Convertibles quiet ahead of holiday weekend; Goldcorp trades at par; Steel Dynamics at 108.85

By Rebecca Melvin

New York, July 2 - Action in the convertible bond market seemed to have pretty much petered out by Thursday, after winding down much of the week ahead of the July 4 holiday weekend.

Markets will be closed Friday.

Selling pressure on equities spurred by disappointing jobs data didn't seem to affect convertibles Thursday, sources said.

"It's very quiet. No one is quoting much. I'm just biding time," a Connecticut-based sellside trader said. "I'm only sitting here because I have to."

Earlier in the week, trading action was described as sporadic.

Two issues originating from early June were cited in trade Thursday, including Goldcorp Inc., which traded at 100 versus a share price of $35.25; and Steel Dynamics Inc., which traded at 108.85 versus a share price of $14.25.

A very small amount of NRG Energy Inc.'s 4% convertible preferred shares traded unchanged amid news on Thursday that Exelon Corp. was sweetening its hostile takeover bid for the independent power generator.

Equities were sharply lower after the U.S. Department of Labor said that non-farm payroll employment fell by 467,000 jobs for June, and that the unemployment rate stood at 9.5%, which was up slightly from 9.4% in May.

Job losses were widespread across major industry sectors including large declines occurring in manufacturing, professional and business services, and construction, the Labor department said.

The U.S. primary market saw only one new issue price during the week: Alliance One International, Inc.'s $100 million of five-year convertibles, which priced at the cheap end of talk after the close on Monday.

The newly priced Alliance 5.5% convertibles of the Morrisville, N.C.-based leaf tobacco merchant weren't heard in trade after the issue was released to the secondary market.

In Europe, however, two new issues were launched and priced Thursday, including Belgium's Nyrstar NV and Switzerland's Clariant Ltd. In addition, French oil concern Maurel & Prom SA priced an issue on Monday.

The U.S. primary market was predicted to revive after the July 4 holiday weekend, but a European syndicate source said European players eyed the upcoming July 4 holiday as the start of a deal-stopping vacation season that should continue for at least several weeks.

Goldcorp trades at par

Goldcorp's 2% convertibles due 2014 traded at 100 versus a share price of $35.25 on Thursday, which was up from when it slipped below par on its debut on June 2.

Shares are off by 2% since the convertibles were priced a month ago.

Goldcorp's $750 million of five-year notes slipped under par in trading on their debut at that time, but a higher stock price during the session helped buoy the name.

The Vancouver, B.C.-based producer of gold, silver, copper, lead and zinc was an unknown entity to the convertibles market, but the size and sector appealed, players said at that time.

"When I see 2s, up 30, I run. Historically, they don't do so well," a New York-based sellside trader said.

Pricing had come at the cheap end of talk.

Steel Dynamics steady to lower from issue

Steel Dynamics' 5.125% convertibles due 2014 traded at 108.85 versus a share price of $14.45.

Shares of the Fort Wayne, Ind.-based steel products maker finished the session right around that level, which was down about 2%.

In early June, Steel Dynamics priced an upsized $250 million of 5.125% convertibles, which jumped to 109 versus a share price of $14.75 immediately upon release to the secondary market. But the price eased from that level later in the session.

Shares are down about 3% from initial pricing of the convertibles, which priced at the tight end of talk.

Steel Dynamics' products are primarily for construction and original equipment manufacturer, including auto maker, end markets, which are cyclical industries.

NRG quiet, unchanged

NRG's 4% convertible perpetual preferreds, which trade at sub parity and move in tandem with the common stock, were at parity minus 4 points on Thursday, according to a New York-based sellside trader.

Only about 4,500 shares traded, and it was not changed, the sellsider said. "It's supply and demand," he said of the trade.

Exelon said it was increasing its offer for NRG by 12.4%, to 0.545 of a share of Exelon common stock for each NRG share, from 0.485 of a share.

The total value of the revised offer to NRG shareholders is $3 billion, Exelon said.

According to Exelon, its latest offer takes into consideration about $1.5 billion of additional newly identified synergies as well as the value of NRG's recent acquisition of the Reliant Energy retail business.

NRG said it will consider the proposal, which it has not yet received. The company's shareholders were advised not to take any action regarding their shares at this time, according to an NRG news release.

In October 2008, Exelon, a Chicago-based electric company, proposed acquiring NRG at a fixed exchange ratio of 0.485 of a share of Exelon common stock for each share of NRG common stock.

Exelon said it brought the offer directly to NRG shareholders on Nov. 12, 2008 after the Princeton, N.J.-based power generation company twice rejected the offer.

Mentioned in this article

Goldcorp Inc. NYSE: GG

NRG Energy Inc. NYSE: NRG

Nyrstar NV NYSE Euronext Brussells: NYR

Steel Dynamics Inc. Nasdaq: STLD

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