Newmont trades actively in line; iStar Financial adds after buyback; Regeneron in on hedge

By Rebecca Melvin

New York, March 20 - Newmont Mining Corp.'s convertibles were among the busiest issues trading in the convertible bond market on Tuesday, moving in line with the underlying equity, which reversed early losses for a slight gain on the day.

What was driving the action in Newmont was unclear, but it may have been related to the outlook of lower economic growth and flattening demand in China, a sellsider said.

iStar Financial Inc.'s convertibles added a point or so after the New York-based commercial real estate lender announced a buyback of $109 million of the floating-rate convertibles, which mature in October. The private transaction with an institutional investor was made at a discount to par and came on the heels of news that the company inked a new $880 million credit agreement providing for two tranches of term loans.

The convertibles of Regeneron Pharmaceuticals Inc. contracted slightly on a hedged basis with the underlying shares running higher in the last few hours of trade, closing about $1 higher on the day.

The Regeneron convertibles were seen 151.25 bid, 151.625 offered versus an underlying share price of $114.40, which looked lower on hedge by 0.375 point to 0.5 point, a convertibles trader said.

Jefferies Group Inc.'s 3.875% convertibles due 2029 didn't trade in any notable size on Tuesday despite positive earnings from the New York-based mid-size investment bank that topped estimates.

The bank got a boost from stronger-than-expected fixed-income trading revenue. Jefferies more than doubled its revenue from bond trading to $339.1 million from the previous quarter.

Overall, Tuesday's trading volumes were light in both the convertibles and equity markets.

There are concerns about economic slowdown in China, but equities closed off their lows.

The convertibles market has been soft in recent sessions as volatility as measured by the CBOE Volatility index has been coming in - currently it's at about 15.5 - and on Monday and Tuesday there wasn't much happening in the convert market given that valuations are too rich for new players to buy or for current players to sell.

"Guys don't want to sell anything, just yet," a sellsider said.

A New York-based analyst told Prospect News, "I think the convertible market is fairly balanced at this point in terms of valuations."

But valuations have shot up with the rising equity markets and tighter credit, and continue to go up.

"There's just nothing happening, given where credit markets have come to," a sellsider said.

There were no new issues in the U.S. convertible primary market for a second day following two solid volume weeks.

Deals continue to price internationally, however. On Tuesday, Solidium Oy launched €450 million to €600 million of 3.5-year bonds that will be exchangeable into shares of TeliaSonera AB on Wednesday.

Pricing of the Regulation S bonds was expected Wednesday at a coupon of between 0.5% to 0.95% and an initial conversion premium of 20% to 27.5%.

Making headlines on Tuesday was Australia's mining giant BHP Billiton warning that China's demand from iron ore will flatten as its economy cools. China recently cut its 2012 gross domestic product growth target to 7.5%, which marks an eight-year low.

Additionally, China's national Development and Reform Commission said Monday it would raise domestic gasoline and diesel prices, prompting concerns that higher prices could weigh on Chinese consumers.

U.S. housing starts fell in February, but permits for new construction nosed up to their highest levels since 2008. Home construction decreased 1.1% from January to a seasonally adjusted annual rate of 708,000.

Construction of single-family homes skidded 9.9% last month, the largest drop in a year, while multifamily homes gained 21.1%. January's figures were revised up 3.7% to the highest level since October 2008.

The Dow Jones industrial average ended down 69 points, or 0.5%, to 13,170.19; the S&P 500 stock index fell 4 points to 1,405.52, and the Nasdaq Stock index shed 4 points, or 0.1% to 3,074.15.

Newmont trades in line

Newmont's 1.25% convertibles due 2014, or the A convertibles, ended the session at 129.25 bid, 130.25 offered versus an underlying share price of $53.68, according to a New York-based bank.

A second source marked the paper at 129.87 versus the $53.68 close. The bonds trade on a 72.1% delta and were slightly higher to little changed on the day, the source said.

Newmont's 1.625% convertibles due 2017, or the B convertibles, closed at 135.25 versus the underlying share price of $53.68. Those bonds were slightly lower to little changed on the day and were in line with the underlying equity.

Shares of the Greenwood Village, Colo.-based gold mining company ended the day higher by 15 cents at $53.68, after earlier having been down nearly 2%.

The Newmont convertibles have been more active than usual of late, and the speculation was that investors were taking a fundamental view on China.

iStar edges up

iStar's floating-rate convertibles, which come due Oct. 1, traded at 97 to 98, with shares of the New York-based commercial real-estate lender reversing initial gains, to end lower by 3 cents, or 0.4%, at $7.59.

"The stock didn't trade up, but the bonds moved up on expectation of them getting paid in October," a sellsider said.

The sellsider called the issue "busted," due to its premium being so high, and the convertibles don't typically move with the underlying shares.

"It has a 500% premium, so parity is 17 and the bonds are trading in the high 90s," the sellsider said.

News of a new credit facility and that the company bought back some bonds was attributed for the activity in the convertibles.

Mentioned in this article:

iStar Financial Inc. NYSE: SFI

Jefferies Group Inc. NYSE: JEF

Newmont Mining Corp. NYSE: NEM

Regeneron Pharmaceuticals Inc. Nasdaq: REGN

© 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.