Tower Group jumps in active trade; MGM, Exelixis up outright, little changed on hedge

By Rebecca Melvin

New York, Jan. 7 - U.S. convertibles were more active Tuesday than on Monday, but pricing was little changed as market activity trends "in line" with action that it typical for the beginning of a new year, market players said.

"The market was in line with the new year in terms of seasonality," a New York-based sellside analyst said.

The range of names in trade broadened, but volumes were still relatively thin.

There were no new issues launched or priced as has been the case for more than two weeks since Dec. 20.

Tower Group International Ltd.'s convertibles were active again on Tuesday and ended about 10 points higher than they were before news Monday that the Bermuda-based reinsurance company has agreed to be bought by ACP Re Ltd., a privately owned reinsurance company, for $172 million.

MGM Resorts International's 4.25% convertibles due 2015 were up by about 4 points on an outright basis but in line, or unchanged, on a hedged basis with the underlying shares up also 4%.

MGM, a Las Vegas-based casino operator, appeared to be buoyed by bullish reports on the Macau gaming sector, which was predicted to see significant improvement this year. Nomura Securities raised its price targets on several stocks, including MGM, citing a growing diversity of attractions in Macau beyond just gaming and predicted to encourage more business from mainland China.

Exelixis Inc.'s convertibles were also up in line with shares after an upgrade by Piper Jaffray to "overweight" from "neutral" for the stock.

Equities snapped a three-day losing streak on Tuesday and posted strong gains on the back of a better-than-expected narrowing of the U.S. trade deficit in November. The trade deficit narrowed to its lowest level in four years, as exports hit a record high and weaker oil prices restrained import growth.

The S&P 500 stock index added 11.11 points, or 0.6%, to 1,837.88; the Dow Jones industrial average gained 105.84 points, or 0.6%, to 16,530.94; and the Nasdaq stock market rose 39.5 points, or nearly 1%, to 4,153.18.

Tower Group pops

Tower Group's 5% convertibles due 2014 were seen at 97.25 bid, 97.5 offered at the end of Tuesday, which remained strong and represented about a 10-point climb over the past two sessions.

Tower shares ended the session at $2.93, or down 3 cents, or 1%.

Tower said Monday that it entered into an agreement and plan of merger with ACP Re Ltd. and a wholly owned subsidiary of ACP Re. The transaction was expected to close by the summer of 2014 pending shareholder and regulatory approvals.

The bonds had gapped lower last year after the ailing property and casualty insurance and reinsurance company had to add $365 million to reserves, took a $215 million impairment charge and said it would review strategic options.

Each outstanding share of Tower will be converted into the right to receive $3 in cash. Tower shares closed at $2.94 on Friday.

The controlling shareholder of Bermuda-based ACP Re is a trust established by the founder of AmTrust Financial Services Inc., National General Holdings Corp and Maiden Holdings Ltd.

MGM, Exelixis up in line

MGM's 4.25% convertibles due 2018 were seen at 140.974 versus a share price of $24.42 during the session, according to a New York-based trader.

MGM shares gained $1.03, or 4.4%, to $24.51.

The Exelixis 4.25% convertibles due 2019 jumped to as high as 138.885, which was up nearly 8 points on the day, and on top of an 8-point jump on Monday, according to Trace data.

The Exelixis convertibles were last at 137.85 with the underlying shares of the South San Francisco, Calif.-based biotechnology company at $6.845, which was up 4 cents, or 0.5%.

Exelixis develops small molecule therapies for the treatment of cancer. On Monday, Piper Jaffray upgraded the shares to "overweight" from "neutral."

Mentioned in this article:

Exelixis Inc. Nasdaq: EXEL

MGM Resorts International NYSE: MGM

Tower Group International Ltd. Nasdaq: TWGP

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