Beazer hangs around par; Phelps Dodge dividend crushes hedgers; CV Therapeutics up on drug news

By Ronda Fears

Nashville, June 3 - Several surprises shook up the convertible market Thursday, providing an overall soft tone as stocks took a hit and Treasury yields edged higher. Phelps Dodge Corp. reinstated its common stock dividend, which sent the mandatory spiraling lower, and Barnes & Noble Inc.'s call on its convertible caught the issue above the call price.

After the close, traders said Tyco International Ltd. could get a nice pop on Moody's upgrading the credit back into investment-grade territory, which opens the door for a different group of investors in the name. Tyco convertibles were off Thursday by about a half-point.

Gainers were scarce on Thursday, but those that did move higher were eye-popping. CV Therapeutics Inc.'s newest convertible shot up 9.5 points on progress in further trials for its angina treatment, which had been rejected by regulators six months ago, moving it closer to commercialization.

Most of the biotech group was lower, however. One market source noted that Alexion Pharmaceuticals Inc. was active, with the 5.75% convertible in the 101 to 102 range, a bit below its call price. The company Thursday reported a fiscal third quarter net loss of $15.2 million, or 69 cents a share, versus a net loss of $19.8 million, or $1.09 a share, a year before on revenues that were basically flat.

Auto paper was also active with the General Motors Corp. convertibles edging higher while the Ford Motor Co. convert slipped.

While oil and fuel prices dropped on OPEC's agreement to boost output and an expected rise in U.S. crude and gasoline supplies, airline paper continued to slide as the chairman of the House Aviation subcommittee said in a hearing Thursday that the U.S. airline industry must be prepared to "fend for themselves" and not look for another bailout package like the one set up in the aftermath of Sept. 11, 2001.

Beazer issue straddles par

Beazer Homes USA Inc. got an upgrade from Moody's following its convertible offering, but the deal did not move far from the par mark after it broke to trade Thursday.

It saw plenty of action, sellside traders said, but traded slightly off 100 - sometimes lower, sometimes higher - before settling the day right at par. In the gray market before pricing, the issue was bid at 0.25 points over par with an offer at 0.625 points over.

The Atlanta-based homebuilder printed the $150 million convertible with a 4.625% coupon and a 55.5% initial conversion premium, pricing right at the midpoint of guidance for a yield of 4.375% to 4.875% and 53% to 58% initial conversion premium.

Sellside analysts put the issue about 0.875% expensive at the middle of price talk.

After the market closed Thursday, Moody's raised the ratings of Beazer and put the new convertible at Ba1 with a stable outlook. Beazer's other senior notes were upped to Ba1 from Ba2.

Moody's said that despite having to finance rapid expansion over the past three to four years during the construction boom, Beazer has managed to reduce debt leverage. The rating agency said the debt-to-capitalization ratio improved to 42.7% at fiscal year-end 2003 from 53% at fiscal year-end 2001 and debt-to-EBITDA strengthened to 2.1 times from 2.4 times.

Pro forma for the convertible, Moody's said the trailing 12 months debt-to-capitalization ratio would be 50.1% and debt-to-EBITDA ratio 2.8 times.

Phelps Dodge falls 2 points

Phelps Dodge Corp. reinstated its regular quarterly dividend, which had been suspended after September 2001 because of low copper prices, and that sent its mandatory on a steep slide as the common yield will dig into the yield on the 6.75% convertible.

Late Wednesday, the Phoenix-based mining company declared a common dividend of 25 cents, payable Sept. 3 to shareholders of record on Aug. 13.

The company recently posted first quarter net income of $185.7 million, or $1.90 a share, compared with a loss of $15 million, or 21 cents a share, for first quarter 2003. Cash flow from operations in first quarter was $256.6 million, sharply higher than $6 million a year earlier.

Phelps Dodge also cited expectations for a "good" second quarter.

The company is the world's second-largest producer of copper. On Thursday, July copper fell by 0.2 cent to $1.246 per pound on the New York Mercantile Exchange, but the Nymex reported that copper supplies were down 1,315 short tons at 129,348 short tons as of late Wednesday.

Coeur d'Alene off on new bid

Coeur d'Alene Mines Corp.'s convertible dropped in tandem with the stock Thursday as the Idaho gold mining concern raised its bid to buy Wheaton River Minerals Ltd. by C$285 million or C50 cents a share.

Under the revised proposal, Coeur d'Alene said Wheaton River stockholders can elect cash, senior subordinated notes, or Coeur common stock. The company noted its bid now represents a 16% premium to Wednesday's closing price for Wheaton River stock.

Coeur d'Alene originally bid on May 27 the equivalent of about $1.8 billion, or $3.28 a share, for Wheaton, based in Vancouver. But on May 31, Wheaton rejected the bid and said it would hold to its agreement to be acquired by Toronto-based Iamgold Corp.

Standard & Poor's placed Coeur d'Alene's ratings on positive watch, saying the purchase of Wheaton River would help dramatically increase its size and scope of operations that had looked limited.

Traders said the Coeur d'Alene convertible also was pressured by lower gold prices. Gold futures fell $3.60 on Thursday to close at $388.90 an ounce on the New York Mercantile Exchange - the lowest closing level since May 24.

Coeur d'Alene's 1.25% convert dropped 2 points to 84.5 bid, 85 offered while the stock ended off a dime, or 2.22% lower, at $4.40.

Barnes & Noble drops 1.25 pts

Retailers also saw some action on May sales figures, which were strong, but most of the pack was lower but not for the same reasons as giant bookseller Barnes & Noble.

Barnes & Noble announced the redemption of all of its $300 million 5.25% convertible notes due 2009, effective June 28. On the news, the issue dropped by 1.25 points roughly to the call price of 103, or a conversion price of $32.512. Barnes & Noble shares closed Thursday up 3 cents at $30.67.

Meanwhile, most of the retail group responded tepidly to strong May sales.

There were a few exceptions, such as Gap Inc. and School Specialty Inc., but even those gains were smaller than a point. Best Buy Co. Inc. also was mentioned, moving slightly lower.

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