United Rentals trades above par; TeleCommunication higher; buyers boost Medtronic, Omnicare

By Rebecca Melvin

New York, Nov. 11 - Two new convertible issues released for secondary dealings Wednesday, United Rentals Inc., and TeleCommunication Systems Inc., were a trading focus Wednesday, with both moving higher despite somewhat weaker underlying shares.

Telecommunication Systems was called mostly quiet although the initial market for those 4.5% convertibles was as high as 104 bid, 107 offered, according to a syndicate source. It tightened up later, he said. And most sources put the issue at 105 bid, 106 offered, coming off the peak with the common stock.

There were also buyers in several healthcare names, including Medtronic Inc. and Omnicare Inc. which were a bit better on the day, a New York-based sellside trader said.

Real-estate investment names have also been a focus among convertibles players in light of a couple of recent tender offers including one for Vornado Realty Trust, the sellsider said.

Trading in REIT names has been slim, however, as most players are "buy and hold," and the space has shrunk down already due to issuer buybacks of REIT paper over the past year.

"We've just got the rump of most of those issues. It's really illiquid," the sellsider said.

Action overall in the convertibles market tapered off pretty quickly after an initial burst, and was quiet by mid-afternoon, sources said, especially in light of other bond markets being closed in observance of the Veterans Day holiday

United Rentals adds on debut

United Rentals' newly priced 4% convertibles traded pretty actively, and they were heard late in the session at 101.25 bid, 101.75 offered, which reflected levels that had held pretty constant through the day.

United Rentals was probably 101 bid with the stock at $8.70, according to a Connecticut-based sellside trader. "[It] hung in there."

The deal came within talk for a yield of 4% to 4.5% with a conversion premium of 22.5% to 27.5%.

One sellside analyst said his firm valued the paper at 6.3% cheap at the midpoint of talk using a credit spread of 1,000 basis points over Treasuries and a 45% vol.

United Rentals' existing 1.875% convertibles due 2023 were unchanged at 97, after improving on Monday from 96 bid, 97 offered.

Shares of the Greenwich, Conn.-based equipment rental company were lower on the day, ending off 18 cents, or 2%, at $8.71.

United Rentals launched its offering of $150 million of convertibles on Monday. The five-year notes were being priced concurrently with an upsized $500 million offering of straight notes due 2019 to yield 9¼%, in a separate registered public offering.

Bank of America Merrill Lynch, Morgan Stanley & Co. and Wells Fargo Securities were joint bookrunners for both offerings, with Bank of America acting as lead bookrunner of the convertibles deal.

Proceeds from the convertibles, together with cash on hand, are being used to redeem a portion of United Rentals' 14% senior notes due 2014.

The company will use cash on hand to pay the cost of the convertible note hedge transactions that raise the effective conversion premium to 75% from the company's perspective.

CreditSights said that United Rentals "continues to evolve its balance sheet, extending the maturity profile at the expense of higher coupon."

In research published late Tuesday, CreditSights said that United Rentals is "currently in good financial condition, but the period and amplitude of the rental industry down cycle remains unknown."

Following the sale of $500 million senior straight bonds with a 10.875% coupon in June, United Rentals came back the market for another maturity extension with the new straight bonds.

"These are opco bonds due in 2016 and 2019 and will reduce credit facility balances and 6.5% senior unsecured notes due 2012," CreditSights said. "An accompanying holdco $150 million convert issue, hedge with an equity derivative costing about $26 million, will finance a call of about half the remaining 14% holdco notes. The entire $679 million restrictive-covenant holdco preferred was taken out in 2008 with cash and the $425 million holdco notes."

TeleCommuncation higher, but quiet

TeleCommunication Systems' newly-priced 4.5% convertibles were quoted early at 104 bid, 107 offered. The spread tightened up to the 105 bid, 106 offered range, and most sources said they saw it at that level, but didn't see trades.

Shares of the Annapolis, Md.-based wireless communications technology company traded slightly lower for most of the session, ending down just 3 cents, or 0.4%, at $7.93 in heavy volume.

One source said that he thought most players flipped the paper back.

The Rule 144A deal came at the rich end of talk for the coupon, which was 4.5% to 5%, and beyond the rich end of talk for the conversion premium, which was 22.5% to 27.5%.

A Connecticut-based sellside analyst said, "I'm being told I'm a bit wider than the Street on TSYS in using Treasuries plus 1,000 basis points and a vol. of 45%. This modeled 4.6% cheap for us."

The company priced $90 million of the five-year notes and there is a $13.5 million greenshoe. Bookrunners were Oppenheimer & Co. and Raymond James.

Raymond James has been involved in several recent new deals as a co-manager, including the Airtran Holdings Inc. deal in early October and the Gaylord Entertainment Co. deal in September.

Medtronic, Omnicare boosted by buyers

Medtronic's 1.5% convertibles due 2011 and the company's sister issue, 1.625% convertibles due 2013, were both seen at about 99.125 bid, 99.5 offered on Wednesday, which was a little better than previous levels.

"People have been sellers of these bonds, but all of sudden they turned around and were buyers today," a New York-based sellsider said, adding that there was strength in healthcare names, in general.'

"People are looking for solid, investment-grade names like Medtronic and Transocean," the sellsider said.

Shares of the Minneapolis-based medical device maker were trading in positive territory amid decent volume during the session, ending higher by 52 cents, or 1.3%, at $40.07.

Omnicare's 3.25% convertibles due 2035 were also called a bit better trading at 80.5, with its shares in positive territory during the session.

Shares of the Covington, Ky.-based geriatric drug services company ended higher by 27 cents, or 1.2%, at $23.58.

Mentioned in this article:

Medtronic Inc. NYSE: MDT

Omnicare Inc. NYSE: OCR

TeleCommunication Systems Inc. Nasdaq: TSYS

United Rentals Inc. NYSE: URI

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