CV Therapeutics, Conseco fall with stocks; Barnes gains on debut; Cypress up, Developers quiet in gray

By Kenneth Lim

Boston, March 7 - CV Therapeutics Inc. plunged outright on Wednesday after the company announced disappointing late-stage trial results for a key drug.

Conseco Inc. also dropped following a fourth-quarter loss that disappointed analysts.

Barnes Group Inc. gained slightly on its first day of trading after the deal priced at the midpoint of talk.

Cypress Semiconductor Corp. was bid up by over a point in the gray market amid strong hedge interest, while Developers Diversified Realty Corp. was quiet in the pre-market.

Meanwhile, PrivateBancorp Inc. launched a $70 million offering of 20-year convertible senior notes.

CV Therapeutics tumbles on study

CV Therapeutics fell with its stock after the company announced mixed results from a Phase 3 trial of its angina drug Ranexa.

CV's 2.75% convertible due 2012 fell about 13 points outright at 85.75 bid, 86.25 offered versus a stock price of $9.07. The 3.25% convertible due 2013 fell just over 6 points outright to 80 bid against a stock price of $9.40, while the callable 2% convertible due 2023 remained firm at 84.75 bid against a $9.40 stock. CV Therapeutics stock (Nasdaq: CVTX) plunged 23.58% or $2.90 to close at $9.40.

"Those were busy in the morning," a sellside convertible trader said. "They've gotten weaker as the day went along."

CV Therapeutics, a Palo-Alto, Calif.-based pharmaceutical company, said late Tuesday that late-stage trials showed that Ranexa is not an effective treatment for heart disease. But the angina drug, which currently carries a label warning of possible increased risk of abnormal heart rhythms, also showed no adverse trends in death or arrhythmias.

Deutsche Bank equity analyst Jennifer Chao downgraded CV stock to hold from buy and lowered her price target for the stock to $8 from $18.

"Despite a safety profile showing 'no adverse trend in death or arrhythmias' in Ranexa patients, lack of efficacy supporting benefit in ACS [acute coronary syndromes] could translate to questionable utility as a persistent angina treatment," Chao wrote in a note.

But not all analysts were that pessimistic. A sellside convertible analyst said the news was disappointing but not the end of the road for CV.

"It's an issue of lost potential revenue," the analyst said. "The positive part is that they should be able to sell Ranexa without the warning label, which could boost sales of Ranexa. They won't be able to sell it to treat heart disease, so they won't be able to recoup some of the cash that they burned for this, but if they can find a partner on the drug they might be able to share some of the costs."

"I don't think it's good news, but I don't think it's as bad as the stock would suggest today," the analyst said.

Conseco falls on loss

Conseco's 3.5% convertible due 2035 fell about 1.5 points outright on Wednesday after the company missed estimates in a fourth-quarter loss.

The convertible traded at 97.75 against a stock price of $18.86. Conseco stock (NYSE: CNO) closed at $18.75, down by 4.63% or 91 cents.

Conseco on Tuesday reported a fourth-quarter loss of $3.7 million, or 2 cents per share, from a profit of $67.6 million, or 42 cents per share, in the year-ago period. Operating profit was $5.7 million, or 4 cents per share, well below analysts' estimates of 36 cents per share. Most of the loss came after Conseco put more money aside to strengthen its reserves.

"These unusual items sum to $82M, or 33 cents per share after tax," noted Credit Suisse equity analyst Thomas Gallagher in a report. "Accordingly, we believe the core earnings runrate was 37 cents, 2 cents above our estimate."

"The bottom-line was this was a noisy quarter with further deterioration in long-term care and charges in some other business lines as well (specific disease and life insurance)," Gallagher wrote in his note. "As a result of the volatility of current results and the transition occurring in the run-off LTC [long-term care] block, the company is still not offering earnings guidance. On a positive note, the company mentioned that it has made progress in its initiative to improve its run-off long term care block, which should be the single most important determinant of stock price performance."

Gallagher has an outperform rating on the stock.

A sellside convertible analyst was more cautious.

"They're just a very complex company, and it takes a while to decipher everything," the analyst said. "My initial conclusion is that they're probably looking at a longer time before they get a ratings upgrade. I'm not happy to see leverage increasing, but I don't think the credit is that bad. But it doesn't look like the credit is going to improve soon."

The analyst said the potential ratings improvement for Conseco was part of its attractiveness.

"That was part of the story here, that it was an improving credit," the analyst said. "You've got more volatility here so maybe that would have been an attractive piece of paper if the credit tightened. But the credit piece of the story seems to be on hold right now."

