ADM, Medtronic steady in active trade; GT Advanced adds on hedge; Iridium sells preferreds

By Rebecca Melvin

New York, Sept. 28 - Trading in the convertible bond market on Friday was described as "normal," with the normal names in play and little in the way of notable pricing moves as month end and quarter end brought its concomitant window dressing, market players said.

Archer-Daniels-Midland Co. was very active, with pricing essentially unchanged.

"That's a big one that always trades. It's one of those that people are whipping around for pennies," a New York-based trader said.

Medtronic Inc.'s convertibles were busy in trade but barely budged for most of the session after the Minneapolis-based medical device maker said it is buying China's orthopedic medical device maker, China Kanghui Holdings, for $816 million in cash. By the close, however, the Medtronic convertibles were up about 0.25 point.

The convertibles of Alpha Natural Resources Inc. remained active after the Abingdon, Va.-based coal producer announced a partial tender of its 3.25% convertibles on Thursday.

GT Advanced Technologies Inc.'s new issue, which priced late Monday, has added about 3 points on a dollar-neutral, or hedged, basis, however, for the week since issue, a New York-based trader said.

On Friday the GT Advanced paper traded at par versus an underlying share price of $5.45, which on a 70% delta represents a 3-point gain from issue, the trader said.

Also in the primary arena, Iridium Communications Inc. priced $100 million of cumulative perpetual convertible preferreds late Thursday to yield 7% with a 20% initial conversion premium.

About 75% of the Iridium preferred deal went to outright players, and no secondary market action was heard in it on Friday.

Overall, it was the high-grade names that typically trade that were changing hands in size, with some of the same old yield names, and with lots of small trades representing window dressing, which were "more annoying than anything else," a trader said.

For the month, sentiment was improved, with many players up a little bit for the month in terms of return and with $2.85 billion in new issuance for the month helping tone, but not completely fixing the convert market.

"It's still tough to find interesting things to get involved in," the trader said.

ADM, Medtronic steady

ADM's 0.875% convertibles due 2014 traded last at about 100, which was little changed on the day, sources said.

Shares of the Decatur, Ill.-based agricultural company slipped 38 cents, or 1.4%, to $27.18.

"ADM was at par; they don't move," a New York-based trader said.

The shorter-dated Medtronic 1.625% convertibles due April 2013 traded last at about 100.8, which was up nearly 0.25 point on the day, according to Trace data.

Medtronic shares slipped 36 cents, or 0.8%, to $43.12, in slightly higher-than-average volume.

Medtronic has agreed to acquire China Kanghui Holdings for $816 million in cash, or $30.75 per American Depositary Share, which represents a 20% premium on where the shares were prior to the announcement.

Gimme Credit analyst Carol Levenson said "Medtronic will take advantage of China Kanghui's extensive local distribution, manufacturing, and R&D capabilities and will broaden its scale in a fast-growing medical device market."

The transaction is neutral to earnings in fiscal 2013 and 2014 because it will "offset" any dilutive impact, Levenson wrote in a note.

In addition, Medtronic has sufficient cash and financial flexibility to manage the acquisition without harm to its credit profile.

Iridium sells $100 million

Iridium, a McLean, Va.-based mobile satellite service company, priced $100 million of series A preferreds, via Raymond James & Associates Inc. under Rule 144A and Regulation S.

The preferreds were not heard in the secondary market Friday as "accounts were sitting pretty tight on it," a syndicate source said.

Iridium shares fell 54 cents, or nearly 7%, at $7.32, after the deal was announced.

But the stock action was seen as having more to do with a warrant tender that Iridium is also doing.

The preferreds will be convertible at the holder's option at an initial rate of 10.6022 common shares per preferred stock, which is equivalent to an initial conversion price of about $9.43 per share.

There is a provisional call after Oct. 3, 2017 if common shares are 130% of the conversion price for 20 out 30 consecutive trading days.

Holders can convert at any time, and they have conversion rights in the event of a fundamental change after Oct. 3, 2017.

Proceeds will be used to help fund continued development of Iridium NEXT satellite construction and deployment and for other general corporate purposes.

The company intends to list the preferred on the Nasdaq global select market six months after the settlement date.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Archer-Daniels-Midland Co. NYSE: ADM

GT Advanced Technologies Inc. Nasdaq: GTAT

Iridium Communications Inc. Nasdaq: IRDM

Medtronic Inc. NYSE: MDT

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