New Colony puts in 'solid' debut; Heartware strong despite stock shock; Medivation in line

By Rebecca Melvin

New York, April 5 - Colony Financial Inc.'s newly-priced 5% convertibles traded up strongly on their debut in the secondary market Friday, along with gains in the underlying shares of the Santa Monica, Calif.-based real estate investment trust.

The new Colony convertibles traded around 101.5 bid, 102 offered in the pre-open, slipped with weakness in the shares at the market open, but then popped around midday to more than 106 when the underlying shares turned positive. Late in the day the paper was quoted at 106.375 bid, 106.875 offered versus $21.74.

That represented 5.5 points of expansion on a hedged basis using a 70% delta, a Connecticut-based trader said.

There didn't appear to be a significant amount of follow-on trade in Liberty Interactive Corp.'s new 0.75% exchangeable debentures, which debuted on Thursday. The Liberty paper was quoted at 101.75 bid versus $145.25, which is a basket reference price of Time Warner Cable Inc. and Time Warner Inc. shares added together.

Elsewhere, Heartware International Inc.'s 3.5% convertibles appeared to strengthen despite a stock shock in the wake of news of a patient death, reported by Bloomberg.

Medivation Inc. 2.625% convertibles due 2017 gained about 2 points outright, but were in line on a dollar-neutral, or hedged, basis, with the underlying shares after the San Francisco, Calif.-based biopharmaceutical company up 3.7% at the end of the day.

There was also some action in DryShips Inc. and Advanced Micro Devices Inc., which were both higher while the underlying shares were lower, according to Trace data.

Overall, the convertibles market was described as fairly quiet, which has been the trend for the last few weeks.

Equity markets were lower, but pared losses into the close after a disappointing March jobs report, in which the U.S. Labor Department reported a rise in payrolls of only 88,000 jobs, which was less than half of the 200,000 consensus estimate.

Unemployment ticked down to 7.6% from 7.7%, which was the lowest since 2008, but the improvement was based on a lower participation rate among Americans looking for work.

The Dow Jones industrial average ended down only 40.86 points, or 0.3%, to 14,565.25, which was a loss of less than half the session's earlier drop. The S&P 500 stock index also pared losses, ending down 6.7 points, or 0.4% at 1,553.28; and the Nasdaq stock market lost 21.12 points, 0.7%, at 3,203.86.

New Colony jumps

The newly priced 5% convertibles of Colony Financial, a Santa Monica, Calif.-based REIT, traded at 101.5 bid, 102 in the pre-open, when the underlying shares were $21.45, which was the previous close.

Colony shares opened lower and the convertible pulled back some trading around 100 bid, 101 offered. Around midday as the underlying shares moved into positive territory the convertibles rose to 103.75 and then to 105.25 and 106.125 before pulling back to 104 to 104.25.

Colony shares closed at their highs of the session, up 69 cents, or 3.2%, at $22.14.

The bond's debut "was solid," an East Coast-based buysider said.

The new bond "apparently was well received," a New York-based trader said, adding that the paper was trading "in nice volume."

The company priced an upsized $175 million of 10-year convertible senior notes at par to yield 5% with an initial conversion premium of 10%.

The registered, off-the-shelf deal was initially talked at $150 million in size. Pricing came at the midpoint of the 4.75% to 5.25% coupon talk and at the cheap end of the 10% to 15% premium talk.

There is a $25 million overallotment option that was increased from $22.5 million.

Goldman Sachs & Co., BofA Merrill Lynch, Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC were joint bookrunning managers.

The notes are non-callable for seven years until April 22, 2020, and then are provisionally callable if the underlying shares rise to at least 130% of the conversion price. There are no puts.

Proceeds will be used to acquire interest-bearing short-term investments, including U.S. Treasuries, which are target assets in line with the company's investment strategies, and for working capital and general corporate purposes.

Heartware strong

Heartware's 3.5% convertibles due 2017 traded in a small lot at 118 bid 119 offered versus $83.50 on Friday. That compared to a previous level on the Heartware paper of 117 bid, 118 offered versus $86.29, according to a buysider.

It "really hasn't traded in the last week from what I can see," the buysider said. A sellside source reported a small print Friday.

Heartware shares dropped to as low as $81.30 in early trade after the patient death news, but they quickly recouped most of that, and traded lower by about 3% the remainder of the session. The shares ended down $2.42, or 2.8%, at $83.87.

The news "is not really going to affect the bonds," a sellsider said. "The company has plenty of cash and it's a cash flow generating business."

The sellsider noted that the company still has a market capitalization of more than $1 billion, and many different medical devices. "Outside of this one incident, there haven't been problems and this is not a major issue," he said.

Heartwave is a medical device company based in Framingham, Mass. and Sydney, Australia.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Colony Financial Inc. Nasdaq: CLNY

DryShips Inc. Nasdaq: DRYS

Heartware International Inc. Nasdaq: HTWR

Liberty Interactive Corp. Nasdaq: LINTA

Medivation Inc. Nasdaq: MDVN

Time Warner Cable Inc. NYSE: TWC

Time Warner Inc. NYSE: TWX

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