Lam Research trades actively; Molson Coors 'in' slightly; WellPoint offers $1.35 billion

By Rebecca Melvin

New York, Oct. 1 - The convertible bond market was quiet and mostly flat on Monday, with the exception of Lam Research Corp.'s convertibles, which were unusually active and mixed to little changed in trade, market players said.

The convertibles of Molson Coors Brewing Co. also traded some on Monday and were in about 0.5 point outright with a 5% drop in the underlying shares of the Denver-based beer and beverage maker and distributor.

The fairly short-dated Molson paper wasn't seen moving very far from par given its July 2013 maturity; but they did drop back about 0.5 point to 102.5 bid, 103 offered compared to the $2.23 drop in the underlying shares to $42.82.

The first day of the fourth quarter following a strong third quarter was "one of the low-volume days" that have marked the convertible market for some time, a Chicago-based trader said.

"Volume started to pick up in the first couple of weeks in September when the Fed eased, but that changed about a week and a half ago with the negative news flow out of Europe," the trader said.

"The market had no discernible direction or tone to it and stayed flat," he said, adding that many market players were likely to sit on their hands during this week awaiting the U.S. jobs report for September, which is set to be released on Friday.

News providing market focus actually materialized after the market close when WellPoint Inc. launched a $1.35 billion offering of 30-year senior convertible debentures for pricing late Tuesday.

The investment-grade name in the pharmaceutical space was likely to generate lots of enthusiasm especially given its size.

Overall, convertibles were following the equity markets on Monday, which were helped initially by the Institute of Supply Management's release, saying its index of factory orders rose to 51.5 in September from 49.6 in August. The rise was more than expected and expanded for the first time since May,

But later, stocks turned mixed. Comments from Fed chairman Ben Bernanke were cited for contributing to the dampening effect. He said that the newest round of bond buying is unlikely to spark inflation or prematurely raise policy rates, which have been near zero since December 2008.

Lam Research trades actively

Lam's 0.5% tranche A convertibles due 2016 were offered at 94.8 versus an underlying share price of $31.54, according to a Connecticut-based convertibles analyst.

Lam's 1.25% tranche B convertibles due 2018 were bid at 96.75 versus an underlying share price of $31.92, while Lam's 2.625% convertibles due 2041, or the former Novellus convertibles, were 110.47 bid versus a $31.60 share price, the analyst said.

Shares of the Fremont, Calif.-based semiconductor equipment maker closed down 21 cents, or 0.7%, at $31.57.

The trading activity in the three bonds topped volume charts for the day and puzzled players who didn't know what sparked the activity in the investment-grade name.

Shares of the $6 billion market cap equipment manufacturer have not been performing well, a convertibles trader said.

The 0.5% convertibles are yielding 2% with an 88% premium, he said.

Lam's equipment is used to produce semiconductor devices. It missed estimates for its last reporting period during the summer and showed a decline in revenue compared to the same period of 2011, while net income fell 86%.

Molson slips 0.5 point

Molson Coors' 2.5% convertibles due July 2013 traded down about 0.5 point to 102.5 bid, 103 offered versus the close in the share price, which was $42.82.

The shares were down after news that the company is consolidating operations in Europe and Morgan Stanley downgraded the shares to "underweight" from "equal weight," with a price target of $45 as the company lags its peers.

As for the convertibles, the name wasn't seen as terribly interesting.

The convertible has 26 points of premium. "It's not horrible," a West Coast-based trader said. But "You know it's going to stick unless there's a big move in the stock."

WellPoint to price large deal

WellPoint, an Indianapolis-based health benefits concern, launched a $1.35 billion offering of 30-year convertibles after the market close Monday that was seen pricing after the market close Tuesday.

The deal was talked to yield 2.5% to 3% with an initial conversion premium of 20% to 25%, according to market sources.

Joint bookrunners for the Rule 144A offering are Credit Suisse Securities (USA) LLC, Bank of America Merrill Lynch and UBS Investment Bank. There is a $150 million greenshoe.

The debentures are non-callable for 10 years and then are provisionally callable if the underlying shares are 150% of the conversion price. There are no puts.

The securities have net share settlement, and they have dividend and change-of-control protection.

Up to $600 million of proceeds are earmarked for stock repurchases concurrently with the debenture offering. The balance of proceeds will be used for general corporate purposes, including but not limited to additional share repurchases and repayment of short- and long-term debt.

Mentioned in this article:

Lam Research Corp. Nasdaq: LRCX

Molson Coors Brewing Co. NYSE: TAP

WellPoint Inc. NYSE: WLP

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