RTI gains to 103ish on debut; new Lukoil rises to 101.5; HeartWave, ShengdaTech on tap

By Rebecca Melvin

New York, Dec. 9 - RTI International Metals Inc.'s newly priced $200 million of 3% convertible senior notes traded up to 103 bid, 103.5 offered on their debut in secondary market dealings Thursday, a syndicate source said. That move represented a slight widening in terms of premium.

The newly priced $1.5 billion of OAO Lukoil 2.625% convertibles didn't have a Rule 144A tranche, but there was some U.S. offshore participation, according to a syndicate source; and it traded up to 101.5 bid, 101.75 offered.

Two other new deals launched Thursday in the last-minute rush to get transactions in before year-end. They included HeartWare International Inc.'s $100 million of seven-year convertible senior notes and ShengdaTech Inc.'s $90 million of five-year convertible senior notes.

Both issues were expected to price after the market close Thursday.

HeartWare was talked to yield 3.5% to 4% with an initial conversion premium of 22.5% to 27.5%, and ShengdaTech was talked to yield 6% to 6.5% with an initial conversion premium of 20% to 25%.

Back in established issues, Eastman Kodak Co. made a splash by running up on strong volume. The source of this strength was unclear, but there have been ongoing rumors of a potential takeover for the Rochester, N.Y.-based photography company, and that speculation flared up again Thursday afternoon.

There was "heavy volume in the January call options, but no news from the company," a Connecticut-based sellside analyst said. "There was takeover speculation later in the day."

Kodak's 7% convertibles due 2017 traded at 102 on Thursday, versus a share price of $5.25, compared to a trade at 97 versus a share price of $4.70 late Wednesday, according to a New York-based sellside desk analyst.

Smithfield Foods Inc. saw its convertibles in trade after the Virginia-based meat producer reported strong earnings. The Smithfield 4% bonds traded at 113 versus a share price of $19.35, which compared to a previous level of 110.5 versus a share price of $18.15.

"Right now they are 27.5 points," a New York-based sellside desk analyst said of the Smithfield convertibles. "The other day, they were 30 points; so they did what they are supposed to do, as the stock went up, the premium came in."

Ciena Corp.'s trio of convertible bonds also saw action after the Linthicum, Md.-based networking equipment company reported strong quarterly earnings that caused a spike in underlying shares.

Dallas securities and banking company SWS Group Inc. scrapped its plans to price a $95 million offering of five-year convertible notes concurrently with an initial public offering. That deal was supposed to have priced late Wednesday, but it was called off due to "recent volatility and unfavorable market conditions," the company said.

RTI gains to 103

RTI's newly priced 3% convertibles due 2015 traded up to 103 bid, 103.5 offered after initial trades out of the chute Thursday in the 101.5 to 102 area.

Shares of the Pittsburgh-based titanium producer pared early gains but still pushed up near the close to end up 24 cents, or 0.9%, to $27.34 in heavy volume.

The new paper widened very slightly in terms of premium to a 35% premium relative to its at-issue premium of 32.5%, a syndicate source said.

Ahead of final pricing, the new convertibles deal was said to have modeled cheap by 4% to 6% using a credit spread of 650 basis points to 700 bps over Libor and a vol. of 38% to 40%.

One New York-based sellsider, who said he was modeling it 4% to 4.5% cheap at the mids, used a credit spread of 650 bps over Libor and a 38% vol.

"I hate to be tighter than the underwriter, but I thought the 40% vol. was aggressive and I scaled it back to 38%," the sellsider said.

Hedge fund players are skeptical about "paying up" for vol., the sellsider said, because they are concerned they are not going to realize it. If there is no liquidity to trade and no options, it's a guesstimate of what real volatility is, he explained; and "a couple of points of vol. can make a big difference."

Vol. sensitivity is greater than some other inputs, like credit spread, he said.

RTI's deal was upsized by $25 million to $200 million, and it priced at the rich end of talk to yield 3% with a 32.5% initial conversion premium.

The registered deal has a $30 million greenshoe.

Proceeds of the five-year bullets are earmarked for working capital and general corporate purposes, including capital expenditures and future acquisitions.

"Demand is there. A lot of people are going to play this one because it's the first deal in awhile that has a plain vanilla structure, a business that people can understand, and good borrow," a New York-based sellside trader said ahead of final pricing. "All the ducks lined up for this."

The trader admitted some detractions for the deal were the cyclical nature of the company and the fact that it is "kind of levered," but he felt that would be overlooked in favor of the cheap modeling and the fact that the stock has good potential.

The stock has been back and forth all year, but there is an expectation that it could take off in 2011, a Connecticut-based sellside analyst said.

Its markets include all the major aircraft makers including Airbus and Boeing, Bell helicopters and military and private jets, the analyst said.

"If you think the cycle is going to turn, then it's a good ride," the analyst said.

Lukoil rises to 101.5, 101.75

Lukoil's newly priced 2.625% convertibles due June 2015 traded at 101.5 bid, 101.75 offered, according to a New York-based sellsider.

The Lukoil deal, which was placed primarily in Europe, launched and priced by midmorning in the United States, and there was some U.S. participation.

It was a large deal, but the sellsider didn't expect it to be actively traded for more than a few days, citing less secondary market action in general in Europe.

Lukoil International Finance BV, a subsidiary of OAO Lukoil, issued the $1.5 billion of convertible senior bonds, with pricing coming toward the cheap end of coupon talk, which was 2.5% to 3%, and at the talked price point for the premium, which was 30% above the volume weighted average price of Lukoil's ADR between launch and pricing.

The Regulation S bonds will be convertible into Lukoil's American Depositary Receipts listed on the London Stock Exchange.

Joint bookrunners were Barclays Capital, Citigroup Global Markets Ltd. and Deutsche Bank AG, London Branch.

Lukoil is a Moscow-based oil and energy company.

HeartWave, ShengdaTech ahead

HeartWare's registered offering of $100 million of seven-year convertible senior notes was seen pricing with a coupon between 3.5% to 4% and with an initial conversion premium of 22.5% to 27.5%.

The deal is coming concurrently with a secondary stock offering of 1 million shares.

HeartWare will not receive any proceeds from the common stock offering, which is being sold by a major stockholder.

J.P. Morgan Securities LLC is the bookrunner for both offerings.

Proceeds will be used for general corporate and working capital purposes, including, but not limited to, expansion of manufacturing capabilities and/or licensing of or investment in complementary products, technologies or businesses.

HeartWare is a medical device company located in Framingham, Mass., and Sydney, Australia.

ShengdaTech's Rule 144A offering of $90 million of five-year convertible senior notes was talked to yield 6% to 6.5% with an initial conversion premium of 20% to 25%.

The offering was being sold via bookrunner Morgan Stanley, with Oppenheimer & Co. as the co-manager.

Most of the deal will be used to buy back ShengdaTech's existing convertible notes due 2018, which were not seen in trade, according to a Connecticut-based sellside trader.

Proceeds will also be used to finance its nano-precipitated calcium carbonate production capacity expansion, research and development and for other working capital.

Based in Tai'an City, China, the company makes and markets NPCC and coal-based chemicals. The products are used in various applications, including tires and polyvinyl chloride, or PVC, building materials.

Mentioned in this article:

Ciena Corp. Nasdaq: CIEN

Eastman Kodak Co. NYSE: EK

HeartWave International Inc. Nasdaq: HTWR

OAO Lukoil London: ADRs: LKOD

RTI International Metals Inc. NYSE: RTI

ShengdaTech Inc. Nasdaq: SDTH

Smithfield Foods Inc. NYSE: SFD

SWS Group Inc. NYSE: SWS

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