Demand for mandatories remains strong; DISH continues to trade; PRA bonds edge upward

By Rebecca Melvin

New York, May 26 – There was continued buying interest and trading in mandatory convertibles early Friday as business in the space was winding down ahead of the long holiday weekend, a New York-based sellsider said.

“There were some mandatory trades and odds and ends,” the source said, noting that there was only about $60 million in trades recorded on Finra’s Trace data by late morning.

U.S. bond markets had an early close on Friday at 2 p.m. ET, and financial markets will be closed on Monday in observance of Memorial Day.

Becton, Dickinson & Co.’s 6.125% mandatory convertible preferred stock was quoted at 52.625 by a second New York-based sellsider, with the stock of the Franklin Lakes, N.J.-based medical device and technology company down 71 cents, or 0.4%, at $186.06.

The Becton Dickinson mandatory is an ultra large $2.48 billion issue that has been a focus of the market since it priced earlier this month.

Another mandatory issue in focus this week was Bunge Ltd.'s 4.875% convertible preferred, which was quoted at 110.45 bid, 110.75 offered versus a common share price of $83.42 early Friday.

Bunge shares were a little lower but still up from a pop on Tuesday after Glencore plc said it has approached the White Plains, N.Y.-based agribusiness company about a possible “consensual business combination.”

Traditionally mandatory convertibles have not been a favorite with the market, but with the advent of several new large deals of solid credit quality, the paper has been bought and traded by “the usual suspects,” both hedged and outright players, a New York-based sellsider said.

Another new mandatory deal is Stanley Black & Decker Inc.’s new equity units, a $675 million deal with a 5.375% coupon that priced on May 11.

The fact that there is new paper is a draw as well as the fact that the issuers represent higher credit quality and therefore better valuations and better yields, the sellsider said.

There has been an increase in the number of buyers of utilities and utilities provide more value from a yield perspective, the sellside trader said.

This week, utilities helped boost equity indices as well. Shares of both utility companies and technology companies were credited with boosting stocks this week, with both sectors gaining more than 2% on the S&P.

In addition, there has been some M&A activity in some companies with mandatories that have boosted demand, the trader said, mentioning Dynegy Inc. and Bunge.

Elsewhere, DISH Network Corp.’s convertible bonds continued to trade on Friday. On Monday, the company announced two new deals with Amazon.com.

The DISH 3.375% convertible notes due 2026 traded at 121.7 with shares little changed around $63.90. Those bonds traded up on swap earlier in the week. The 2.375% DISH convertible notes due 2024 were at 104.8, compared to 104.5 on Monday.

DISH’s equity rose 22 cents to $64.12 on Friday.

On Monday, the Englewood, Colo.-based satellite TV services provider said it planned to allow its digital video recording set-top box to work directly with Amazon’s personal assistant, Alexa. Secondly, DISH’s Anywhere app users can access Amazon FireTV products.

PRA Group Inc.’s sister convertible bonds continued to trade well on Friday after the Norfolk, Va.-based acquirer of nonperforming loans priced a new $345 million convertible bond issue this week via joint bookrunners BofA Merrill Lynch and SunTrust Robinson Humphrey Inc.

The new PRA 3.5% convertible was up at 102.1, according to Trace data, and the older PRA 3% traded at 96.25.

PRA shares added 65 cents, or 1.8% to $36.35 on Friday.

There was trading in AmTrust Financial Services Inc.’s 2.75% convertible due 2044 on Friday with that paper shown as a top volume name on Trace at a price of 73.625.

Shares of the specialty property and casualty insurance company popped $1.55, or 12.5%, to $14.00.

Behind the move was an investment in the company of $300 million by its founding family.

Mentioned in this article:

AmTrust Financial Services Inc. Nasdaq: AFSI

Becton, Dickinson & Co. NYSE: BDX

Bunge Ltd. NYSE: BG

DISH Network Corp. Nasdaq: DISH

Dynegy Inc. NYSE: DY

PRA Group Inc. Nasdaq: PRAA

Stanley Black & Decker Inc. NYSE: SWK

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