Bank of America, Washington Mutual, Wachovia gain; Teva climbs; Sino-Forest, Trina quiet on debuts

By Kenneth Lim

Boston, July 18 - Financials continued to feature prominently in an otherwise lackluster session for the convertible market on Friday.

Bank of America Corp., Washington Mutual Inc. and Wachovia Corp. continued to climb out of the holes created over the past week, but the recovery pace slowed down somewhat.

Teva Pharmaceutical Industries Ltd. gained a few points after the company announced that it was buying rival Barr Pharmaceuticals Inc. in a cash-and-stock transaction.

Newcomers Sino-Forest Corp. and Trina Solar Ltd. had quiet openings in the secondary market, as investors said interest in the deals were limited.

Some traders stay aside

Trading remained slow on Friday as uncertainty continued to plague investors.

"I've just been doing a little gamma trading," a convertible trader said. "I've looked. I just don't see anything attractive out there.

Financials continue recovery

Financial names finished the week slightly better than when they started on the back of the rally that began mid-week, giving cheer to some investors and hurting others, a sellside trader said.

"I think some of the hedge guys got hurt Tuesday, Wednesday, when the stocks came back up so quickly and the bonds were kind of left behind," the trader said.

"But I think it's slowly becoming better. On the whole I think it ended up kind of unchanged this week. Just philosophically, because the financial sector is a bellwether for the rest of the economy, when it's doing better most things in general are also better, not necessarily in terms of prices but I think in terms of the mood of the market. At least there isn't as much panic in the market."

Bank of America's 7.25% convertible preferred gained about 2 points outright to trade at 88.5 against a stock price of $27.125. Bank of America common stock (NYSE: BAC) closed at $27.49, up by 3.74% or $0.99.

Bank of America is a Charlotte, N.C.-based consumer bank.

Wachovia's 7.5% convertible preferred also added about 1.5 points outright. It traded at 72 versus a $13 stock price. Wachovia common stock (NYSE: WB) closed at $12.97, down by 3.5% or $0.47.

Wachovia, a consumer bank, is also based in Charlotte, N.C.

Seattle, Wash.-based Washington Mutual was also in the gainer's column. Its 7.75% convertible preferred rose about 2.5 points outright, trading at 55.5 versus a stock price of $5.90. Shares of Washington Mutual (NYSE: WM) gained 18.64% or $0.93 to close at $5.92.

Interest in the three banks came ahead of their expected earnings reports in the coming week.

"People are watching earnings quite closely," a sellside desk analyst said. "I think Citigroup, JPMorgan really helped to provide a bit of reassurance this week, but next week I think it's anything goes again. I think one of the concerns is spreads could widen again if the results are bad."

Teva gains with stock

Teva Pharmaceuticals' 0.25% convertible due 2026 and its 1.75% convertible due 2026 each gained about 2 points outright after the company announced an acquisition of Barr Pharmaceuticals.

The 0.25% convertible traded at 100 against a stock price of $41.25, while the 1.75% convertible was seen at 106.5 versus the same price. Teva common stock (Nasdaq: TEVA) increased by 4.43% or $1.82 to close at $42.87 on Friday.

"Teva was active, up a couple of points in line," a convertible trader said.

Petach Tikva, Israel-based Teva, a generic drug maker, said on Friday that it was buying Woodcliff Lake, N.J.-based Barr in a deal valued at $7.46 billion. Barr shareholders will receive $39.90 in cash and 0.6272 of a Teva American Depositary Receipt. Teva will also assume $1.5 billion of Barr's debt.

The acquisition is expected to close in late 2008.

The deal was a good strategic move by Teva, a sellside convertible analyst said.

"I think it's a good deal from a strategic standpoint," the analyst said. "The market obviously likes it. I think it definitely adds to their product offerings and markets, and they will probably be able to save some costs down the line. They're paying for the cash portion using cash on hand and they said they might be raising more debt. But cash isn't really a big problem for Teva, so I think they can afford some additional leverage."

The analyst said the biggest concern would probably be on the operational side.

"It usually isn't that big of a problem in the sector, but I guess one concern would be how well Teva will be able to integrate all the companies it's been buying," the analyst said, referring to Teva's acquisitions of Ivax and CoGenesys and its plan to buy Bentley Pharmaceuticals.

New deals muted on debuts

New deals by Trina Solar and Sino-Forest made quiet entrances into the secondary market on Friday, with a number of traders saying they hadn't seen anything in the names.

"Sino-Forest is kind of a Canadian deal, it's not something we really do," a sellsider said.

A convertible trader said Trina Solar also probably had limited interest.

"They had to price it cheap just to get it out the door," the trader said. "I think the problem with both these deals is they're based overseas and they come with all the concerns about reporting and such. The other thing is guys are probably a little more cautious about what they're investing in these days."

Trina priced its $120 million of five-year convertible senior notes at the cheap end of talk to yield 4% with an initial conversion premium of 21% over a concurrent stock lending facility.

The notes were offered at par. Price talk guided for a coupon of 3.5% to 4% and an initial conversion premium of 21% to 27%, market sources said. Trina common stock (NYSE: TSL) closed at $28.13 on Friday, lower by 8.1% or $2.48.

There is an over-allotment option for a further $18 million.

Credit Suisse Securities (USA) LLC, ABN Amro Bank NV, London Branch, and Deutsche Bank Securities Inc. were the joint bookrunners of the registered off-the-shelf offering.

Trina Solar, a Changzhou, China-based maker of solar-power products, said it will use about $90 million of the proceeds to expand its manufacturing lines for silicon ingots, wafers, solar cells and solar modules. It will use another $20 million to buy raw materials, and the remaining proceeds will be used for research and development and general corporate purposes.

Sino-Forest priced its $300 million of five-year convertible senior unsecured notes at the midpoint of talk to yield 5% with an initial conversion premium of 35%.

The notes were offered at par. Price talk was at a coupon of 4.75% to 5.25% and an initial conversion premium of 32.5% to 37.5%. Sino-Forest common stock (TSX: TRE) slipped 1.66% or C$0.25 to close at C$14.80 on Friday.

Merrill Lynch and Credit Suisse were the underwriters for the deal, which was offered in the United States under Rule 144A and under Regulation S in international markets. There is an over-allotment option for an additional $45 million.

Sino-Forest, a Mississauga, Ont.-based commercial forestry operator in China, said it will use about $230 million of the proceeds as initial capital to acquire plantation forests in the Fujian province. It will use about $15 million to lease land for planting jatropha trees, and any remaining proceeds will be used for working capital.

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