International Coal trades up on debut; Hologic higher in active trade; Smithfield active

By Rebecca Melvin

New York, March 11 - International Coal Group Inc.'s newly priced 4% convertibles traded up to 103 to 104 on their debut in the secondary market Thursday, which was seen as fair value after the company reset talk and priced at those tightened terms.

Hologic Inc. was strong and very active amid takeout rumors circling around the Bedford, Mass.-based medical device maker. The rumor wasn't confirmed.

Hologic shares jumped too, but the stock action wasn't seen as strong enough to spur the bonds' move unless the takeover rumor existed, a New York-based sellside trader said. Options activity was also very heavy in Hologic.

Likewise Amylin Pharmaceuticals Inc. was the object of considerable options activity, and its common shares, which were down by 4% early in the session, reversed course to end in positive territory as a regulatory decision on its diabetes drug loomed. There weren't a lot of Amylin convertibles trading on Thursday, however, a trader said.

Medtronic Inc. was active - which is not unusual for that name - as the medical device maker launched a $3 billion three-part straight debt sale.

Steel Dynamics Inc., another convertibles issuer, also announced a debt offering - this one for $300 million of 10-year notes that were talked to yield in the 7.75% area. But the Steel Dynamics convertibles weren't reacting much.

"Steel Dynamics is very equity sensitive. [A debt offering] isn't going to help that much. It would be meaningful if the stock went down," a New York-based sellside trader said.

Smithfield Foods Inc. was active and better after the Smithfield, Va.-based meat producer reported that it swung to a profit for its fiscal third quarter.

The Smithfield 4% convertibles due 2013 were marked at 109.25 bid, 110 offered versus a share price of $19.00 at one New York-based investment bank.

Primary shows strength

In primary action, Rovi Corp. was seen in the gray market late in the session at 100.5 bid, 101.5 offered. But no trades were reported.

"I was bidding a half. No one is gonna hit that," a New York-based sellside trader said.

The primary market has been busier this week than in February and early March, and the new primary volume spurred action in the secondary market too.

Traders wondered if the new paper, including Ciena Corp.'s $375 million, ProLogis' $400 million, International Coal's $100 million and Health Care REIT Inc.'s $342 million, would prompt investors to begin selling older paper to make room for new issues.

"It's definitely been active, but whether it's enough of a catalyst for things to happen is still the question," a New York-based sellside trader said.

Another sellside trader said the new issuance could have put a little pressure on the market. "...maybe just a little. But I suspect plenty of cash can pour into the space if issuance warrants it," the sellsider said.

Europe quiet

The European convertible market remained slow on Thursday, and an announcement by Volkswagen AG about a possible €4 billion offering failed to move the markets, a London-based trader said.

"It's still very quiet in Europe," the trader said. "Volkswagen is interesting. It could be a big issuance, but I think that's still too far away."

Volkswagen said Thursday that it will ask shareholders on April 22 to approve an issue of bonds with warrants or convertible bonds for up to 40 million common shares. Chief financial officer Hans Dieter Poetsch said a €4 billion capital raise was possible.

"They've only said that they want to raise cash, but they haven't provided much in terms of details, so it might be a little early to have anything to trade on," the trader said.

Volkswagen is a Wolfsburg, Germany-based automaker.

International Coal trades higher

International Coal's newly priced 4% convertibles traded up to about 103 or 104 versus a share price of $4.42 on their debut.

Shares of the Scott Depot, W.Va.-based coal producer settled unchanged after heavy volume at $4.47.

The new convertibles held up at 103 even with the stock off intraday. Nevertheless, traders said it had been a lot cheaper before it was repriced.

"They took all the juice out when they repriced. It was screaming cheap before; now it's modeling fair. At the new terms at par it modeled 3% cheap," a Connecticut-based sellside analyst said.

The registered, off-the-shelf deal came at the price point of revised talk, which was tightened to 4% from 4% to 4.5%, and at the rich end of revised talk for the initial conversion premium, which was lifted to 25% to 30% from 20% to 25%.

But trading in the issue was not very robust. There was a "three bid," but there were "no trades in the Street," a second sellsider said.

International Coal priced an upsized $100 million of seven-year convertibles after the close of markets Wednesday. The deal was initially expected to be $75 million in size.

Perhaps the paper was repriced because initial talk was based on the credit spread of the older 9% convertible issue that is being tendered, and that spread was too high after S&P upgraded the company, another sellsider suggested.

The existing paper was trading at 1,100 basis points over.

Proceeds from the stock and convertibles, together with cash on hand, if needed, will be used to tender for up to $139.5 million principal amount of its 9% convertible notes due 2012.

Rovi higher in the gray

Rovi's pending convertible issue was seen at 100.25 bid, 102 offered, according to a buysider, with some sellsiders putting the spread tighter at 100.5 bid, 101.5 offered.

Rovi planned to price $400 million of 30-year convertibles after the close of markets on Thursday that were talked to yield 2.5% to 3% with an initial conversion premium of 25% to 30%.

"It's nice to see something [like this]. There was the news yesterday, and the stock went up and then they said, now we can do a convert, and the stock is unchanged from yesterday, so it's pretty good," a sellsider said.

Using a spread of about 450 bps over Libor and a vol. of 28%, the bonds modeled 1.6% cheap, according to a Connecticut-based sellside analyst. "It looked like a very solid BB credit to me."

A second Connecticut-based sellsider said his firm was recommending the paper as a buy on the cheap end of talk. He used a spread of about 400 bps and a vol. assumption of 25% with financing of 1.5% including borrow.

JPMorgan, Goldman Sachs and Morgan Stanley are joint bookrunners of the deal, with co-managers UBS and Piper Jaffray & Co.

The bonds will be non-callable for five years, with puts in years five, 10, 15, 20 and 25. There is dividend and takeover protection.

Proceeds of the Santa Clara, Calif.-based digital entertainment solutions company's notes will be used to pay down the $159.6 million remainder of a term loan, to repurchase up to $100 million of common stock concurrently with the offering, to repurchase $75 million of existing 2.625% convertible debt and for general corporate purposes.

Hologic jumps on takeout rumor

Hologic's 2% convertibles due 2037 traded up about 4 points to 91, according to a New York-based sellsider.

Shares of the Bedford, Mass.-based maker of medical devices for women's health care needs jumped $1.73, or 10%, to $19.28.

Sources said there was an unconfirmed rumor that the company was being taken out by Dutch company Phillips Electronics.

"The convert was up 4 points, which is suggesting that the convert market is suspecting that a deal is possible. Shares are up about 10% today. But the move in the shares is not enough to justify the move in the converts," a sellsider said.

Nevertheless it wasn't certain how Hologic would respond to a bid with shares at this level. Shares reached a 52-week high in the early going.

Kenneth Lim contributed to this article

Mentioned in this article:

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Hologic Inc. Nasdaq: HOLX

International Coal Group Inc. NYSE: ICO

Medtronic Inc. NYSE: MDT

Smithfield Foods Inc. NYSE: SFD

Rovi Corp. Nasdaq: ROVI

Volkswagen AG Frankfurt: VOW

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.