UBS-Stillwater deal eyed; Best Buy slightly lower; DryShips steady; China Medical on tap

By Rebecca Melvin

New York, Nov. 29 - Convertibles players eyed a new deal in the market Monday from UBS AG that is exchangeable into shares of Stillwater Mining Co. - a palladium and platinum producer based in Montana - that looked pretty attractive if only for high dividend talk at 9.25% to 9.75%.

The $180 million UBS-Stillwater deal looked similar to one UBS did in September with GT Solar International Inc., a Merrimack, N.H.-based designer and manufacturer of manufacturing equipment.

Stillwater has an existing 1.875% convertible issue that was last seen at 106.5 bid versus a share price of $18.06 on Nov. 18 and wasn't roused into trade on word of the new deal, according to a Connecticut-based sellside analyst.

After the market close, China Medical Technologies Inc. launched a $100 million offering of convertible senior notes under Rule 144A that was talked to yield 5.75% to 6.25% with an initial conversion premium of 25% to 30%. The offering was expected to price on Tuesday.

Back in established issues, the session was fairly quiet coming back from the long holiday weekend for Thanksgiving. Stock and bond markets were closed Thursday and had an early close on Friday at 1 p.m. ET.

In any case, market players have been focused on Europe's sovereign debt problems, and despite it all convertibles have held up pretty well, a New York-based sellside analyst said.

Best Buy Co. Inc.'s convertibles were active on Monday, bouncing around but ending steady to slightly lower amid no particular company news other than the fact that retail sales were in the crosshairs of concern among investors on Monday following Black Friday, the official start of the holiday shopping season.

DryShips Inc.'s convertibles were also in trade and little changed to slightly higher on a dollar-neutral basis amid active shares. DryShips shares were among the most heavily traded shares on the Nasdaq Stock Market on Monday.

Superior Energy Services Inc. was up in line with its underlying shares that rose more than 6% on Monday. The convertibles were seen at 99.75.

UBS-Stillwater attractive

The registered UBS-Stillwater deal for 7.84 million of exchangeable notes, with a $25 par, was expected to price via bookrunner UBS Securities LLC on Dec. 7. There is a $20 million greenshoe for an additional 1.16 million preferred shares.

The paper's short, 18-month term made it "pretty uninteresting from a credit perspective," a Connecticut-based sellside analyst said, but it's price talk with a 9.25% to 9.75% dividend and 15% to 20% initial conversion premium was attractive.

"It should get done with those terms," a sellsider said.

Concurrently with the exchangeable, Stillwater is doing a secondary offering of common stock that made it seem that borrow wouldn't be much of an issue.

The fact that UBS is repackaging and paying the large dividends for the deal was considered odd by several sources. But the structuring has been seen before, namely the UBS-GT Solar deal in September.

"Using the UBS credit and Stillwater stock is similar to GT Solar and the purpose can be for whatever reason; the company is tranching in various buckets; there are different ways to structure an offering, and on the surface the deal should price fine," a New York-based sellside trader said.

The mandatories will be sold concurrently with a secondary offering of common stock by its majority stockholder Norimet Ltd. There is a greenshoe for up to an additional 3.8 million shares.

If the offerings are successfully placed, the selling stockholder's ownership of outstanding shares of Stillwater's common stock following these transactions would be less than 10%, or reduced to zero if the over-allotment option for both offerings is exercised in full.

Stillwater will not receive any proceeds from either transaction. Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, UBS Securities LLC and VTB Capital plc are acting as joint bookrunners for the underwritten public offering of the common stock.

Best Buy active

Best Buy's 2.25% convertibles due 2022 traded as high as 113.75 and as low as 109.66 on Monday as its shares sagged.

The last trade, according to Trace data, was 111.75 versus a closing share price of $43.41, which was down 3% on the day.

The shares of the Richfield, Minn.-based company settled near their lows for the day even though the broader markets staged a late-session rally that pared losses going into the market close.

"If I had to guess [I'd say they are down] on retail sales," a New York-based sellside trader said.

DryShips steady

DryShips' 5% convertibles due 2014 traded at 100.5 versus a share price of $5.20 on Monday.

Shares of the Athens, Greece-based shipping company gained a dime, or nearly 2%, in active trade, to settle at $5.30.

There was news out on the company Monday, but how significant it was was questioned.

The company's subsidiary inked a $77 million contract with Borders & Southern Petroleum for a two-well exploration and drilling pact in the offshore Falkland Islands area for a period of 90 days, beginning in the fourth quarter of 2011. There are three further optional wells that could extend the contract by 135 days.

Of the convertibles, a sellsider said, "They are probably right in line, maybe a little higher dollar neutral."

The stock has run up a lot in the past couple of months, and the convertibles have a high theoretical delta of 70%.

"I think people run them heavier [at] 75% to 80%," the sellsider said.

China Medical to price

China Medical, a Beijing-based medical device maker, plans to price up to $100 million of six-year convertible senior notes after the market close on Tuesday that were talked to yield 5.75% to 6.25% with an initial conversion premium of 25% to 30%.

The Rule 144A offering is being sold via bookrunner Bank of America Merrill Lynch.

There is a $25 million greenshoe.

Proceeds are earmarked to repurchase the company's outstanding 4% convertible notes due 2013, to pay for expenses associated with a capped call transaction and for general corporate purposes.

In connection with the offering, the company expects to enter into a capped call transaction with an affiliate of the initial purchaser.

The notes will be non-callable for three years and then provisionally callable in years four through six at a 130% price hurdle over conversion.

There are no puts.

Mentioned in this article:

Best Buy Co. Inc. NYSE: BBY

China Medical Technologies Inc. Nasdaq: CMED

DryShips Inc. Nasdaq: DRYS

Stillwater Mining Co. NYSE: SWC

Superior Energy Services Inc. NYSE: SPN

© 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.