BioMarin, Best Buy, Lamar Advertising gain; but Casual Male, Level 3, Interpublic are lower

By Rebecca Melvin

Princeton, N.J., March 30 - With lots of downward pressure on the stock market Thursday, convertibles players focused mostly on event-driven trading, and a fairly active early session left a mixed market, traders said.

The newer convertibles of BioMarin Pharmaceutical Inc. traded actively, holding on to 3 points of gains since their issue a week ago; and the company's older 3.5% convertibles, which are likely to be called in June, traded at a surprisingly high 106.75, albeit not as actively, traders said.

The Novato, Calif.-based biotechnology company on Thursday closed concurrent offerings of stock and convertibles totaling $295 million, including $172.5 million in convertibles.

The convertibles of Best Buy Co. Inc. and Casual Male Retail Group Inc. traded actively after the companies released fourth-quarter earnings news, with Best Buy's bonds trading mostly flat to higher as its stock climbed 26 cents and Casual Male trading down about a point, in line with a 1% decline in its shares.

Minneapolis-based Best Buy reported a 13% increase in quarterly profit on the strength of its sales of flat-panel televisions, digital music players and computers.

The Best Buy bonds, which are held by a fair amount of hedge players, are a good candidate for a reverse hedge, a New York-based sellsider suggested.

Canton, Mass.-based Casual Male also reported higher profit, citing improved sales, and gains from a tax benefit and repurchase of $5.3 million of its 5% convertibles notes due 2024.

"I think players were responding to names in the news; not so much portfolio strategy, but trading individual names," the New York-based sellsider said.

Level 3 Communications Inc. saw its 5.25% convertibles retrace some gains after an upward trajectory for two consecutive days. On Tuesday the Broomfield, Colo.-based software and services company's announced that it was raising first-quarter guidance.

Meanwhile, FuelCell Energy Inc. saw a jump in its convertible preferreds early on. Its stock gyrated but ended flat in a third consecutive day of active trade. FuelCell is a Danbury, Conn.-based maker of solar power technology. Its shares have been creeping up this month since a slump March 7.

The typically inactive convertibles of Lamar Advertising Co. gained in tandem with its shares, which were actively traded, following a media conference this week and a Bear Stearns' research note Thursday that maintained an "outperform" rating on its shares and raised its price target nearly $3.50 to $57.50.

But New York-based advertiser Interpublic Group of Cos. Inc. saw its convertibles and stock continue to lose ground for a fourth consecutive day.

BioMarin convertibles show strength

Since issue on March 23, BioMarin's 2.5% convertibles have improved about 3 points, with about 2.5 points of that gain etched on its debut. Its stock has also gained since the offering, which was made concurrently with a stock offering.

On Thursday, the 2.5% convertible traded more or less flat to slightly higher at around the 105 level. What was surprising is that its sister convertible, which is callable on June 20 at 101.4, traded even higher at 106.75.

"It's a puzzler. I'm surprised that this is trading where it is trading. It's extremely rich," a New York-based sellside trader said.

A second New York-based sellside trader said the reason that the older 3.5s were higher was that players weren't looking at them from a standard valuation point of view. Instead, he suggested, they are focusing on stock volatility potential and examining "where you cross parity on the way up."

"They're paying this rich price because the market expects a lot of vol in the stock," the trader said. "You've got one reporting period between now and June. If the stock moves, you've got a home run. But it's the kiss of death, if the stock stays at $13.50."

He suggested that at a 50 delta with the security, all the premium is eaten up at a $16.40 stock price. "Basically, you're long the security at parity. If the stock is at 16.40 when they call it, then you've made money," he said.

He said that the BioMarin 3.50% convertibles traded at 106.75 versus $13.25 on Thursday, but said the trade wasn't made at his shop. The newer 2.5s traded at 105 versus $13.375 in the morning.

BioMarin said that it intended to use proceeds of its new 2.5% convertibles to buy back some or all of the $125 million outstanding of the older 3.5s. The 3.5% bonds are due in 2008.

BioMarin also said that funds will be used to finance clinical trials of Phenoptin and potential acquisitions. Merrill Lynch is the bookrunning manager of both the stock and convertible offerings.

BioMarin (Nasdaq: BMRN) shares Thursday closed up 14 cents, or 1.1%, at $13.47.

Best Buy edges up

Best Buy's 2.25% convertibles were up 0.25 point to 0.50 point on Thursday in line with its underlying shares.

The positive earnings news wasn't good enough to give a big boost to the stock, which is already up 30% since December, according to a New York-based trader. Since February, the stock is up 15%. But the latest results of the consumer electronics retailer matched analysts' expectations. And it's performing well when many other names are struggling, the trader said.

Lamar adds, but IPG loses

Lamar's 2.875% convertibles due 2010 gained more than a point, in line with its underlying shares, to 115 bid, 115.5. Its shares (Nasdaq: LAMR) gained 87 cents, or 1.69%, to $52.40.

At a media conference Wednesday, Lamar's chief executive stated that the Baton Rouge, La.-based company is buying back shares because over the next five years it sees outdoor advertising as a "safe haven" and it can invest in the business and generate superior returns.

"We continue to like the outdoor industry as outdoor faces fewer competitive threats and technology is not a threat but an opportunity," Bear Stearns analyst Christopher H. Ensley said in a research note on Lamar.

Ensley said that Lamar is "putting flesh and bones on the digital opportunity" and "converting static displays to digital displays results in significant ROIs."

Interpublic Group, on the other hand, has been struggling this week. Interpublic's 5.25% perpetual preferred convertibles, which trade slightly better in terms of volume compared to its sister 4.5% bonds, were at 918 bid, 920 offered on Thursday, compared to 948.4 bid, 950.9 offered on Wednesday, according to one New York-based sellside shop.

Interpublic Group shares (NYSE: IPG) closed down 28 cents, or 2.86%, at $9.51.

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