Greenbrier expands on debut; Ramco-Gershenson to price; Dendreon in line on drug news

By Rebecca Melvin

New York, March 31 - Trading in the convertible bond market was mixed to slightly lower on Thursday, which marked both the month-end and the end of the first quarter.

A new issue from the Greenbrier Cos. Inc. gained on its first day in the secondary market, with an underwriter marking the new 3.5% paper at 104 at the close, representing a 2.5-point expansion on a hedged basis, according to a syndicate source.

Still the new Greenbrier wasn't well-received unreservedly.

"I thought it looked OK; I don't think they were compelling either way once they settled in," a New York-based sellsider said, noting that most investors don't like a seven-year, non-call structure.

A small, $75 million new issue was launched by Ramco-Gershenson Properties Trust, which planned to sell convertible perpetual preferreds after the market close, talked to yield 6.75% to 7.25% with a 15% to 20% initial conversion premium.

InterDigital Inc.'s 2.5% convertibles extended gains on their second day of trade, moving up to 109.5 versus a share price of $48.00, compared to a high mark of 106.5 on their debut in secondary action Wednesday.

Mentor Graphics Corp.'s 4% convertibles were little changed, trading at 103.375 versus a share price of $14.85 during Thursday's session, compared to 103.5 versus a share price of $14.95 on their debut Wednesday.

Back in established issues, Dendreon Corp.'s 2.875% convertibles traded up outright but were flat on a dollar-neutral basis after good news on the Seattle-based biopharmaceutical company's Provenge prostate cancer drug.

Meanwhile, Cephalon Inc.'s convertibles remained active in trade but were little changed after the convertibles came in on a hedged basis following a hostile takeover bid from Canada's Valeant Pharmaceuticals International Inc.

March issuance jumps

U.S. issuance in March jumped to about $9.9 billion, according to Prospect News data, and represented the best single month for new issuance in three years, a New York-based sellside analyst said.

Citigroup Global Markets Inc. climbed to the top of the league tables, unseating J.P. Morgan Securities LLC as the top underwriter for the year to date, after underwriting 25% of March's new issuance, or $2.5 billion, and $3.16 billion for the year to date.

Total U.S. new issuance surged to $13.45 billion for the year to date through March, up from $3.5 billion for the year to date through February, and 40% better than the comparable 2010 year-to-date period when $8.03 billion in new issuance priced.

Among the large deals that helped beef up the month's total were MetLife Inc.'s $3.3 billion proceeds of three-year mandatory convertible equity units with a 5% coupon and Cemex SAB de CV's $1.4 billion of 3.25% paper.

The big total came despite a setback in the middle of the month after Japan's twin cataclysms severely curtailed the primary market for about two weeks.

Nevertheless, with stocks resilient at high levels and with interest rates starting to tick up a little, at least one convertibles market observer expects the brisker pace of new convert issuance to continue for the time being.

"Clearly, there is pent up demand for converts, for new paper, and I don't see anything to change that," a New York-based sellside trader said. "Issuers want to issue while stocks are high."

Greenbrier expands

Greenbrier's newly priced 3.5% convertibles due 2018 traded during the session at 103 versus a share price of $27.67 and closed higher at 104 after pricing at the middle of revised price talk, which was tightened during marketing.

The deal was upsized to $215 million from $200 million.

Shares of the Lake Oswego, Ore.-based maker of railcars gained 71 cents, or 2.6%, to $28.38 in heavy volume Thursday.

Despite the overall convert market feeling "a little bit heavy, and slightly better for sale," the new Greenbrier convertibles gained smartly.

Nevertheless, the paper's high 37.5% premium and seven-year tenor were detractions.

"For model monkeys, you want to be careful with a seven-year note not to use too high a volatility. When you plug in north of 40% volatility, you're asking for trouble," a New York-based sellside trader said.

Some deals of late have sported high premiums that seem out of line with the norm, which market observers chalk up to the rich secondary market.

"They're doing that because they can get away with it," a New York-based sellside trader said. "Many of the new deals that priced with 25% to 30% premiums, now trade with 50% premiums. Compared to the secondary market, it's not that difficult to look cheap."

The Greenbrier convertible senior notes priced at the coupon rate of revised price talk, and at the midpoint of revised 35% to 40% premium talk.

Initial price talk was for a 3.5% to 4% coupon and 30% to 35% premium.

There is a $15 million greenshoe for the deal, which was sold via joint bookrunners Merrill Lynch and Goldman Sachs & Co.

The notes are non-callable for life, with no puts. Conversion settlement will be in stock with fractional shares to be paid in cash. There is dividend and takeover protection.

Proceeds will be used together with additional cash on hand to purchase Greenbrier's outstanding $235 million of 8.375% senior notes due 2015 that are being tendered as per an announcement Wednesday.

Dendreon flat dollar neutral

Dendreon's 2.875% convertibles traded at 106 versus a share price of $37.00 on Thursday, compared to about 104 versus a share price of $36.00 on Wednesday.

Shares jumped $1.89, or 5.3%, to $37.43 on Thursday.

The convertibles moved up but were about flat on a dollar-neutral basis, a New York-based sellside desk analyst said, citing drug news for prompting the trading action.

Centers for Medicare and Medicaid Services said in a preliminary ruling that Dendreon's Provenge drug improves health outcomes for Medicare beneficiaries.

The decision means Medicare will pay the $93,000 cost of the drug.

The Centers for Medicare and Medicaid said the biotech drug is a "reasonable and necessary" medicine. Analysts have estimated that the drug could post $1 billion in sales next year with government reimbursement.

The Medicare decision was expected to be made final by June 30.

Mentioned in this article:

Cemex SAB de CV NYSE: ADS: CX

Cephalon Inc. Nasdaq: CEPH

Dendreon Corp. Nasdaq: DNDN

Greenrier Cos. Inc. NYSE: GBX

InterDigital Inc. Nasdaq: IDCC

Mentor Graphics Corp. Nasdaq: MENT

MetLife Inc. equity unit NYSE: MLU

Ramco-Gershenson Properties Trust NYSE: RPT

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