MGIC sees gray market bid; Jefferies wider after earnings; Evergreen, DryShips to price

By Rebecca Melvin

New York, April 20 - Convertibles players gave MGIC Investment Corp. the once over during Tuesday's session after the mortgage insurer launched a $300 million offering of seven-year convertibles early in the day.

There was a bid in the gray market late in the session at 103, according to a Connecticut-based sellsider. But other sources had not yet heard anything in the name.

MGIC's existing 9% convertibles, which were issued a little more than two years ago and will be junior to the new paper, were indicated lower, and MGIC's underlying shares took a big hit on the New York Stock Exchange.

Also among financial names, Jefferies Group Inc. was in trade and lower by about 2 points on a dollar-neutral basis after the investment bank reported better-than-expected first-quarter profit on banking revenue that was five times what it was in the year-earlier period. Shares of the company were lower nevertheless.

Financials have been under pressure following Friday's news that the Securities and Exchange Commission filed a civil lawsuit against Goldman Sachs, alleging that the investment bank engaged in fraud related to the structuring and marketing CDO investments.

But Knight Capital Group Inc. was up a point Tuesday, extending Monday's action, on a trade based on a dime increase in its underlying shares. Still shares ended down by nearly 2% on Tuesday.

Away from financials, which haven't been a favored sector of late, MGM Mirage's recently priced 4.25% convertibles due 2015 jumped to 105 after the stock was boosted by a Goldman Sachs analyst, who said the casino operator's stock may move up 25% on momentum in Las Vegas and strength in Macau.

Primary picks up

In the primary market, meanwhile, a couple of developments arose after the close of markets.

Evergreen Solar Inc. launched an offering of $165 million of five-year convertible senior notes that were seen pricing Wednesday ahead of the market open and talked to yield 13% with an initial conversion premium of 52%.

DryShips Inc. launched $150 million of 5% five-year convertible senior notes that were seen pricing after the market close on Wednesday and represents an add-on to an offering initially priced by DryShips last November.

MGIC sees gray market bid

MGIC's planned convertible bond offering was bid higher in the gray market on Tuesday.

The fact that it was bid as high as 103 a full day ahead of final terms was seen as somewhat irregular for the market, as hedge players generally don't want to tip their hand regarding a deal that early for fear of triggering repricing.

But there was no talk of repricing the deal on Tuesday, which was seen coming at a yield between 5.25% to 5.75% with an initial conversion premium of 20% to 25%.

"It is a little unusual to see a gray market this early," a New York-based sellside trader said. "But once the terms were out and the conference call was held, and everyone had put in their two cents in on valuation, there was no reason not to start one."

There was also talk that the deal might be coming sooner than planned, the sellsider said. But due to the fact that the concurrent common stock offering was still being marketed, it wasn't seen as possible.

MGIC, which is a Milwaukee-based mortgage insurer, also plans to price $700 million of common equity with a 15% greenshoe on Wednesday.

Another sellsider said the equity deal will determine where the bond goes after final terms.

"They can get bid right up to 105 or 106, but how they track could be very different from what people expect. Borrow won't immediately improve. It takes a few days after issuance for that to occur so they could under perform initially on a delta basis," the New York-based sellsider said.

The new bonds will be senior to MGIC's existing 9% convertible junior subordinated debentures due 2063, which were seen at 118.33 compared to a previous settle at 121.17, according to a pricing source.

Proceeds from the bond and stock offerings will be used to repay its 5.625% senior notes due 2011 and for general corporate purposes, which may include improving liquidity by providing funds for debt service and increasing the capital of MGIC Investment Corp.'s primary insurance subsidiary, Mortgage Guaranty Insurance Corp. (MGIC), and other subsidiaries.

Goldman Sachs & Co. is the bookrunner of both offerings.

Jefferies wider by 2 points

Jefferies' 3.875% convertibles due 2029 traded at 101.75 versus a share price of $25.50 on Tuesday, according to a New York-based sellside desk analyst, compared to a previous level 104.

The sellsider said the paper was wider by about 2 points.

Shares of the New York-based investment bank fell $2.54, or 9%, to $25.03, with selling pulling the stock down steadily into the close. Jefferies said its net income to common shareholders was $74.1 million, or 36 cents per share, compared with a profit of $38.3 million, or 19 cents per share, a year earlier.

Revenue rose 71% to $583.2 million. Analysts had expected a profit of 33 cents per share on revenue of $574.6 million.

Evergreen Solar to price

Evergreen Solar plans to price a new issue of convertible bonds that will yield 13% with an initial conversion premium of 52%.

Shares of the Marlboro, Mass.-based solar power panel maker moved up into the close, although the new deal wasn't announced until after hours.

The new paper was expected to be used to repurchase a chunk of Evergreen's existing 4% convertibles.

The notes will be convertible into shares of Evergreen Solar's common stock at an initial conversion rate of 525.2462 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $1.90 per share.

Holders have the right to require Evergreen to purchase their notes for cash on April 15, 2013.

The Rule 144A offering is being sold via Piper Jaffray & Co.

Mentioned in this article:

DryShips Inc. Nasdaq: DRYS

Evergreen Solar Inc. Nasdaq: ESLR

Jefferies Group Inc. NYSE: JEF

Knight Capital Group Inc. Nasdaq: NITE

MGIC Investment Corp. NYSE: MTG

MGM Mirage NYSE: MGM

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