Barnes gains on debut

Barnes' new 3.375% convertible senior subordinated note due 2027 improved right out of the gates on Wednesday, but volume eased as the day wore on amid mixed reviews for the bond.

The convertible was seen at 101.5 against a stock price of about $21.41. The convertible was offered at par. Barnes stock (NYSE: B) gained 1.52% or 32 cents to close at $21.41.

"I saw them traded this morning, but I haven't seen them since," a sellside convertible trader said.

Barnes priced the $85 million deal on Tuesday after the market closed, at an initial conversion premium of 36%. The deal was talked at a coupon of 3.125% to 3.625% and an initial conversion premium of 32.5% to 37.5%.

There is an over-allotment option for a further $15 million.

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

Barnes, a Bristol, Conn.-based maker of aerospace and industrial products, said it will use the proceeds of the deal to repay an outstanding revolving debt.

"The thing about Barnes is, they looked statistically cheap," a buysider said. "But it's such a small deal that it's really not worth the time and effort to get in and set it up and play it."

Cypress improves in gray

Cypress's planned $500 million offering of two-year convertible senior notes were bid at about 101.5 to 101.75 in the gray market on Wednesday amid robust interest in the deal.

The convertible, which was being offered at par, was expected to price after the market closed. It was talked at a coupon of 0.75% to 1.25% and an initial conversion premium of 20% to 25%. Cypress stock (NYSE: CY) closed at $18.89, up by 4.54% or 82 cents.

There is an over-allotment option for a further $100 million.

Credit Suisse is the bookrunner of the Rule 144A offering.

Cypress, a San Jose, Calif.-based semiconductor manufacturer, said the proceeds of the deal will be used to buy back shares of its common stock and to fund convertible note hedge and warrant transactions.

"It looked OK," said a sellside convertible analyst who used a credit spread just within 200 basis points over Treasuries and a volatility around 30%. "It looked like it was going to model slightly cheap. The company's got a lot going on and they're doing reasonably well."

The analyst said the deal will probably appeal more to hedge investors than to outrights.

"It sets up OK on a hedge at least in the short run," the analyst said. "As long as you have volatility and you can trade the common, it looks like a reasonably good set-up for hedge accounts, at least for now.

"For outright holders, it's good enough on the credit side, and you have reasonable gamma there, but not a lot of upside participation and a low coupon. The delta to upside is like 40%, so I don't think it looks all that great for outrights, really."

A hedge investor said the convertible looked attractive.

"That looked like a pretty interesting piece of paper," the buysider said. "CY stock has the ability to be volatile off the charts. It could do nothing for six months, and then it could be up or down several points easily in one day."

Developers Diversified quiet

Developers Diversified's planned $400 million of five-year convertible senior notes did not appear in the gray market as critics described the deal as just fairly priced.

The deal, which was slated to price after the market closed, was talked at a coupon of 2.75% to 3.25%, an initial conversion premium of 20% and reoffered at 98.5.

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

Banc of America, JP Morgan and Wachovia are the bookrunners of the Rule 144A offering.

Developers Diversified, a Beachwood, Ohio-based real estate investment trust that focuses on shopping centers, said it will buy back $75 million of its common stock using the proceeds of the deal. It will also use the proceeds to repay outstanding senior unsecured debt, fund convertible note hedge transactions and for general purposes.

"I think they look, at the very best, fairly priced," a buyside convertible trader said. "I don't think it's a very interesting piece of paper especially considering what's going on."

The buysider said REIT convertibles have begun to look unattractive and more risky.

"You've got a lot more volatility coming into the market," the buysider said. "These REITS are lower-hedged names because of the lower yield, and now with the sub-prime meltdown who knows what will happen to these REITs. If both credit and the stock come off and if you're not heavily hedged enough, you're going to be hit. Most of the money has been made already in the REITs. Now you're starting to get in a time when there's a chance you could see something blowing up, and if one of them gets hit they'll all start falling."

PrivateBancorp launches deal

PrivateBancorp announced a $70 million offering of 20-year convertible senior notes, talked at a coupon of 3.375% to 3.875% and an initial conversion premium of 22.5% to 27.5%.

The timing of the deal was not disclosed, but market sources said it was not expected to be an overnight offering.

There is an over-allotment option for a further $10.5 million.

RBC Capital Markets is the bookrunner of the Rule 144A offering.

PrivateBancorp, a Chicago-based banking services company, said it will use the proceeds to pay back up to $41.5 million of existing senior debt, buy back up to $10 million of its common stock and for general purposes.

© 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.