Mylan contracts slightly in 'better for sale' market; Illumina adds; Microsoft at 102

By Rebecca Melvin

New York, June 27 - Trading in the convertible bond market was thin on Monday but pretty broad based amid a continuing trend of there being more convertible paper offered for sale than bid for compared to recent months, market sources said.

"It was very light volume," a New York-based buysider said of Monday's session.

Mylan Inc.'s 3.75% convertibles contracted slightly on Monday with the underlying shares slightly higher.

The Canonsburg, Pa.-based generic drug maker launched a generic version of AstraXeneca's treatment for Crohn's disease, Entocort. But a New York-based sellsider said, "Everything was up a little, so it didn't really matter [about the Mylan news]."

On the whole, the health care sector has done better than other sectors in the current market environment although Mylan did worse on Monday. Still, "it was nothing substantial," a trader said.

Illumina Inc., the San Diego-based developer of genetic research tools, is seeing its recently priced convertibles trade up decisively over par compared to the discount to par at which it first priced in March.

Microsoft Corp. traded on an outright basis at 102, which was steady with the level of a trade reported last Tuesday and in contrast to movement in the underlying shares.

Microsoft shares moved down late in the previous week but bounced back higher on Monday.

Smithfield Foods Inc. was also a trader on Monday and it looked at least in line, according to a West Coast-based sellsider.

Traders said there were a lot of price moves on Monday, but on very little volume, so it was difficult to tell exactly what the convertible bond market did.

"It's quiet," a New York-based trader said, adding that investors are "waiting for Greece, rates and QE ending."

On Greece's debt crisis the news Monday was that the French banks have agreed to accept slower repayment of debt, giving the southern European country more time to meet its other financial obligations. French banks hold about $21.3 billion of Greek government debt.

Meanwhile, the Fed's current quantitative easing program is set to expire June 30 and is not set to be renewed.

Mylan contracts some

Mylan's 3.75% convertibles due 2015 traded at 186 versus an underlying share price of $23.10 during the session. At the close, against a $23.23 stock price, the convertibles looked about 186.70.

"They were in about 0.25 point to 0.5 point - nothing substantial," a trader said.

He said that given that the overall market is not expanding, it wasn't particularly noteworthy that the Mylan notes came in.

"Everything is in a little bit," he said, and everything is for sale - a situation that has been in play for a couple of weeks.

Nevertheless, the health care sector has been a little bit more resilient than other sectors, the trader said.

Shares of the Canonsburg, Pa.-based maker of generic drugs traded up a little, closing at $23.23, which was up 12 cents on the day, or 0.5%.

Mylan announced Monday that the U.S. District Court for the District of Delaware ruled that Mylan subsidiary Mylan Pharmaceuticals Inc.'s abbreviated New Drug Application for the generic version of AstraZeneca's Entocort capsules, a treatment for Crohn's disease, hasn't infringed on patent.

Illumina adds with shares

Illumina's 0.25% convertibles due 2016, which came at a reoffered discount to par of 98.25 when initially offered in mid March, traded Monday at 106.5 versus an underlying share price of $74.00. That compared to trades at 105.75 versus a share price of $73.00 on Friday.

The maker of medical research equipment has seen its shares rise 15% since the $800 million five-year convertible bond offering priced March 13, on the heels of Japan's deadly earthquake and tsunami that sent the financial markets reeling.

That deal "didn't go well. It didn't price well. But I think it's fine now," a New York-based trader said.

A second trader said, "Illumina priced rich initially and I think is equally rich now but with the stock and bonds up here, the premium is only around 20%, and that might make the profile look better to some."

There was a very large stock print in Illumina early Monday that looked to be on swap with the convertibles, sources said.

The low-coupon Illumina convertibles were a private deal under Rule 144A, and its trades aren't included on Trace data.

Microsoft steady at 102

Microsoft's 0% convertibles due 2013 traded at 102 outright on Monday, which was unchanged from a trade reported last Tuesday at 102.

The underlying shares of Redmond, Wash.-based Microsoft climbed Monday by 90 cents, or 3.7%, to $25.20. That represented a bounce from last week's low levels and compared to earlier this month when Microsoft stock touched a low of $23.71.

Monday's share activity was boosted by an unconfirmed report that the software giant's Windows 8 might come earlier than expected in April 2012. Microsoft didn't confirm the reports and has not provided a timeline for the release of Windows.

Smithfield about in line

Smithfield's 4% convertibles due 2013 traded at 117.75 versus an underlying share price of $21.85 on Monday. That compared to a level of 117.375 bid, 117.625 offered versus a share price of $21.87 on Friday, according to two separate pricing sources.

"It is tough to tell if it is better or worse. At the very least, I would suggest it is trading in line with Friday's market and where the stock closed today," one of the sources said.

Shares of the Smithfield, Va.-based pork producer toggled the flat line early in the session and ended lower by 3 cents, or essentially flat, at $21.84.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Microsoft Corp. Nasdaq: MSFT

Mylan Inc. NYSE: MYL

Smithfield Foods Inc. NYSE: SFD

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