Secondary mostly quiet; primary sees flurry; SandRidge flat dollar-neutral as shares jump

By Rebecca Melvin

New York, Dec. 6 - The convertible bond market was quiet on Monday as equity markets headed lower but recovered to a more or less flat finish. Meanwhile, a flurry of new issues hit the tape after the market close, including the launch of two financial deals, a restructuring that included new paper for Evergreen Solar Inc. and pricing of two Canadian new issues.

After the close, SWS Group Inc. said it planned to price $95 million of five-year convertible senior notes; Wintrust Financial Corp. launched $200 million of tangible equity units; and Evergreen announced an exchange offer and new issue of 4% convertible subordinated notes, the amount of which will be determined via a modified Dutch auction.

In Canada, Superior Plus Corp. announced that it priced C$150 million of 7.5-year convertible debentures on a bought-deal basis at par to yield 6%, and Parkland Income Fund priced C$45 million of convertible unsecured subordinated debentures on a bought-deal basis at par to yield 5.75%.

During the session, "there was nothing notable to speak of," a New York-based sellside analyst said.

In established issues, SandRidge Energy Inc.'s older convertible perpetual preferreds changed hands essentially unchanged dollar-neutral amid a strong move upward in the underlying shares after an analyst's upgrade.

SM Energy Co., a second oil and natural gas company, saw its paper change hands at 116.5 versus a share price of $53.60.

CommScope Inc.'s 3.25% convertibles due 2015 traded at 130.25 versus a share price of $31.30, which was down about 0.75 points on the day outright.

Clearwire Corp.'s new 8.25% exchangeables due 2040 improved, showing at 100 bid, 100.5 offered after it slumped to 98 bid, 99 offered on its debut Friday.

Deals on deck for pricing on Tuesday were Wintrust's $200 million of equity units talked at 7.125% to 7.625% with an initial conversion premium of 22.5% to 27.5% and the UBS AG-Stillwater Mining Co. exchangeable that looked pretty attractive if only for its high dividend talk of 9.25% to 9.75%.

The $180 million UBS-Stillwater deal looked similar to one UBS did in September with GT Solar International Inc.

November flat

Convertibles were essentially unchanged in November, according to a report published by Citigroup's convertibles team on Monday.

Convertible arbitrage was down a very slight 0.1% as per the HFR index, but the average convertible mutual fund was marginally higher, returning 0.6%, while the convert iBoxx index returned 0.4%.

Underlying stock performance was also essentially unchanged in the month as the major indexes hit highs for the year in the early part of November and then retreated amid a second round of quantitative easing by the Federal Reserve, a deteriorating macroeconomic situation in Europe and mixed indicators in the United States, the Citi report noted.

Outperformance in airlines, industrials and homebuilders lent some support to the convertibles market's performance last month, although poor showings from other sectors, including the automakers and drug companies, weighed down the overall return for converts last month, the Citi report said.

SandRidge Energy

SandRidge's older 8.5% convertible perpetual preferreds traded at 108 versus a share price of $6, according to a New York-based sellside desk analyst.

A second New York-based sellside analyst said his firm sent out levels on Monday that were unchanged at 105.125 bid, 106.125 offered versus a share price of $5.80.

The newer SandRidge Energy 7% convertible perpetual preferreds weren't heard in trade, but the second analyst was marking it flat on a dollar-neutral basis at 95.75 bid, 95.75 offered versus a share price of $5.19.

The newer issue is closely held by a small group of outright investors and is very illiquid.

"Only about four or five investors took the whole thing down," the analyst said.

Shares of the Oklahoma City-based oil and gas company rose 32 cents, or 5.7%, to $5.95 on Monday in heavy volume.

The Stifel Nicolaus analyst's upgrade was based on the opinion that increased focus on developing oil fields will likely boost SandRidge's income in the future.

The analyst, Amir Arif, upgraded SandRidge shaes to "buy" from "hold" and set a price target of $7.50 per share, noting that expected asset shares will provide an infusion of cash.

Denver, Colo.-based land based oil and gas company SM Energy Co.'s 3.5% convertibles due 2027 were in trade at 116.5 versus a share price of $53.60.

Wintrust, SWS to price

Two financial companies launched deals after the close. They included Wintrust Financial's planned $200 million of tangible equity units, with a par price of $50 each, that were expected to price after the market close Tuesday, and SWS' $95 million of five-year convertible senior notes, which came after the market close on Wednesday and were talked to yield 6% to 7.5%, with an initial conversion premium of 20% to 30%.

The Wintrust convertibles were talked to yield 7.125% to 7.625%, with an initial conversion premium of 22.5% to 27.5%.

The $200 million offering has a 15%, or $30 million greenshoe. It's being sold via bookrunner BofA Merrill Lynch, with co-managers RBC Capital Markets, Sandler O'Neill + Partners LP and Wells Fargo Securities.

Wintrust also planned to sell a common stock add-on offering via joint bookrunners BofA Merrill Lynch and Sandler O'Neill + Partners.

Based in Lake Forest, Ill., Wintrust is a financial holding company

BofA Merrill Lynch was also pricing the SWS deal, which is a registered, off-the-shelf offering with an over-allotment option for up to $14.25 million of additional notes.

The SWS notes will be non-callable for three years and then provisionally callable subject to a 130% price hurdle.

SWS Group is a Dallas securities and banking company.

Mentioned in this article:

Clearwire Corp. Nasdaq: CLWR

CommScope Inc. NYSE: CTV

Evergreen Solar Inc. Nasdaq: ESLR

Parkland Income Fund Toronto: PKI.UN

SandRidge Energy Inc. NYSE: SD

SM Energy Co. NYSE: SM

Stillwater Mining Co. NYSE: SWC

Superior Plus Corp. Toronto: SPB

SWS Group Inc. NYSE: SWS

Wintrust Financial Corp. Nasdaq: WTFC

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