New Royal Gold moves up on debut; Navistar edges up on hedge; Patriot Coal little changed

By Rebecca Melvin

New York, June 15 - Royal Gold Inc.'s newly priced 2.875% convertibles gained in active trade on their secondary market debut on Friday after pricing at the midpoint of tightened coupon talk and at revised premium talk.

The new Royal Gold saw about $150 million in trades that were mostly done on an outright basis, a New York-based trader said, noting that he still viewed the paper as cheap, although "most of the juice was taken out of the pricing overnight."

Elsewhere, Navistar International Corp., which has been a steady feature this past trading week, was active again and added slightly on a dollar-neutral, or hedged, basis after news that a second activist investment firm has taken a large stake in the troubled Lisle, Ill.-based engine and truck maker.

MHR Fund Management LLC has built a 13.6% position in Navistar during a volatile period for the shares. Last week the company reported a weaker-than-expected quarter and slashed its full-year earnings guidance.

There was some Cemex SAB de CV in trade at pricing that was a little better, a trader said, while Peabody Energy Corp.'s 4.75% convertibles due 2036 changed hands a little lower at 83.75 despite higher shares.

The slump in coal stocks and convertibles was definitely a feature of this week's trade, with Patriot Coal Corp.'s convertibles changing hands Thursday at 39, down from the mid 50s on Monday.

On Friday, shares of Patriot Coal bounded higher briefly by about 12% to $1.33, and other coal stocks were higher. The Patriot Coal 3.25% convertibles due 2013 were still in the 38 bid, 39 offered context, however.

Cheniere Energy Corp.'s convertibles were quiet despite Citigroup restating coverage of the liquefied natural gas company at a "buy" rating, and a credit rating upgrade by Standard & Poor's, But the Cheniere convertibles, which mature in August, were seen as too short dated to be influenced by the news.

Overall, the convert market was described as quiet, other than trade in the new Royal Gold convertibles. Equities rallied on the last session before the Greek general election on Sunday. In the last two days, the Greek stock exchange has put in its best performance in years.

Royal Gold adds on debut

Royal Gold's new 2.875% convertibles due 2019 traded mostly around 103 bid, 103.25 offered. The underlying shares were lower by around 0.5% during the session.

Most of the action in first-day dealings was on an outright basis.

For now, the paper is primarily in the hands of outright investors due to the high demand for this type of paper, a New York-based trader said.

"There is a lack of paper with anything to do with precious metals. Here's a fresh face, a par bond, and guys are flocking to it," the trader said.

Royal Gold is a Denver-based precious metals royalties acquisitions and management company.

There were about $150 million of Royal Gold bonds that traded.

Once "you back out the Royal Gold," volume is "anemic," the trader said.

"It has traded well," an East Coast-based buyisder said of the $325 million of seven-year Royal Gold convertible senior notes that priced with a 2.875% coupon and a 35% initial conversion premium.

There is also a $45 million over-allotment option.

The bond was still viewed as cheap, but not as cheap Friday as on Thursday before price talk was tightened to 2.75% to 3% for the coupon and 35% for the initial conversion premium from 3.125% to 3.625% coupon and 30% to 35% premium.

The registered, off-the-shelf offering was sold via bookrunner Goldman Sachs & Co. and lead managers HSBC Securities (USA) Inc. and Scotia Capital (USA) Inc.

The notes will be convertible beginning on March 15, 2019 or earlier upon the occurrence of certain events.

The securities are non-callable until June 15, 2015 and then are provisionally callable subject to a price hurdle of 130%.

There is a coupon make-whole payment upon redemption or conversion based on fundamental change make-whole table.

The company can settle conversions in cash, shares or a combination of cash and shares. And there is takeover and dividend protection.

Proceeds will be used to repay the company's term loan facility, which will be terminated. Remaining proceeds will be used for general corporate purposes, including future acquisitions.

Navistar slightly higher

Navistar's 3% convertibles due 2014 changed hands on Friday at 95.5 bid, 96 offered, versus an underlying share price of $30.00, which was a touch better on a dollar-neutral basis, compared to 94.374 versus an underlying share price of $27.50 on Thursday.

Earlier in the week, the bonds had traded as low as 92 on negative news about the U.S. Court of Appeals for the District of Columbia Circuit vacating a ruling by the Environmental Protection Agency that allowed Navistar to sell heavy-duty diesel truck engines that don't meet the latest anti-pollution standards.

The EPA rule that was vacated allowed Navistar to sell its model year 2012 and 2013 engines while paying a fine of $1,919 on each engine.

On Friday, there was news that a second activist investment firm had taken a big stake in the U.S. truck and engine maker.

MHR Fund Management LLC said it had taken a 13.6% stake, which is more than a percentage point higher than Carl Icahn's 11.9% holding, which was boosted a week ago.

Navistar shares jumped as much as 12% on the news Friday, but at the close, the shares were up $2.12, or 7.6%, at $29.95.

MHR, whose founder has a past affiliation with Icahn, is the largest shareholder of film studio Lions Gate Entertainment Corp., a position it solidified after Icahn gave up a long battle to take over that company.

The Navistar convertibles have been on a roller coaster ride for the past week, but Friday's move was marginal, a trader aid.

Mentioned in this article:

Cemex SAB de CV NYSE: CV

Cheniere Energy Inc. NYSE: LNG

Navistar International Corp. NYSE: NAV

Patriot Coal Corp. NYSE: PCX

Peabody Energy Corp. NYSE: BTU

Royal Gold Inc. Nasdaq: RGLD

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