Newpark jumps on debut as stock recoups; Northgate Minerals' deal eyed; Hertz steady

By Rebecca Melvin

New York, Sept. 29 - Newpark Resources Inc.'s newly priced 4% convertibles moved up 5 points outright on their debut in the secondary convertible bond market on Wednesday.

The Newpark deal, which priced at the rich end of revised premium talk and at the tighter, revised price point for the coupon, was the primary focus of trade for most of the session.

"In the morning everyone was trading Newport, and that was difficult for some people, at least among the hedge guys. They seemed to get small allocations and there was a scramble to buy more bonds, which helped push the price up," a New York-based sellside trader said.

No gray market was seen in Northgate Minerals Corp., which launched an offering of $135 million of six-year convertible senior notes in the United States and Canada markets that was set for pricing after the market close.

Northgate was talked to yield 3.25% to 3.75% with an initial conversion premium of 25% to 30% and was seen about 3.5% cheap, according to one sellsider.

Both deals Wednesday are in the resources sector, which bespoke the general markets and strength there in commodities.

"Given where gold is, it's not surprising," a New York-based sellside trader said. "It's a good time to do it, especially a convert because you are going to capture the premium with the stock prices up."

Hertz Global Holdings Inc. traded little changed ahead of the Dollar Thrifty shareholder vote set Thursday to approve the proposed merger of the two companies.

Elsewhere, there were sundry trades, but not a lot of focus, and nothing of particular interest, sources said.

There was some talk of paper softening in afternoon trade, but one source said he didn't see anything in particular getting softer.

"I'd say it was an unfocused day. There was trading of the new issue in the morning, and not too much else to get excited about. There's been a lot of sitting on hands, waiting for something," the sellsider said.

Newpark jumps on debut

Newpark's newly priced 4% convertibles moved up in early trade to 102 to 103 and then pushed higher to 105.75 bid, 106.25 offered, versus a share price of $8.40.

That move was up 5 points outright, or 3.5 points to 4 points on a dollar-neutral basis.

Shares of the company, which got hammered on Tuesday, recouped some of that loss, trading up 33 cents, or 4%, to $8.42 on Wednesday. On Tuesday, the shares lost 7%.

"There was a scramble, with a lot of flipping back to the underwriter as there seemed to be the question whether to buy more bonds or sell shares," a trader said of Newpark's market debut.

The trader supposed that hedge investors got too short in terms of shares on Tuesday and then the allocations didn't measure up to the stock short and had to be covered.

Pricing of the new issue was being boosted on two fronts. Demand for the bonds helped push prices up as well as the fact that the stock price went back up.

"There was some speculation that the deal would be upsized, that's what I think. And the repricing occurred, which was kind of expected," the sellsider said.

Talk was revised to a coupon of 4% with an initial conversion premium of 34% to 37%, compared to a coupon of 4% to 4.5% with a premium of 27.5% to 32.5%.

With the new paper trading up 3.5 points to 4 points dollar neutral, it was seen at about fair value.

"So the price move was not ridiculous," a sellsider said.

Newpark Resources is a diversified oil and gas industry supplier, which provides drilling fluids, temporary worksites and access roads for oilfield and other commercial markets. The company is based in the Woodlands, Texas.

Newpark priced $150 million of the seven-year convertible notes after the close of markets Tuesday to yield 4% with an initial conversion premium of 36%.

The registered, off-the-shelf offering includes an over-allotment option for an additional $22.5 million of notes.

J.P. Morgan Securities LLC is the bookrunner, Bank of America Merrill Lynch is the senior co-manager, and Wells Fargo Securities and Raymond James & Associates are the co-managers.

The notes will be non-callable and will have no puts. They are convertible at any time into shares of the company's common stock.

Proceeds from the offering are earmarked to repay existing debt under Newpark's credit facility and for general corporate purposes.

Northgate looks cheap

There was no gray market seen in the Northgate Minerals deal, which launched early Wednesday for pricing after the close of markets.

The deal modeled about 3.5% cheap at the midpoint of talk, using a credit spread of 650 basis points over Libor and a 30% initial conversion premium.

The deal was being marketed in public offerings in both the United States and Canada. But most of the deal was seen being sold in the United States. For one thing, its New York-listed stock trades very actively, and for another, deals sold in Canada are typically of smaller size, a sellsider said.

In addition to the $135 million base deal, there's an over-allotment option for an additional $15 million of notes, which are being sold via bookrunner UBS Securities LLC.

The notes will be non-callable and will have no puts.

Proceeds will be used to finance a portion of the development costs of its Young-Davidson gold mine near Matachewan, Ont.

As of June 30, Northgate's pre-production capital cost estimate for Young-Davidson is about $339 million. Northgate's cash balance as of June 30 was about $204 million. The Young-Davidson mine is currently scheduled to begin producing gold in early 2012.

Northgate Minerals is a Vancouver, B.C.-based gold and copper producer.

Hertz mostly steady

Hertz's 5.25% convertibles due 2014 traded at 155.75 versus a share price of $11.45, according to a New York-based sellside desk analyst.

A second pricing source concurred with that level, and a third put the paper at 157.5 at the market close, up from 155.6 previously.

The Park Ridge, N.J.-based car rental company saw its shares add 17 cents, or 1.5%, to $11.61 on Wednesday, a day ahead of the Dollar Thrifty shareholder vote, in which a majority of shareholders are required to vote yes in order for the proposed merger to go through.

A convertible holder said that the Dollar Thrifty deal is a neutral event in terms of Hertz's credit.

"It's a pretty good deal. It doesn't have a huge impact on the credit, so it doesn't matter whether it gets done or not," a New York-based sellside trader said.

Mentioned in this article:

Hertz Global Holdings Inc. NYSE: HTZ

Newpark Resources Inc. NYSE: NR

Northgate Minerals Corp. Toronto: NGX

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