Redwood gains on hedge in active debut; Salesforce little changed; Newmont under pressure

By Rebecca Melvin

New York, March 1 - Redwood Trust Inc.'s newly price 4.625% convertibles traded up Friday after the Mill Valley, Calif.-based real estate investment trust priced an upsized $260 million of the five-year convertibles at the rich end of tightened talk.

"If you hedged them yesterday, they were up 3 points on hedge and about the same outright," a syndicate source said about Redwood around midsession.

At the end of the day, the new bonds were said to have closed at 104 and added 2.75 points to 3 points on a dollar-neutral, or hedged, basis, as the underlying shares closed at their highs.

The new Redwood was the name of the day, with little in the way of other trading going on in the secondary market, sources said.

Of the trading that did occur to kick off the new month, Salesforce.com Inc.'s 0.75% convertibles due 2015 traded up a handful of points on an outright basis but were seen about flat on a dollar-neutral, or hedged, basis. Salesforce shares hit a 52-week high after the San Francisco-based cloud computing company reported positive fourth-quarter and year-end earnings and offered guidance that was in line with expectations.

Newmont Mining Corp.'s two convertible bond issues were under pressure though as the underlying shares of the gold and copper mining company hit another 52-week low.

Stocks managed to notch another up day - albeit a modest one - despite worries about the impact of sequestration, or across-the-board government spending cuts, on the U.S. economy.

New Redwood trades up

Redwood Trust's newly priced 4.625% convertibles due 2018 closed at about 104 versus an underlying share price of $20.80.

Earlier in the session they traded consistently between 103 and 104, a syndicate source said.

Redwood shares closed at their highs, up 57 cents, or 2.8%, at $20.83.

The new bonds were said to have richened on a dollar-neutral basis by 2.75 points to 3 points, with about a point to 1.25 points of that amount attributable to the gain in the stock, a syndicate source said.

The bonds were seen being held on about a 48% delta hedge, he said.

Redwood Trust is a Mill Valley, Calif.-based real estate investment trust. Its registered $250 million deal was upsized from an initially talked $150 million. The greenshoe was upsized to $37.5 million from $22.5 million.

Pricing came at the rich end of talk, which was revised during marketing to a 4.625% to 4.875% coupon with a premium of 17.5% to 20%, from a 4.875% to 5.375% coupon with a 12.5% to 17.5% premium.

J.P. Morgan Securities LLC and Barclays were joint bookrunners, with Goldman Sachs & Co. and JMP Securities LLC acting as the co-managers.

The notes are non-callable with no puts, and there is takeover protection.

Proceeds will be used for general corporate purposes, including funding its business and investment activity, which may include purchasing residential mortgage loans, funding the origination of commercial loans and acquiring mortgage-backed securities for its investment portfolio.

Redwood buys, packages and securitizes jumbo home mortgage loans, or those home loans of about $800,000.

Salesforce treads water

Salesforce's 0.75% convertibles due 2015 traded up a handful of points to 212 ish versus an underlying share price of $182.00 on Friday.

Salesforce shares climbed $12.78, or 7.6%, to $182.00.

The deep-in-the-money bonds, which are mostly held on a hedged basis, were seen as being little changed on the stock rise, a New York-based analyst said.

Salesforce reported a "spectacular" finish to its fiscal year, chairman and chief executive Marc Benioff said in the company's quarterly results release.

Nevertheless, the company reported a wider quarterly loss of $20 million, or 14 cents a share, for the fourth quarter, compared to a loss of $4.08 million, or 3 cents a share, in the year-earlier quarter.

On an adjusted basis, the earnings were better than expected at 51 cents per share, however.

Revenue jumped 32% to $835 million for the fourth-quarter, which was better than expected. And the company expects sales to continue to grow. For the current fiscal year, which began Feb. 1, Salesforce said it expects sales to reach between $3.82 billion and $3.87 billion, which was in line with forecasts.

Newmont slips

Newmont's 1.25% convertible due 2014 ended the session around 109.625 bid, 110.125 offered versus an underlying share price of $39.62. That was down about a point.

Newmont's 1.625% convertible due 2017 were seen ending at 118.5 bid, 119 offered versus the closing share price of $39.62., also a little weaker.

Newmont shares slid in the early going to down about 1% and closed off 67 cents, or 1.7% to $39.62 in average volume, marking a 52-week low on top of a 52-weeek low notched Thursday.

Shares closed at $45.94 on Jan. 7, which was near their high mark for the year. The stock has slid since Feb. 12.

Gold prices fell for a third straight day on Friday.

Gold futures for April were down $5.80 to $1,572.80 an ounce on the Comex in New York on Friday. The gold price was as high as $1,587 and as low as $1,569.3 an ounce.

The Newmont convertibles are considered "balanced convertibles," which means they are held by both outright and hedged players and they typically hold their value much better than in-the-money convertibles if the stock slumps.

The 1.625% convertibles trade on a 42% delta.

Mentioned in this article:

Newmont Mining Corp. NYSE: NEM

Redwood Trust Inc. NYSE: RWT

Salesforce.com Inc. NYSE: CRM

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