Goldcorp active; Meritor, ViroPharma shed about a point on swap; Air Lease deal revised

By Rebecca Melvin

New York, Nov. 15 - Trading action in convertible bonds on Tuesday was fueled tepidly by some company-specific news as equity markets reversed losses.

Equities started out the day weaker and then shot into positive territory, mostly erasing Monday's losses. There was another dangerous spike in Italian bond yields, and Spanish and French sovereign debt also came under pressure. On a positive note, retail sales figures for October in the United States were better than expected.

Goldcorp. Inc.'s 2% convertibles were a volume leader in the convertibles market, and they edged lower, according to Trace data, amid low volume and little price movement in the underlying shares.

Meritor Inc.'s convertibles were weaker by about a point or so dollar neutral in conjunction with sharply lower shares after the Troy, Mich.-based auto components maker guided lower than analysts expected for full-year 2012. However, Meritor's fourth-quarter earnings and revenue were better than expected.

ViroPharma Inc.'s convertibles also contracted about a point on a hedged basis after the Exton, Pa.-based biopharmaceutical company announced it completed its acquisition of a Swedish biopharmaceutical company.

In the primary arena, coupon price talk was revised upwardly on Air Lease Corp.'s $300 million of seven-year convertibles, while the initial conversion premium range was collapsed down to the midpoint. After the change, the bonds were set to price at a 3.875% yield with a 35% premium after the market close.

Underwriters also decided to reoffer the Rule 144A deal at a discount to par of 99.

Earlier this month Human Genome Sciences Inc.'s 3% convertibles also came at a discount of 99.

In economic data, the Commerce Department said Tuesday that retail sales rose 0.5% to $397.7 billion in October from the previous month, the fifth straight increase in retail monthly sales figures. Items that saw increased sales included sporting goods, building materials, food and online goods.

Air Lease reoffer seen at 99

Price talk on new paper from Los Angeles-based aircraft leasing company Air Lease was revised during marketing Tuesday to give a significantly higher coupon. But sellsiders still suggested after the change - which was said to have added about 4 points of extra value - that the deal should include a lower premium of about 30%, not the 35% determined upon collapsing the previous range.

"It still looks like way too much premium with a tough borrow," a sellsider said. "If it gets done, it should trade down."

The talk was revised to 3.875% for the coupon from a previous range of 2.875% to 3.375%, and the 35% premium was narrowed from 33.5% to 38.5%.

In addition, the bond price was being discounted to 99 from par.

Using the new terms, one sellsider got a valuation of 101.95 using a credit spread of 600 basis points over Libor, 35% volatility and 3% borrow cost.

A second sellsider said his valuation showed the paper worth only 98.5, using the same credit spread of 600 bps over Libor and a 32% premium.

The underwriters reportedly went out with a credit assumption of 550 bps over Libor and 33% volatility.

One sellsider cited difficult borrow and limited operating history for viewing the pricing as too aggressive.

"I would expect it to price toward the less aggressive end of the talk or to trade down," the sellsider said before talk was revised.

A second sellsider said, "Management tells a good story about the business but at the end of the day most are apprehensive about seven-year exposure to the airline industry supply chain."

A New York-based portfolio manager said of the new deal after the pricing revision, "It's difficult to make an instant analysis of a financial company. Airplanes seem like excellent collateral, of course, since they're usually easy to repossess....."

Air Lease launched the $300 million offering of $1,000 par seven-year notes after the market close Monday. There is a $45 million greenshoe.

J.P. Morgan Securities LLC was said to be the lead bookrunner, with Nomura, Barclays Capital Inc. and Citigroup Global Markets Inc.

Proceeds will be used to fund the acquisition of commercial aircraft and for general corporate purposes.

Air Lease is a Los Angeles-based aircraft leasing company with business in Asia, the Pacific Rim, Latin America, the Middle East and Eastern Europe.

GoldCorp trades actively

Goldcorp's 2% convertibles were seen trading around 135, which was down a point from Monday's level. The Vancouver, B.C.-based mining company said Monday that it had received approval from the Quebec Minister of Sustainable Development to begin full construction of a gold project located in northern Quebec.

The project was expected to begin immediately, with production seen at 600,000 ounces per year.

It will be one of the largest underground gold mines in Canada, Goldcorp said.

Shares of the gold miner ended little changed at $52.97 on light volume, and while the convertible was the top volume name in the market at midsession, a sellsider said the action was not significant.

ViroPharma comes in a point

ViroPharma's 2% convertibles due 2017 traded at 135.5 versus an underlying share price of $22.45, according to a sellsider.

"That was in about a point on a 70% delta," a sellsider said, with the underlying shares ending the day up 42 cents, or nearly 2%, at $22.35.

In purchasing DuoCort Pharma AB, ViroPharma is making an upfront payment of $33.6 million and has also agreed to make additional payments of up to $131 million depending on manufacturing and sales thresholds and territory expansion.

DuoCort, is a privately owned company based in Helsingborg, Sweden.

Mentioned in this article:

Air Lease Corp. NYSE: AL

Goldcorp. Inc. NYSE: GG

Meritor Inc. Nasdaq: MTOR

ViroPharma Inc. Nasdaq: VPHM

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