PDL BioPharma, Human Genome in trade amid takeout talk; Magma finalizes exchange offer

By Rebecca Melvin

New York, Sept. 14 - A couple of convertible biotech names were in focus on Monday as takeout rumors came to a boil again after being on the back burner.

PDL BioPharma Inc.'s two convertible issues were indicated higher by about 0.125 point as the rumor that Roche will make a bid for the Incline Village, Nev.-based drug developer was rekindled by options activity, according to a New York-based sellside trader.

Human Genome Sciences Inc. convertibles were in trade as its underlying shares jumped 6.5% amid continued rumors that GlaxoSmithKline will try to take over the company.

Elsewhere in the secondary market, an airline company and a natural gas producer - which are members of two sectors that have been out of favor of late - were in trade. US Airways Group Inc.'s newer convertible changed hands at 108 versus a share price of $4.00, which was up about a point from previous sales, extending a move started last week.

Chesapeake Energy Corp. was also in trade again amid a rally in natural gas futures, continuing strength from last week after an unexpectedly bullish inventory report.

In other market news, Magma Design Automation, Inc. announced a final exchange offer for about half of its 2% convertible senior notes due May 2010 for 6% paper due 2014. The company plans to retire the balance of the notes.

In the primary market, Sonic Automotive Inc. launched a $125 million offering of 20-year convertible senior notes that it planned to price after the market close on Thursday.

The paper wasn't heard in the gray market yet, and Sonic Automotive's existing paper, including a 4.25% convertible, which will be bought back with some of the proceeds, didn't really react to the launch. A New York-based sellside analyst said the 4.25% convertibles looked about a point higher on the news.

It was a pretty quiet session overall, with little in terms of news headlines to spark activity.

Takeout talk boosts PDL BioPharma

PDL BioPharma's 2% convertibles due February 2012 were seen higher by about 0.125 point, with one New York-based sellsider making the market about 97.25 bid, 98 offered versus the stock at $9.13.

PDL's 2.75% convertibles due 2023 were also up about 0.125 point at 115.625 bid, 116.375 offered versus the $9.13 share price.

Shares of the drug developer were higher by 29 cents, or more than 3%.

The company has been bandied about as a takeover candidate, and Roche has been rumored to be considering a bid.

"All the biotechs are being rumored as takeover targets, really. But we specifically heard PDLI today with its equity up 3%," a sellsider said.

"We moved them up an eighth of a point on a dollar-neutral basis, but only odd lots have traded. They have a special dividend coming up, and people are waiting on a ratio adjustment. That's why the stock has been bouncing," the sellsider said.

Sonic unseen in the gray

Sonic Automotive planned to price about $125 million of 20-year convertible senior notes after the market close on Thursday, which were talked to yield 5.5% to 6%, with an initial conversion premium of 22.5% to 27.5%.

The proposed paper of the Charlotte, N.C.-based automotive retailer wasn't seen in the gray market. But that wasn't particularly surprising given that it was a rather slow Monday and since the paper isn't expected to price until Thursday, a New York-based sellside analyst said.

Sonic Automotive also plans to price 9 million shares of stock, with a 1.35 million share greenshoe.

The registered deals are being sold via J.P. Morgan Securities Inc. and Bank of America Merrill Lynch.

The new convertible will be used to pay down debt, including two outstanding convertible issues and a credit facility.

The company's 2006 credit facility matures in February 2010. As of June 30, the company had $80 million outstanding on the credit facility, along with a $206.4 million borrowing base, $77.5 million of letters of credit, and additional borrowing of $48.9 million, the sellside analyst pointed out.

Bank of America and JPMorgan are both participants in the credit facility, along with others, and the new convertible offering, the analyst pointed out.

"It makes sense that the company is coming back to the convert market," the sellsider said.

Of Sonic Automotive's existing convertibles, the 4.25% convertible senior subordinated notes due 2015 (of which there is about $160 million outstanding and which holders can put in November 2010), has been very inactive of late.

"We don't have a lot of quotes on the name. Now that they are doing the new line, [holders] are likely going to sit on it," the sellsider said. As for the company, "They still have a lot of cleaning up to do," the sellsider said, referring to the company's balance sheet.

"It's still a risky credit. The existing convertibles are up maybe a point. People are not jumping on this new convertible," the sellsider said.

The shorter dated 6% convertible senior subordinated notes due 2012, of which there is about $85.6 million outstanding, come due after the putable one.

"They are going to get some capital in; work with the banks, so they can buy back the convertibles. It's very clear what's going on. There are no surprises here. And it's happening across the board," the sellside analyst said.

The planned new convertible bonds are non-callable for five years, with puts in years five, 10 and 15. There is contingent conversion at a price hurdle of 130%.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Human Genome Sciences Inc. Nasdaq: HGSI

Magma Design Automation Inc. Nasdaq: LAVA

PDL BioPharma Inc. Nasdaq: PDLI

Sonic Automotive Inc. NYSE: SAH

US Airways Group Inc. NYSE: LCC

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