MF Global edges higher on debt; Beckman active; Molina adds outright with stock gains

By Rebecca Melvin

New York, Feb. 8 - MF Global Holdings Ltd.'s newly priced 1.875% convertibles due 2016 moved slightly higher in active dealings Tuesday to the 100.5 bid, 101 offered level and then a little lower to just over par after the deal priced at the rich end of coupon talk and at the midpoint of premium talk late Monday.

Beckman Coulter Inc. remained active at steady pricing after rising outright but slipping on a hedged basis on Monday on news that Danaher Corp. had agreed to buy the maker of diagnostic research equipment for biomedical companies.

Molina Healthcare Inc. was up 2 points outright and looked to be trading about in line with much higher shares on a hedged basis amid no particular news, market sources said.

Intel Corp.'s 3.25% convertibles were slightly higher after the chip maker announced late Monday that it has resumed shipments of a chip that had been halted due to a design flaw.

Overall the trading session was described as quiet. "I get the feeling that all these hedge players are just waiting around for an event," a New York-based sellside trader said, noting that many convertible names are in the money.

"Most of the [convert] names in the Street are in the money. But how long can they wait?" the trader said.

"They are waiting for the [stock] market to crack down, and then if they had them on the right hedge, they'll expand on the way down," the trader said.

MF Global edges higher

MF Global's newly priced 1.875% convertibles due 2016 traded up slightly to 100.5 bid, 101 offered in early dealings.

The new paper was also Tracing at 100.75 later in the day, before getting marked at the end of the session up just 15 teenies, a New York-based sellside analyst said.

"On a dollar-neutral basis, they were up 15 teenies," the analyst said, which he added wasn't too bad for a low coupon and so-so premium and in a market where there is more attractive paper.

MF priced $250 million of five-year convertible senior notes at par to yield 1.875% with an initial conversion premium of 27.5%.

The action came amid a muted move in the underlying shares, which edged higher early, but slipped into negative territory in afternoon trading, before ending unchanged at $8.13.

The convertibles' debut was in line with indications in the gray market before pricing on Monday. Gray market quotes were for 100.25 bid and 102 offered, market sources said, but there were no trades reported.

The slight price move seemed contrary to sharp moves upward in new issues last week seen by the likes of Savient Pharmaceuticals Inc. and Jaguar Mining Inc.

"People like the Friday paper," a New York-based trader said, referring to Jaguar's 5.5% convertibles due 2016, which ran up to 104.75 bid, 105.75 offered on their debut.

Hovnanian Enterprises Inc.'s 7.25% convertibles also priced on Friday; but its pricing wasn't as strong.

Deal looks about fair value

Market sources believed that the deal would go well even though it was a small company and a smallish deal and it was seen pricing close to fair value.

Using a credit spread of 500 basis points over Libor and a 32% volatility meant "there was not a lot of juice left in it. Other [deals have] traded at a discount to fair value," a New York-based sellside analyst said, indicating that those were the inputs for the valuation he used.

That gets you fair value of 100.5," he said.

A credit spread on the deal from the underwriter was for 400 bps over Libor with a 30% volatility making the deal 1.5% cheap at the mids. The underwriter was saying that it will be investment grade, a New York sellsider said.

By way of comparison, using broker Jefferies Group Inc.'s 3.875% convertible implies Libor plus 155 bps and 25% vol., and for a seven-year deal, it "looks rich compared to this one," a sellsider said.

"Outrights should be all over this, and it's a small issue for investment grade," the sellsider said.

A New York-based outright buysider concurred ahead of final terms assigned for the deal: "It's great if they can issue a 2%, five-year bond, up 27.5%, at the midpoint of the price talk, which seems a lot better for MF than 9% up 41% for a bond with a put in five years."

The buysider was referring to an existing MF Global convertible. "But," he continued, "the 9% bond was issued in June 2008, which was a difficult time for financial companies even though the worst was yet to come. Good timing on MF's part the last time. Let's hope their timing isn't that good this time."

The bottom line is "the stock has a good deal of volatility, five years is a relatively short time to maturity, and there's no call provision. There's also no dividend on the common. So the new bond is good, if not great, from an investor's perspective," the outright buysider said.

But another New York-based sellsider said, "I do not respect or trust management at all, nor do I like the business model. The bonds don't look particularly attractive either, though not awful."

Goldman Sachs & Co., Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. were joint bookrunners of the registered offering, with Bank of America Merrill Lynch, J.P. Morgan Securities LLC, RBS Securities Inc. and Sandler O'Neill + Partners, LP acting as the co-managers.

There is a $37.5 million greenshoe.

Proceeds will be used to repay debt under MF's $1.2 billion revolving credit facility, for general corporate purposes and to fund the cost of convertible note hedge transactions, which the company is entering into aimed at covering the number of MF Global common shares that will initially underlie the notes.

The cost of the hedge transactions will be offset partially by a corresponding set of warrant transactions, which have a strike price of $14.2275. The transactions will raise the initial conversion premium from the issuer's perspective to 75%.

Molina gains outright

Molina Healthcare's 3.75% convertibles due October 2014 traded up a point or two on much stronger shares, according to Trace data, which had a high print of 106 during the session, up from 104ish previously.

Last Thursday, the Molina 3.75% convertibles traded at 102.13 versus a share price of $30.98, and it was below par in late January, trading at 99.875 versus a share price of $29.00 on Jan. 26.

The Molina convertibles, which initially priced in the fourth quarter of 2007, were said to trade generally on a 50% hedge, although one source put the hedge higher at 55% to 65%.

The paper traded on a 45% hedge in early January.

Shares of the Long Beach, Calif.-based health management organization that works with low-income people on Medicaid and other government assistance programs were up at a 52-week high during the session.

The shares were up just over 5%, or $1.72, to $33.77 near the market close, but they had been up nearly 7% earlier in the session.

"It looks like it's trading in line with the stock on a 55% to 65% hedge," a Connecticut-based sellside analyst said.

A second sellsider, a trader based in New York, said that it wasn't obvious what was driving the shares up. "Seems like lots of outright prints. I think they are OK, but other names seem better to me," the sellsider said.

A third source said, "The market is tracking on a 50% delta. But someone could have been heavier today. If someone was heavier and an outright goes to lift them, maybe that's helping move the shares up."

Intel mostly steady

Intel's 3.25% convertibles due 2039 were marked at 122.125 bid, 122.625 offered versus a share price of $21.65 at the close, which was higher compared to recent trades at 121 bid, 121.5 offered.

Shares of the Santa Clara, Calif.-based chip giant settled lower by 6 cents, or a quarter of a percentage point, at $21.64 on Tuesday.

The company said it is resuming shipments of the Intel 6 Series Chipset for use only in PC system configurations that are not affected by a chip design problem that it disclosed Jan. 21.

At that time, the company said it expected to take a $700 million hit related to a design flaw in a chip that will delay the rollout of new computers.

After extensive discussions with chipmakers, Intel said Tuesday it will resume shipments to computer makers who have committed to shipping the Intel 6 Series Chipset in PC system configurations that are not impacted by the design issue.

However, the resumed shipments isn't changing the company's updated first-quarter 2011 and full-year financial outlook published at the time of its initial disclosure.

At the same time, Intel said it has started making a new version of this support chip and now expects to begin shipping the new parts in mid February.

Mentioned in this article:

Beckman Coulter Inc. NYSE: BEC

MF Global Holdings Ltd. NYSE: MF

Molina Healthcare Inc. NYSE: MOH

Intel Corp. Nasdaq: INTC

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