Newmont Mining surges on debut; Eastman Kodak holds in as shares fall; SanDisk steady to higher

By Rebecca Melvin

New York, Jan. 29 - Convertibles players piled into Newmont Mining Corp.'s new 3% convertibles in the aftermarket Thursday, sending the paper sharply higher to a 110 close, according to sources.

The paper was strong out of the chute but rose through the morning as its stock gradually moved higher to a 2% gain, a syndicate source said.

Newmont's older, sister convertibles traded in good volume as well, with both the A and B paper changing hands at around the 105.5 mark.

Elsewhere, demand and pricing was case by case, sources said, with SanDisk Corp.'s convertibles steady to higher despite lower underlying shares.

Eastman Kodak Co.'s convertibles traded in good volume and were off 1.75 points outright but held in on a hedged basis as its shares sank on word of a plunge in sales and more job cuts.

Ford Motor Co. was steady to weaker after the Dearborn, Mich.-based automaker posted a worse-than-expected $5.9 billion loss for the fourth quarter but said it still didn't expect to seek federal bailout money.

Market players were happy to see the new Newmont Mining issue, with one sellsider calling it the "perfect deal to get this market open again." The sellsider pointed out that Newmont represented a repeat issuer where the bonds have done well before, with big equity market cap and good credit. Also, it was not a huge deal; it was short dated, and priced right.

Other market players pointed out that the upswing might have been excessive and that more paper was needed.

"Hopefully, the new issue calendar picks up a little bit," a New York-based sellside analyst said.

In the last two months, pricing and volume in the convertible market has recovered significantly, and more risk appetite exists, but the market has been in a holding pattern of late, probably waiting to see which way the stock markets are going to move.

"It depends on what the market does; if the market can pick a direction, it's going to follow equities," the analyst said.

On Thursday, equities decided to move lower. The Dow Jones Industrial Average fell 226.44 points, or 2.7%, to 8,149.01 as new economic data and mixed earnings caused some profit taking after a string of four days of gains.

The Nasdaq Stock Market fell 50.50 points, or 3.2%, to 1.507.84, while the S&P 500 stock index gave back 28.95 points, or 3.3%, falling to 845.14.

Among new data, December's durable goods orders declined 2.6%, marking a fifth consecutive decline. Excluding transportation, orders were down 3.6%. The drop in both readings was more than expected.

Also in the latest batch of data, December new home sales declined almost 15% from the prior month, leaving more than a year's supply of new homes, or 13 months of inventory, an all-time high.

And in addition, initial jobless claims for the week ended Jan. 24 increased to 588,000, higher than the 575,000 claims expected, while continuing claims climbed to 4.78 million, which is the highest level for continuing claims in 40 years.

Newmont jumps to 110

After their first day of secondary trading, the Newmont 3% convertibles due 2012 closed at 110 versus a stock price of $39.44.

Newmont Mining's series A 1.25% convertible senior notes due 2014 were seen trading at 105.5 Thursday, compared to 106.33 on Wednesday.

Newmont Mining's series B 1.625% convertible senior notes due 2017 also traded at 105.5 on Thursday, compared with 104 bid, 104.5 on Wednesday.

"I think pushing this thing up like this was going overboard," a New York-based sellside trader said of the new Newmont convertible.

"I think it was a scarcity factor," he said, referring to the fact that there has been an absence of new issuance since mid-September.

"I don't care that it modeled cheap. To buy it off the deal and pay up 10 points with the stock unchanged was a little hasty. In another month, all of sudden this might not look so cheap," the sellsider, who did not play in the deal, said.

The new paper was probably played by outright or hedge players, but it wasn't possible to gauge how many hedge players were involved.

"I think both hedged and outright people played it. It's not a pure equity play, or preferred play, so there's convexity to the bond that a convert arb could play," a New York-based sellside analyst said.

As a hedge play, it would have been about a 60 delta, but after Thursday's price move, that would have changed, sources said.

"The rationale would be that it's an investment-grade issue - we were expecting that investment grade would be the first to the market after the dry spell - and for hedge people, a strong credit floor like this is important to the strategy," the analyst said.

The new paper "jumped up in front of the As and Bs in terms of when it matures." The other issues are balanced and trading around par. So while they lost some value with the new deal, going forward it will be the same strategy, the sellside analyst said.

Where will the next issue price?

The Newmont deal shows that new issuance will have to come to market cheaply, sources agreed. Terms will have to be shorter, coupons higher and premiums lower.

"The [Newmont] deal sure is cheap with a three-year maturity and a low conversion premium...This demonstrates that quality convertibles can be issued if the terms are good," a New York-based buysider said.

The buysider pointed out how different the market is from five years ago when Red Hat was able to issue a convertible bond at a 0.5% coupon, up 37%, with a put and call in five years.

"Red Hat had lower quality, lower coupon, higher premium, and longer effective maturity," the buysider said.

A sellside analyst pointed out that it will all depend on the issuer. This paper had a credit spread of Libor plus about 400 basis points to 550 bps. But if an issuer comes along with credit at Libor plus 1,000 bps or 2,000 bps, it will not look anything like this paper.

Mentioned in this article:

Eastman Kodak Co. NYSE: EK

Ford Motor Co. NYSE: F

Newmont Mining Corp. NYSE: NEM

SanDisk Corp. Nasdaq: SNDK

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.