Lincare flat to higher, Steel Dynamics steady; GMX Resources, Forest City, Dole to price

By Rebecca Melvin

New York, Oct. 19 - A couple of names in convertibles traded Monday ahead of the release of their third-quarter earnings reports after the close of markets. Those names moved up mostly in tandem with their underlying shares, but on a dollar-neutral basis were seen flat on the day.

Steel Dynamics Inc. changed hands little moved ahead of earnings that were lower year over year, but better than estimates. Its forecast was for "somewhat lower" fourth-quarter earnings.

Lincare Holdings Inc. traded at 101 versus a stock price of $31.75, which was a point higher outright, and flat to a bit better on a dollar neutral basis. The provider of home delivery of oxygen and respiratory therapies posted third-quarter earnings that were a lower by 32% year over year, hurt by Medicare reimbursement reductions related to new legislation. But the result beat estimates by a penny.

Human Genome Sciences Inc.'s convertible paper due 2011 paper traded as high as 150.25 versus a share price of $20.50, according to a market source. Monday's levels were up several points from previous markets.

In the primary, GMX Resources Inc. launched a $70 million offering during the session, but price talk wasn't expected until late Tuesday or early Wednesday on the deal that was expected to price Thursday.

Real estate company Forest City Enterprises Inc. announced a deal after the market close for $175 million of seven-year convertibles, scheduled to price after the end of trading on Tuesday.

Dole Food Co. Inc. was also expected to price a mandatory convertible via Goldman Sachs, market sources said. The deal was talked to yield about 7%, with an initial conversion premium of 20%. But further details on the offering could not be ascertained.

Dole is also pricing an initial public offering of common stock.

Lincare flat to better

Lincare Holdings 2.75% series A convertibles due 2037 traded at 101 versus $31.75, which was up from just under par previously.

Shares of the Clearwater, Fla.-based company ended the session up 51 cents, or 1.6%, at $32.26, which compared to a 52-week high of $33.98 on Sept. 22.

For the just ended quarter, Lincare's net revenue was $392.6 million, compared with net revenue of $405.7 million for the third quarter of 2008. Net income for the quarter was $36 million, compared with net income of $53.3 million for the third quarter of 2008. Diluted earnings per share were $0.53 for the quarter, compared with $0.73 diluted earnings per share for the comparable prior year period.

Lincare revenue was $1.145 billion, compared with net revenues of $1.249 billion for the comparable period in 2008. Net income for the nine months ended September 30, 2009, was $95.5 million, compared with net income of $171.7 million for the first nine months of 2008. Diluted earnings per share were $1.38 for the nine months ended Sept. 30, 2009, compared with $2.28 diluted earnings per share for the comparable period last year.

Lincare attributed the change to dramatic reductions in Medicare reimbursement for the company's primary product lines resulting from the implementation on Jan. 1, 2009 of previously enacted legislation. The legislation included reductions in Medicare payment amounts of 9.5% for some items of durable medical equipment, including oxygen.

Steel Dynamics steady

Steel Dynamics' 5.125% convertibles due 2014 traded at 118.50 versus a share price of $15.50 on Monday, and the market was left at 117.25 bid, 118.50 offered, versus a $15.50 stock, according to a market source.

Shares of the Fort Wayne, Ind.-based steel products maker finished the session down 7 cents, or 0.45%, or $15.32.

Steel Dynamics, which is the sixth-largest steelmaker in the United States, reported net income of $69 million for the third quarter, or $0.30 per diluted share. The quarter's earnings compared to net income of $193 million, or $0.98 per diluted share, in the third quarter of 2008.

The principal drivers behind third quarter earnings exceeding September guidance, the company said, were stronger-than-anticipated cost compression, resulting from higher production and shipping volumes at its flat roll division, and better than expected performance in metals recycling.

Third-quarter net sales of $1.2 billion increased significantly from $792 million in the second quarter of 2009, up 48%, but were down 54% from $2.6 billion when compared to the third quarter of 2008, a period when pricing reached historical peaks.

Steel Dynamics raised its third-quarter earnings forecast last month, citing continued strength in orders for flat-roll steel and stronger volumes in metal recycling.

Human Genome 2011 paper trades

Human Genome Sciences 2.25% convertibles due 2011 traded at 150.25 versus a share price of $20.50, up 3 to 4 points.

Its 2.25% convertibles due 2012 weren't heard in trade.

The Rockville, Md.-based biopharmaceutical company's shares jumped 91 cents, or 4.6%, to $20.87.

The company said on Monday that will be paid $75 million by Swiss drugmaker Novartis AG for successful clinical testing of the hepatitis C drug candidate Zalbin.

The companies plan to file for U.S. and European regulatory approval in the fourth quarter for Zalbin.

Human Genome and Novartis will market the drug together in the United States, sharing costs and profits. Novartis will sell the drug in all other markets and make royalty payments to Human Genome.

So far Human Genome Sciences has received almost half of a possible $507.5 million in milestone payments on the drug.

In August, Human Genome's convertibles jumped on rumors and a newspaper report that it might be acquired by GlaxoSmithKline plc. At that time, the Human Genome 2.25% convertibles due 2011 traded at 139 versus a share price of $19. Its underlying stock price hit a 52-week high of $22.78 on Aug. 26.

GMX plans $70 million of convertibles

GMX plans to price $70 million of six-year convertibles together with an offering of 5.75 million shares of common stock, with final terms expected after the close on Thursday, according to a syndicate source.

Price talk on the convertibles is expected late Tuesday or early Wednesday, which will give the issuer and its bookrunners time to gain feedback from investors on the deal.

Both offerings are being sold via joint bookrunners Credit Suisse Securities LLC and Jefferies & Co.

Proceeds will be used to repay a portion of outstanding indebtedness under its revolving bank credit facility, to repay all of the company's outstanding senior secured notes, and for general corporate purposes.

The senior notes will be non-callable for three years with no puts. They will have standard dividend and takeover protection, and contingent conversion at a price trigger of 130%. The paper will rank pari pasu with its 5% convertibles due 2013.

Oklahoma City-based GMX is an oil and gas exploration and development company.

Forest City plans $175 million of convertibles

Forest City's deal was the only one to provide price talk on Monday. It was talked to yield 5% to 5.5%, with an initial conversion premium of 22.5% to 27.5%, according to a market source.

The Rule 144A transaction has a $25 million greenshoe.

The convertible senior notes will be non-callable for life, and will be accompanied by a convertible note hedge transaction.

Proceeds will be used to reduce outstanding borrowings under a $750 million revolving credit facility, repay debt, fund existing development projects and for general corporate purposes. A portion of proceeds from the sale will be used to cover the cost of the convertible note hedge transactions.

Cleveland, Ohio-based Forest City owns, develops, manages and acquires commercial and residential real estate properties.

Mentioned in this article:

Dole Food Co. Inc. Nasdaq: LNCR

Forest City Enterprises Inc. NYSE: FCE.A

GMX Resources Inc. Nasdaq: GMXR

Human Genome Sciences Inc. Nasdaq: HGSI

Lincare Holdings Inc. Nasdaq: GILD

Steel Dynamics Inc. Nasdaq: STLD

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