jan. 15 in each of 2013, 2018, 2023, 2028 and 2033.

Warrants are talked to cover 60% to 65%.

The convertibles carry takeover protections and a net-share settlement agreement.

Pioneer is a Dallas-based oil and gas driller. The company plans to use the proceeds to repay some of its existing bank debt.

Are there doubts on Countrywide deal?

Bank of America's takeover of Countrywide announced Friday appears to remain on solid ground, but market watchers have told Prospect News that they have seen some investors behaving as if they are not quite sure.

One area where they have seen this is in Countrywide's convertible bonds, which, according to one sellside convertibles analyst, "yield to put are trading a lot wider than if they were an implied BofA credit."

Both of Countrywide's convertibles mature in 2035. Countrywide's Libor minus 350 basis point series A convertible senior debentures have a put in October of this year. The company's Libor minus 225 bps series B convertible senior debentures have their first put in May 2009.

A trader said that if investors were completely sold on the deal, he would have expected to see Countrywide's two convertibles trading closer to par since the deal was announced.

Last week, both convertibles were trading in the low- to mid-60s. Since then, the A's have moved up to above 90 while the B's have moved back into the 80s.

The series A convertibles closed Monday at 90.9057 versus a closing stock price of $6.09. They closed Friday at 88.0579 versus a stock price of $6.33.

The series B convertibles closed Monday at 87.9623 versus a stock price of $6.09. They closed Friday at 86.6231 versus a stock price of $6.33.

Another sellside analyst said Friday that he saw a risk-arb spread of 9% on the deal going through.

Charlotte, N.C.-based Bank of America said that it will acquire Calabasas, Calif.-based Countrywide for around $4 billion on Friday. Countrywide, the largest mortgage lender in the United States, has been hammered in the subprime mortgage meltdown, with its stock losing 80% of its value since this time last year.

Bank of America pumped $2 billion into Countrywide in August to attempt to boost the struggling lender. Since then, Countrywide stock has tumbled more than 70%.

"They're doing this deal," the first analyst said. "The thought to me, if they end up backing away from this, it's a huge disaster for the market."

With Bank of America claiming to have done its due diligence on the deal, he said, backing away from the deal would mean a significant collapse in Countrywide's finances.

The trader said a collapse of the deal "would be a huge psychological blow to the market." He added that he expects the deal to go through.

Countrywide stock (NYSE: CFC) fell 24 cents, or 3.79%.

IBM rise sparks tech

The positive earnings report from IBM sent a buzz through the rest of the tech sector Monday, as evidenced by the rise in the Nasdaq and several convertibles.

Santa Clara, Calif.-based chip giant Intel's 2.95% junior subordinated convertible notes due Dec. 15, 2035 closed Monday at 101.362 versus a closing stock price of $23.08. They closed Friday at 98.6146 versus a stock price of $21.99.

Intel stock (Nasdaq: INTC) moved up $1.09, or 4.96%.

Hopkinton, Mass.-based data storage tools producer EMC saw both of its convertibles rise on the day.

EMC's 1.75% convertible senior notes due Dec. 1, 2011 closed Monday at 128.133 versus a closing stock price of $16.80. They closed Friday at 124.433 versus a stock price of $16.00.

EMC's 1.75% convertible senior notes due Dec. 1, 2013 closed Monday at 130.645 versus a stock price of $16.80. They closed Friday at 125.009 versus a stock price of $16.00.

EMC stock (NYSE: EMC) rose 80 cents, or 5%, on the day.

Schering-Plough burned by study

For more than a year, Kenilworth, N.J.-based Schering-Plough and Merck & Co. held back the results of a study into its cholesterol-fighting drug Vytorin.

After the results were announced Monday, it's easy to see why the drug companies held the results.

Vytorin is a combo drug made up of Merck's Zocor and Schering-Plough's Zetia.

The study found that patients on Vytorin saw no better results than patients on heavy doses of Zocor.

More troubling, the study found, that patients taking Vytorin or Zetia saw increases in the fatty plaques in the blood most responsible for heart attacks and strokes. Cholesterol went down with Zetia, however.

The study was done on 720 patients. The two companies have scheduled further tests involving up to 20,000 other people.

In other Schering-Plough news, the company said its Pegintron drug worked just as well as Roche Holding AG's Pegasys in treating Hepatitis C. In fact, a lower dose of injected Pegintron worked just as well as a standard dose of Pegasys.

Schering-Plough's 6% mandatory convertible preferred stock due Aug. 10, 2013 took a hit Monday. The preferreds closed the day at 237.478 versus a closing stock price of $25.52. They closed Friday at 249.50 versus a stock price of $27.73.

Schering-Plough stock (NYSE: SGP) was down $2.21, or 7.97%, on the day.

Shakeup rumors drop Standard Pacific

Reports surfaced Friday that Irvine, Calif.-based Standard Pacific hired investment bank Miller Buckfire.

The bank is focused on corporate restructuring, and a trader said the reports led to speculation that Standard Pacific was on the verge of declaring bankruptcy.

Not so, the trader said, citing JMP Group Inc. He said the firm expects that Standard Pacific will report fully paying down its credit line, rather than the expected $50 million to $100 million balance.

"They still expect the company's cash generation capability in 2008 to not only pay off the $150 million in [senior notes] due Oct. 1, but to also provide cash to buy back other bonds in the open market," the trader said.

Standard Pacific's 6% convertible subordinated notes due Oct. 1, 2012 closed Monday at 41.875 versus a closing stock price of $2.35. They closed Friday at 44.312 versus a stock price of $2.20.

After being down more than 10% early in the day, Standard Pacific stock (NYSE: SPF) picked up 15 cents, or 6.82%, on the day.

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