Convertibles trade mixed: Qwest gains with shares, but AMD sags; Enzon adds on extended tender

By Rebecca Melvin

New York, Jan. 8 - The convertible bond market was mixed for a second consecutive day Thursday following an all-out rally Monday and Tuesday that gave way to some profit taking Wednesday.

Players were still bidding up larger, more liquid issues, sources said. But the rest of the market was mixed along with mixed underlying shares.

Supply was an issue. "[It] seems like there is supply for the first million and then you have to pay up for things," a West Coast-based buysider said via e-mail.

Others in the market have concurred this week. "Somebody makes a market; someone lifts it; someone sees where it is and bids higher; and then nothing happens. It's frustrating," a New York-based sellside trader said.

A number of issues were fairly active, however. Qwest Communications International Inc. gained 2 to 3 points, trading at 91, after the Denver-based telephone, internet and video services company provided an upbeat financial update, saying its business units performed in line with operating expectations in the fourth quarter and were consistent with third-quarter performance.

In addition, Qwest chief executive Edward Mueller, in comments made at an industry conference, suggested that the company still expects to be able to refinance its 3.5% convertibles before they mature in 2010.

Advanced Micro Devices Inc. traded down the day after Intel Inc.'s gloomy preannouncement revealed greater-than-expected semiconductor end demand weakness. Intel convertibles had hung in there Wednesday but traded off a bit on Thursday as well.

Enzon Pharmaceuticals Inc. traded to the upside after the biopharmaceutical company said it was extending a modified Dutch tender offer for its 4% convertibles to Jan. 21 from Jan. 7.

BioMarin Pharmaceutical Inc. was also in trade, with its 1.875% convertibles wavering around par. The biotechnology company made headlines this week for its agreement with La Jolla Pharmaceutical Co. to co-develop and market La Jolla's experimental lupus drug Riquent.

The ongoing trend for convertibles prices, which have snapped back from November lows, was uncertain. Some believe the recent strength in convertibles will persist. But one source said that if stocks weaken much further, it will affect convertibles.

"Yesterday stocks were bad, and the converts were up anyway. But if there's a big, steep downtrend, it's going to take everything with it," a New York-based sellside desk analyst said.

Qwest gains after update

Qwest's 3.5% convertibles due 2025 traded during the session at 91 and were seen settling a little higher around 91.50, which was up 2 points to 3 points on the day. Its shares gained 46 cents, or nearly 13%, to $4.04.

They've been higher all week, a New York-based sellside trader said.

Qwest said its fourth-quarter earnings when reported Feb. 10 will show that its service revenue from large businesses, access line trends and broadband-services demand will be consistent with its third quarter.

It didn't provide specific guidance but in October it said full-year profit would fall by about 2% as revenue slips 2.5%.

For its third quarter, Qwest posted earnings of $151 million, or 9 cents per share, which was down from $2.06 billion, or $1.08 per share, a year earlier, which saw a tax benefit.

In addition, Mueller said, while speaking at the 2009 Citi Global Entertainment & Telecommunications Conference in Phoenix, that despite the recent closure of the credit markets and being forced to repay some debt it previously planned to refinance, Qwest continues to believe it will be able to refinance all or a portion of its $1.2 billion of 3.5% convertible senior notes.

"I do believe that there's going to be a market opportunity between now and the time that our convert comes due. And frankly, if there isn't, we've all got a bigger problem, I think," Mueller said.

The company's intention continues to be that it will refinance its regulated debt when the credit markets open and to pay off unregulated debt.

Qwest's most recent guidance includes $1.5 billion of cash flow in 2009, and the company expects to keep capital expenditures flat.

Strategic priorities for 2009 will be a continuation of the company's focuses in 2008, which included providing a balanced return to shareholders and maintaining cost discipline.

"We're all cautious about the macro-environment, but we're pretty happy about what we've delivered in '08, and we think it will be more of the same in '09," Mueller said.

AMD sags

Advanced Micro Devices' 5.75% convertible senior notes due 2012 dropped Thursday, trading early in the day at 39 versus a share price of $2.50 and ending closer to 37.125, according to NASD Trace.

The AMD 6% convertible senior notes due 2015 traded at 32 versus a share price of $2.50. Its high for the day was 37, according to NASD Trace.

Shares of the Sunnyvale, Calif.-based semiconductor company traded lower most of the session but surged into positive territory after 2 p.m. ET to close up 8 cents, or 3%, to $2.74.

The gloomy fundamental picture revealed by Intel's preannouncement was said to be behind some of the lower pricing.

On Wednesday, crossover equity buyers supported Intel. The equity players have been enticed to cross over to take advantage of better yield in certain names and step up in the capital structure.

Intel is long-dated, with a low yield to maturity and current yield is less than that. So for hedge players the cost of carry would be prohibitive to their involvement, a sellsider said.

"The premium is high, the yield is low and it's long dated. What's to like," the sellsider said.

Enzon strengthens

Bridgewater, N.J.-based Enzon said it has extended its modified Dutch auction tender to Jan. 21 for up to $133.33 million of its $270.5 million 4% convertible senior notes due 2013. The tender had previously been expected to expire Jan. 7.

The company plans to fund the tender with about $100 million cash on hand.

The biopharmaceutical company develops treatments for cancer and life-threatening diseases.

The Enzon 4% convertibles traded at 77.5 versus a stock price of $6.00 intraday. Its underlying shares moved up 26 cents, or 4.4%, to $6.17.

BioMarin 1.875s trade at par

BioMarin's 1.875% convertible notes due 2017 traded at 100 versus a share price of $18.625. Shares of the Novato, Calif.-based biopharmaceutical firm reversed early losses to end up 20 cents, or 1%, to $18.84.

Under its agreement with La Jolla, BioMarin would pay $15 million up front to La Jolla, which could receive up to $289 million in cash through milestones and equity purchases by BioMarin as part of the deal.

The pact grants BioMarin CF a co-exclusive license to develop, use, offer for sale, sell, import, export, market, distribute and promote Riquent worldwide except for the Asia-Pacific and to manufacture Riquent anywhere in the world, provided that, if Riquent is made outside of that territory, it will only be sold within the territory under the terms of the development agreement.

Riquent is comprised of a lupus disease specific epitope attached to a carrier platform and is being researched for the treatment of systemic lupus erythematosus.

Results from a late-stage trial of Riquent are expected in the first quarter and mid-2009.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

BioMarin Pharmaceutical Inc. Nasdaq: BMRN

Enzon Pharmaceuticals Inc. Nasdaq: ENZN

Qwest Communications International Inc. NYSE: Q

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.