Convertibles volume thin; CSG edges up on debut; Newmont Mining mixed, Capital Source quiet

By Rebecca Melvin

New York, Feb. 25 - CSG Systems International Inc.'s newly priced 3% convertibles traded up mildly on their secondary debut Thursday after pricing at the midpoint of talk, which was where they needed to price to entice hedge players to be involved in the name, sources said.

Among other names in trade Thursday Amgen Inc. was the most active, and together - CSG Systems and Amgen - accounted for the lion's share of market trading volume.

"There's been no volume, no activity," a New York-based sellside trader said at around midday Thursday. "Outside of Amgen and CSG Systems, there was only $130 million in volume for every other issue. That's terrible."

"It's been like a summer Friday all week. It's been very slow," another New York-based sellsider said.

Newmont Mining Corp., which was active on Wednesday, saw some trades of its three convertible issues Thursday, with the Newmont 1.25% convertibles rising with its shares after the Denver-based gold producer posted strong fourth-quarter profit and revenue that beat estimates. The other issues were flat or slightly lower.

Capital Source Inc. was quiet after trading actively on Wednesday ahead of the specialized finance company's earnings. On Thursday, the company posted a narrower loss.

CompuCredit Corp.'s Dutch tender was set to expire late Thursday unless extended. The company announced the Dutch tender offer for convertibles for up to $160 million face for 46 to 50 for 3.625% convertibles and 31 to 35 for 5.875% convertibles, or approximately $80 million maximum.

The minimum of $80 million face of the 3.625% convertibles is required.

A snowstorm pummeling the Northeast was blamed for some of Thursday's inactivity, and sources said that investors' attention was also being drawn to the televised health care summit between Democrats and Republicans.

"Our world is in a wait-and-see pattern," a sellsider said.

In equities, there were broad losses right out of the gate, with the Dow Jones Industrial Average dropping 110 points at the opening bell. But the stock markets pared losses into the close.

Europe's Marine Harvest rises

In London, Marine Harvest ASA's new 4.5% convertible senior notes due 2014 rose to 102.25 bid, 102.5 offered on their secondary market debut, a London-based trader said.

"They traded pretty well," said the trader, who added that the last Norwegian offering had been in the oil and gas sector. "This was quite a change, so it was pretty well-received."

Marine Harvest priced the €225 offering on Wednesday, after the market closed, with an initial conversion premium of 30% over the Feb. 24 volume weighted average stock price.

Price talk was at a coupon of 3.625% to 4.625% and an initial conversion premium of 30% to 35%, according to a press release.

The notes were offered at par.

There is an over-allotment option for an additional €25 million. ABG Sundal Collier, Credit Suisse and JPMorgan are the bookrunners of the Regulation S offering.

Proceeds will be used for general corporate purposes, including the refinancing of loans and to extend the company's debt maturity profile.

Marine Harvest is an Oslo, Norway-based seafood and salmon-farming company.

CSG up slightly on debut

CSG Systems' newly priced 3% convertibles were seen at 101 bid, 101.75 offered versus a share price of $19.56 at mid-afternoon, which was up from an earlier bid reported at 100.5 versus a share price of $19.56, according to sellsiders.

Shares of the Edgewood, Colo.-based technology company edged up through the session, settling up 38 cents, or nearly 2%, at $19.94.

CSG priced $130 million of seven-year convertibles after the close of markets Wednesday at par to yield 3% with an initial conversion premium of 25%.

The Rule 144A deal came at the midpoint of talk, which was for a yield of 2.75% to 3.25% and an initial conversion premium of 22.5% to 27.5%.

One sellside analyst said Thursday he saw fair value at 102.1 versus a share price of $19.56 using a credit spread of 600 basis points over Libor and a vol. of 30%.

Borrow wasn't that bad, and it's a pretty solid credit, the sellsider said.

CSG tenor questioned

In general, market players were happy to see a new issue - the first in about two weeks. But there were those who complained about the longer seven-year term, compared to the five-year maturity of most recent new issues.

"As much as I want to see issuance, I'd rather not see this structure do well," a New York-based sellside trader said.

Over the lifetime of a bond like this, there will be times when it underperforms. You will never outperform," the sellsider also said.

Another source agreed: "Seven years is a long time."

Nevertheless, there were hedge players involved in it, and sellsiders were recommending it as a "buy."

The company has a pretty good credit profile with strong $198.4 million cash flow and free cash flow or $121 million in 2009 and $93 million in 2008. And it has relatively low leverage, or a PF of 2.4 times even if the 2.5% convertibles remain outstanding, according to one sellsider.

But the company is not without a few concerns, such as a tight competitive landscape, with competitors such as Amdoc, Convergys, Oracle, and internally developed systems by cable and telco providers.

Customer concentration is also a concern. Two-thirds of the company's sales for the 2009 full year were among four customers. Those customers were Comcast (24%), Dish Network (18%), Time Warner (13%) and Charter (9%).

"Despite some concerns, we still believe the business model is pretty sticky and incremental revenues capture from products launched by clients, plus data center transfer, will further improve forward operating margins,' the sellsider said.

Using a credit spread of 550 bps over swap and a 30% vol., and financing plus borrow of 1.25%, the bonds are 100, 101, 102, the sellsider said.

Newmont 1.25s rise

Newmont's 1.25% convertible senior notes due 2014 traded up to 123, which was higher by 4 points from previous markets, according to late afternoon Trace data.

The Newmont 1.625% convertibles due 2017 traded last also at 123, according to Trace data, which was down 0.4 point compared to Wednesday.

The Newmont 3% convertible senior notes due 2012 traded unchanged at 120, compared to a 119.5 versus a share price of $44.75 at the end of January.

"There wasn't an astounding amount of volume [in Newmont]. There were a couple of trades here and there. It's really been slow, and today especially with the weather, and people trying to get out," a New York-based sellside analyst said.

The New York metropolitan area got socked with a double whammy, with a mix of snow and rain that dumped snow on many regions earlier in the week and a second storm pounding areas all day Thursday and predicted to continue into Friday.

Shares of the Newmont rose $2.54, or nearly 5.5%, to $49.02 on Thursday in heavier-than-average volume.

Newmont said that it earned $558 million, or $1.13 per share, for the latest quarter, compared with $4 million, or a penny a share, during the same period last year.

Adjusted profit was $1.14 per share, which handily beat the consensus estimate of 79 cents a share.

Revenue jumped to $2.52 billion from $1.33 billion. Analysts predicted revenue of $2.02 billion.

For the year, Newmont's profit surged to $1.3 billion, or $2.66 per share, from $831 million, or $1.83 per share, in the prior year. Adjusted earnings were $2.79 per share. And annual revenue grew 26% to $7.71 billion.

Capital Source quiet

Capital Source's 4% convertibles due 2034 were quiet and stood unchanged at 95.187 on Thursday after the Chevy Chase, Md.-based financial company serving small and medium-sized businesses reported a narrower fourth-quarter net loss of $244 million, or $0.76 per diluted share, compared to a net loss of $301 million, or $1.08 per diluted share, in the year-earlier quarter.

Kenneth Lim contributed to this article

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Capital Source Inc. NYSE: CSE

CompuCredit Corp. Nasdaq: CCRT

CSG Systems International Inc. Nasdaq: CSGS

Newmont Mining Corp. NYSE: NEM

Marine Harvest ASA Oslo: MHG

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