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Investors See Continued Upside For High-Yield Drug Co.

14 Sep 2003

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

At least two buy-side analysts say they will continue to look for gains from their Elan Corp. notes, despite a recent five-point jump in the 7.25% notes of '08 after the Irish pharmaceutical manufacturer filed its 2002 annual report ahead of a deadline that would have put the bonds in technical default. One analyst at a firm with over $1 billion in fixed-income assets says the five point jump was due in part to an overall stronger tone in the market after two large weeks of inflows into high-yield mutual funds. He sees the issue eventually recovering par--and perhaps going higher if a larger pharmaceutical maker looks to acquire Elan's drug pipeline, and so will continue to hold what he owns. The analyst sees no reason to add to the allocation, however, as the bonds have come well off their lows in the high 50s some six months ago, and were bid at 82 last Monday.

Conseco Capital Management also sees the bonds recovering par over the long haul, though Leo Dierckman, an analyst at the Carmel, Ind. investor, believes a full recovery on the notes is a year or two off. One near-term catalyst for a price increase in the bonds would be if Elan announces that it will include at least some equity as it looks to take out the balance of its busted convertible notes maturing in December--roughly $500 million. Dierckman notes that the market is expecting the company to use all cash for the issue, as the notes were bid at 58 last Monday--only slightly below their full value of 61. Conseco will likely wait to sell the bonds at par, or hold them to maturity, but is not likely to add to its position as it was comfortable with its initial allocation, Dierckman says. He will look for additional clarity on the convertible notes, as well as more details about the company's drug line-up, during the company's conference call this Wednesday.

Countrywide Said To Be Zeroing In On Former Deutsche Bank Chief

Susan Estes, the high-profile former Deutsche Bank North American fixed-income chief, is close to formalizing contract arrangements to join Countrywide Capital Markets as the head of its new primary dealership, according to an individual close to the situation. Estes was unavailable for comment. Ron Kripalani and Grant Couch, the president and coo, respectively, of CCM, did not respond to repeated phone messages and e-mails seeking comment. In an interview last month regarding the firm's primary dealership aspirations, Kripalani acknowledged the prevalence of the Estes rumors, but declined further comment (BW, 8/11).

Should Estes join, and should CCM pass the Federal Reserve's muster and be granted the dealership, it would cap off a several month long search for the head of the dealership that saw over a dozen candidates interviewed, says the person close to the situation. A possible sticking point in the negotiations, outside of compensation, is CCM's insistence that all trading operations be based at its Calabasas, Calif.-headquarters, which would force the New York-based Estes to move. A former senior trader of Estes', Josh Holden, has already taken over the agency trading book at CCM (BW, 8/11).

14 Sep 2003