LifePoint up on health care law ruling; Navistar down; Gevo stock tanks ahead of pricing

By Rebecca Melvin

New York, June 28 - LifePoint Hospitals Inc.'s convertibles jumped Thursday after word that the U.S. Supreme Court upheld the health care overhaul law, ruling that it is Constitutional by a 5-4 majority.

The Brentwood, Tenn.-based rural hospital owner and operator is in a sector that has been touted as especially benefiting from the new health care law as there will be more patients and insurance coverage. Other health care names were also moving, but it wasn't initially obvious if the convertibles improved or contracted on a dollar-neutral, or hedged, basis.

Lincare Holdings Inc., the Clearwater, Fla.-based at-home respiratory services provider, was active and shares were higher as takeout chatter persisted, a New York-based trader said.

Overall trading volume was low and there wasn't a strong reaction to the Supreme Court decision.

Elsewhere, Navistar International Corp. was an active trader on the day and its 3% convertibles were seen to have contracted about 0.5 point to a point on swap with shares ending slightly higher.

But Cemex SAB de CV's 3.25% convertibles were active and higher by about 2 points. Word that the Mexican cement maker is planning to extend the maturity of $7.3 billion of loans, freeing up cash to repay noteholders, was behind the strength, a West Coast-based trader said.

In the primary market, Gevo Inc. shares continued to plunge, sliding another 27% on Thursday on top of a 22.5% drop Wednesday after its $30 million offering of 10-year convertible senior notes was launched.

Two-day marketing was probably required given that the company is small and relatively unknown. But valuations on the paper getting it about 4% to 4.5% cheap were cold comfort given that the market capitalization of the company has fallen to below $100 million from about $220 million before the deal was announced.

"They are doing common and converts together and investors must not think that their story is all that great," a sellsider said.

Equities pared early losses. The Dow Jones industrial average ended down 24.75 points, or just 0.2%, to 12,602.26, and the S&P 500 stock index recouped some for a 2.81 point, or 0.2%, loss at 1,329.04, while the Nasdaq stock market took a bigger hit, shedding 25.83 points, or nearly 1%, at 2,849.49.

But even with the recent sell-off in equities, it seems like convertibles have been pretty stable: it's not looking like anything has really come for sale," a trader said.

"My yield-to-put names are fine and my vol. names have stopped coming in, and guys are coming in and looking for bonds," the trader said.

As for whether the Supreme Court ruling provides clarity for markets going forward was a debatable point. "The fact that they didn't focus on the commerce clause, and went with the taxable authority, which resides with the legislative branch, seems to me to have left the door open to Congress to act," a market player said.

LifePoint jumps on ruling

LifePoint's 3.5% convertibles due 2014 traded up to 106.25 versus an underlying share price of $41.00 in early trading, which was higher compared to 104.03 versus a $38.80 share price on Wednesday.

Shares of the Brentwood, Tenn.-based rural hospital owner and operator ended off their highs at $40.57, which was up 8.5%.

"The prints look pretty high," a trader said. But he was uncertain how the paper did on swap.

President Obama signed the Patient Protection and Affordable Care Act into law in March 2012. It allows children up to age 26 to remain on their parents' insurance plans, bars health insurers from dropping plan members who became ill and prohibits insurers from excluding children under 19 who had pre-existing health problems, among other changes.

Navistar down on hedge

Several sources saw Navistar's 3% convertibles due 2014 trading lower in strong volume to 90.5, which was seen 0.5 point to a point lower on a hedged basis.

Shares of the Lisle, Ill., commercial and military bus and truck manufacturer edged up 16 cents, or 0.6%, to $25.56 on Thursday.

A trader said that there was no apparent news on the company. The bonds have been weak, falling initially on 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.

Gevo to price

Despite a nearly 50% slide in the underlying shares since launch, Gevo's small, $30 million deal was still expected to price after the market close on Thursday as planned, syndicate sources said.

Shares of the Englewood, Colo., renewable chemicals and advanced biofuels company ended the session at $4.95, which was down from $8.77 pre-launch.

There was little borrow on the stock, sources said.

Valuing up the deal, one market player said fair value looked to be about 104.5 using a credit spread of 1,000 basis points over Libor and 40% vol.

The deal was talked to yield a high coupon of 7.25% to 7.75% with a low initial conversion premium of 15% to 20%.

Gevo also plans to sell about $70 million of common stock.

Net proceeds from the offerings are earmarked to repay a portion of its outstanding long-term debt, to fund the cash consideration payable to complete a retrofit of its Luverne, Minn., plant and to fund partially the Redfield Energy retrofit.

Remaining proceeds will be for working capital and for other general corporate purposes.

UBS Securities LLC and Piper Jaffray & Co. are acting as joint bookrunners for the offerings, with Robert W. Baird serving as co-manager for the common stock offering.

The deal was still seen getting done despite the plunge in underlying shares and shakiness of the credit as investors are starved for supply.

Mentioned in this article:

Cemex SAB de CV NYSE: CX

Gevo Inc. Nasdaq: GEVO

LifePoint Hospitals Inc. Nasdaq: LPNT

Lincare Holdings Inc. Nasdaq: LNCR

Navistar International Corp. NYSE: NAV

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