Convertibles quiet; Micron extends gains; Transocean mixed; Amylin holds up as stock sinks

By Rebecca Melvin

New York, Dec. 23 - The convertible bond market was mostly quiet again on Wednesday, the day before Christmas Eve, with chip maker Micron Technology Inc., which extended gains a day after reporting strong quarterly earnings, and Transocean Inc. among top-volume names.

Transocean traded mixed, with its series A and series B convertibles lower by 0.5 point and 0.625 point, respectively, and the third issue, the 1.5% series C convertibles, adding a point. Transocean's common shares gained $1.39, or 1.7%, to $84.26.

Amylin Pharmaceuticals Inc.'s 2.5% convertibles held in or expanded on a hedged basis as their underlying shares fell 10%. A Citigroup analyst said the Food and Drug Administration is requiring additional studies on Amlyin's Byetta diabetes drug for use as a stand-alone therapy.

Eastman Kodak Co. convertibles looked stronger, changing hands at 92 versus a share price of $4.30 on Wednesday, compared to 90.5 versus a share price of $4.20 on Monday.

Homebuilder D.R. Horton Inc. also saw its convertibles steady to higher after new home sales data Wednesday, but sector-sister Beazer Homes USA Inc. was quiet.

U.S. sales of new homes unexpectedly plunged 11% for November to their lowest level since April. The slump from October shows that a recovery in housing isn't yet on stable footing. The decline was attributed at least partially to the fact that a deadline for first-time buyers to qualify for a tax credit has been pushed out to April.

Traders said the market overall was "extremely quiet." Volume at midsession was an anemic $112 million, according to a Connecticut-based sellside trader.

Micron edges up ahead of earnings

Micron's 4.25% convertibles extended gains to trade above double par as shares rose 5% on news of the DRAM and NAND memory maker's better-than-expected profit.

The Micron 4.25% convertible senior notes due 2013 jumped to 207, up from 196.50 bid, 197.50 offered versus a stock price of $9.31 on Tuesday ahead of earnings.

According to Trace data, the new price was up 10 points, extending a 10-point gain on Tuesday.

Shares of the Boise, Idaho-based maker of DRAM and NAND flash memory jumped 6% to close to $9.98.

Micron reported a fiscal first-quarter profit of $204 million, or 23 cents a share, compared with a loss of $718 million, or 93 cents a share, in the year-earlier period.

Revenue was up 23% to $1.74 billion from $1.40 billion as improving demand and rising prices for memory chips helped the company post its first quarterly profit in more than two years.

Analysts had expected Micron to report earnings of 6 cents a share on revenue of $1.6 billion.

The profit represented the company's first in three years, and its shares jumped to a new 52-week high on the news. Its previous 52-week high was $9.48.

Amylin hold up as stock sinks

Amylin's 2.5% convertibles due 2011 traded late in the session at 95.75, which was down 0.75 point from the previous level, according to Trace data.

Meanwhile, a New York-based sellside analyst said that the Amylin 2.5s traded at 96.5 versus a share price of $14.00.

Shares of the San Diego-based biotech slumped $1.50, or nearly 10%, to $13.97 on Wednesday.

Citi issued a report discussing some side effects, including pancreatitis, that drug regulators want further study on, a New York-based sellside trader said.

"They approved the drug anyway. Consensus from my accounts and my personal view is that this was largely old news, but the stock sold off," the sellsider said.

Citigroup analyst Yaron Werber said in a note to investors Wednesday that he had obtained a copy of the FDA's approval letter and that the agency was requiring animal and human studies aimed at clarifying the risk of pancreatitis posed by the drug.

"The FDA considers post-marketing reports of acute pancreatitis (fatal and non-fatal hemorrhagic or necrotizing pancreatitis), acute renal failure and thyroid neoplasms as 'new safety information' and is requiring Amylin to conduct additional studies," Werber wrote.

Amylin and Eli Lilly & Co. co-market the drug and announced Oct. 30 that the FDA had cleared the drug for use as a stand-alone treatment for patients with type 2 diabetes and that prescribing information would warn about the risk of pancreatitis in patients with severe kidney disease. The statement didn't say the FDA wanted more studies.

D.R. Horton steady to higher

D.R. Horton's 2% convertibles traded at 112.563, which was up a point over previous levels, according to Trace data. The convertibles had gotten as high as about 125 in September and have been drifting lower since then.

Shares of the Fort Worth-based homebuilder were just slightly lower, down 3 cents, or 0.27%, at $11.12 on Wednesday.

A sellside analyst said that he saw the valuation of the D.R. Horton convertibles as "ridiculously rich."

He said that there is a good reason for its richness. "It's so unique, and outright guys want to be exposed to that sector," the analyst said.

Mentioned in this article:

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Beazer Homes USA Inc. NYSE: BZH

D.R. Horton Inc. NYSE: DRI

Eastman Kodak Co. NYSE: EK

Micron Technology Inc. NYSE: MU

Transocean Inc. NYSE: RIG

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