PSS retreats, Affiliated Managers quiet on trading start; Wyeth finds support; Penn Virginia rallies with oil

By Kenneth Lim

Boston, July 30 - PSS World Medical, Inc. slipped on its first day of trading on Wednesday amid views that the deal was rich even though it priced at the cheap end of talk.

Affiliated Managers Group, Inc. had a quiet debut, with its overnight deal believed to have been tightly held by those who were allotted its new notes.

Wyeth was seen slightly lower as its stock tumbled on negative data related to its Alzheimer's product, but the notes appeared better on a dollar-neutral basis.

In the energy sector, Penn Virginia Corp. got pushed up by mostly outright investors as oil prices swung higher.

PSS eases on debut

PSS World Medical saw its new 3.125% convertible senior note due 2014 slip about ¼ point on Wednesday even after the deal priced at the cheap end of talk.

The convertible was seen at 99.25 with the stock at $16.625 on Wednesday. The deal priced at par late Tuesday with an initial conversion premium of 27.5%. PSS common stock (Nasdaq: PSSI) closed at $16.87 on Wednesday, up by 1.38% or $0.23.

Price talk for the notes guided for a coupon between 2.625% and 3.125% and an initial conversion premium of 27.5% to 32.5%.

There is an over-allotment option for an additional $30 million.

Goldman Sachs & Co. was the bookrunner for the Rule 144A offering.

Proceeds are expected to be used to repurchase about $35 million of common stock and $150 million of the 2.25% convertible senior notes due March 15, 2024; to enter into call options overlay transactions; and for general corporate purposes.

PSS will enter into convertible note hedge and warrant transactions that will raise the effective conversion premium from the company's perspective to 70%.

PSS is a Jacksonville, Fla.-based specialty marketer and distributor of medical products.

"It just wasn't attractive enough," a sellside convertible trader said. "In this type of market, you have to give a little more to the investor if you want to move a deal. I think the underwriters were a little too aggressive. It's a solid company, but I don't think investors nowadays are interested unless something's at least 2% cheap. That's just the way it is now."

Affiliated Managers starts out quiet

Affiliated Managers priced a drive-by offering early Wednesday before the market opened, and the deal was not seen to be active after the opening bell.

"Those are usually pretty well placed, they hardly ever trade," a sellside convertible desk analyst said, referring to Affiliated Managers' repeated visits to the convertibles market.

Affiliated Managers priced the $400 million offering of 30-year convertible senior notes to yield 3.95% with an initial conversion premium of 40%, market sources said.

The convertibles were reoffered at 95. Affiliated Managers common stock (NYSE: AMG) slipped 2.28% or $2.05 to close at $87.70 on Wednesday.

There is an over-allotment option for an additional $60 million.

Banc of America was the bookrunner for the Rule 144A offering.

The convertibles are non-callable for the first five years and may be put in years five, 10, 15, 20 and 25.

The notes have dividend and takeover protection.

Affiliated Managers, a Prides Crossing, Mass.-based diversified asset management group, did not say how it will use the proceeds.

Wyeth notes find support

Wyeth's floating-rate convertible due 2024 eased by a couple of points outright on Wednesday but strengthened on a dollar-neutral basis as its common stock dropped in reaction to new data.

The convertible, which pays a coupon pegged a 6-month Libor minus 50 basis points, was seen around 99.75 against a stock price of $38.50. Wyeth common stock (NYSE: WYE) closed at $39.74 on Wednesday after shedding 11.9% or $5.37.

"I imagine it held up pretty well because of shorts," a sellsider said.

Wyeth common stock took a dive on Wednesday after the company released phase 2 clinical trial data on its experimental bapineuzumab Alzheimer's treatment. That data showed that although the drug was effective in some patients, it was not effective and caused brain swelling in others.

A number of research houses cut their price targets for the stock, and Citigroup slashed their recommendation on the stock to sell from hold. Credit Suisse reduced its stock target to $55 from $50, but kept its outperform rating on the stock.

"Despite the disappointments we cite, the market reaction on WYE shares was overdone and we remain outperform on the stock," Credit Suisse analyst Catherine Arnold wrote in a note. "Base business expectations are low (Prevnar, Relistor, cost savings), yearly growth is 6% or better through 2012 and the company's diversified business model makes it one of the most attractive targets in U.S. pharma."

The company's convertibles, which may be put in July 2009, held up better than the stock as they found their bond floor.

"It's trading around investment value," a convertible analyst said.

Wyeth remains a company with a solid credit rating, and that credit helped to support the convertible, the analyst said.

"It's a solid bond no matter what happens to the stock," the analyst said. "I would imagine these things would not go well below par, but there's definitely optionality there...When the stock goes back up these are going to ride up with it. There could be some value there."

The analyst said hedged investors probably made money from the convertibles on Wednesday.

"If they were on a high hedge I think they'd have made money," the analyst said. "Yesterday the convert was at 101, so they lost some on that, but they've made so much on the stock."

Penn Virginia better with oil

Penn Virginia's 4.5% convertible due 2012 gained about 2 points outright on Wednesday as the company's common stock rallied with the price of oil.

The convertible traded at 131 against a stock price of $60.25, while Penn Virginia common stock (NYSE: PVA) rose by 5.87% or $3.40 to close at $61.29.

"Saw buyers of PVA on the energy pop up," a convertible analyst said. "Good buy interest in that one. More outright, it looks like."

Penn Virginia common stock mirrored broad gains in the energy space as the price of oil halted a two-week slide on Wednesday. Oil rose to $126.77 on the New York Mercantile Exchange amid a drop in U.S. gasoline supplies.

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