Medtronic still active; CompuCredit sinks on dividend news; bank preferreds show gains

By Rebecca Melvin

New York, Dec. 3 - Medtronic Inc. remained a primary focus of the convertible bond market Thursday as investors continue to fix on high-quality, liquid issues as the countdown to year-end marches on. The Medtronic paper was the most actively traded during Wednesday's session.

On Thursday, the Medtronic 1.5% convertibles due 2011 were the busier of two actively traded Medtronic converts and remained steady as shares pulled lower, especially late in the session along with equities in general.

CompuCredit Holdings Corp. convertibles fell hard as their underlying shares surged on word that the consumer credit company set a dividend of 50 cents. The branded credit card provider also said it may spin off its U.S. and U.K. micro-loan business.

The payment of this cash dividend will entitle convert holders to convert their notes and receive, about $74.79 or $61.46 for each $1,000 face amount of notes, depending upon which series is held.

Cephalon Inc. was in trade again and looked to be continuing to recoup since a drop Nov. 23 when the convertibles fell with shares on mixed drug trial data.

Bank convertible preferreds in general were acting well on the heels of Bank of America Corp.'s launch of $18.8 billion of common equivalent securities, which will be convertible into common stock upon a shareholder vote.

The bank preferreds were up on the improved prospects of capital being raised beneath them, a New York-based buyside analyst said.

Bank of America's 7.25% L series convertible preferreds were up about 32 points to 878.

Convertible sources didn't consider the new B of A convertible securities - for which pricing was moved up to after the close Thursday from Monday due to demand - to be true convertibles.

"It's a dressed up secondary. It's a warrant. It shouldn't be considered debt," a New York-based sellside trader said.

Year-to-date issuance down

If the B of A securities were to be considered convertibles it would certainly bump up the league tables for new issuance in a big way.

New issuance volume for the year to date is only $34.8 billion, 39% less than 2008 issuance, and 60% less than the 2007 high of $95.2 billion.

The lack of new paper is one factor leading to strong pent-up demand for primary paper, Barclays Capital research analysts said.

Even though volume is a lot slimmer, the number of new deals is similar: 109 deals for 2009 year to date compared to 106 deals for the comparable period of 2008.

The new issue market has been characterized by especially small deals, with no mega-size offerings to speak of. November was the first time since June that a couple of large, more than $500 million-size deals, came to market.

The bigger November deals included Ford Motor Co.'s $2.875 billion of 4.25% convertibles and Liberty Global's $935 million offering. But the jump to $18.8 billion for Bank of America's offering, which is being undertaken to help pay back U.S. TARP funds, is vast.

In November, the primary market had its strongest month since May with 10 deals for a total of $5.4 billion, up from $3.2 billion in October. Ford's deal accounted for 54% of the volume.

Organic growth for November was positive, however, at $3.45 billion for the month, the highest in the last 12 months, according to Barclays Capital convertibles research.

Year to date, net organic growth has been a negative $17.1 billion, compared to negative $3.9 billion in 2008 and a positive $37.8 billion in 2007.

Medtronic still busy, steady

Medtronic's 1.5% convertible due 2011 was seen settling at 101.9, which was essentially unchanged from Wednesday, versus a share price of $42.12, which lost a percentage point.

Medtronic's 1.625% convertibles due 2013, which have a little bit more delta compared to the 2011 paper, looked to have gained a point or two to trade at 104 late in the session, compared to about 103.1 Wednesday and 102.2 on Tuesday.

Shares of the Minneapolis-based medical device maker shed 50 cents, or 1.2%, to $43.12 on Thursday.

The Medtronics of 2011 have been trading at 101-102 and have parity at 78, with 17 months left of life.

CompuCredit drops

CompuCredit's 3.625% convertibles due 2025, which originated in May 2005 and have a conversion price of $43.42, fell about 6 points to trade at 46, a Connecticut-based sellside trader said.

CompuCredit's 5.875% convertibles due 2035, which originated in November 2005 and have a conversion premium price of $52.84, were quoted at 30 bid, 35 offered, which was down about 3 or 4 points. But they weren't seen in trade, the sellsider said.

CompuCredit declared a dividend of 50 cents per share payable to holders of record as of the close of trading on Dec. 31. The dividend payment will entitle convertible noteholders to convert their notes and receive, using the stock's closing price Wednesday, either approximately $74.79 or approximately $61.46 for each $1,000 face amount of notes, depending upon which series is held.

Actual conversion prices will depend, however, upon the trading price of the company's stock during the applicable measurement periods provided for in the indentures governing the notes and any other changes in the conversion prices in the interim.

On the other hand, shares of the Atlanta-based consumer credit and related financial services provider surged 44%, or $1.2, to $3.78.

"The owners are paying themselves," the sellsider said.

Cephalon recouping

Cephalon's 2.5% convertibles traded at 104.5 versus a share price of $56.00 on Thursday, compared with 104 versus a share price of $55.50.

On Nov. 24, the Cephalon 2.5% convertibles were 102.25 versus a share price of $54.75.

Cephalon's 2% convertibles due 2015 were seen settling around 129.725, which compared to trades at 128.878-129.06 versus a share price of $55.60 on Wednesday. Shares dropped off late in the session along with an overall sell-off in equities.

The Frazer, Pa.-based biopharmaceutical company said Wednesday it has filed a lawsuit against Teva Pharmaceutical Industries Inc. for attempting to sell a generic version of Cephalon's Nuvigil sleep disorder drug.

Cephalon said Teva USA is violating two patents supporting Nuvigul in trying to get its generic approved. It is accusing Teva of infringing on patents that don't expire until 2015 and 2024.

Teva filed for FDA approval of its generic in October. It alleges that the Nuvigil patents are invalid.

"We believe that our Nuvigil patents, approved by the U.S. Patent & Trademark Office, are valid, enforceable and are infringed by the proposed Teva Anda product," Cephalon executive vice president and general counsel Jerry Pappert said in a press release. "Our patent position for this product is strong and we intend to vigorously defend our intellectual property."

Mentioned in this article:

Bank of America Corp. NYSE: BAC

Cephalon Inc. Nasdaq: CEPH

CompuCredit Holdings Corp. Nasdaq: CCRT

Medtronic Inc. NYSE: MDT

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