Health Management jumps in gray; JA Solar retraces some gains; Peabody Energy, Transocean higher

By Rebecca Melvin

New York, May 15 - Health Management Associates Inc.'s planned issue of $225 million of convertible bonds was a focus of Thursday's session, with the notes "on fire" in the gray market, trading up to 104 bid, 105 offered, market players said.

The deal was expected to price after the close after having been announced ahead of the open.

"They were on fire," a New York-based sellside trader said of the new deal. "After the close, they were plus four bid. They traded at plus 103 and plus 104. So they were enjoyed. The new issue market has not been a hot spot, so it's good to be above water for a little while."

Health Management's existing 1.5% convertibles, which have a par put on Aug. 1, held steady at about 99.5.

JA Solar Holdings Co. Ltd.'s 4.5% convertible bonds retraced some gains the day after their debut in the secondary market, amid a 1.5% pullback in their underlying shares. The China-based solar power company priced an upsized $350 million of five-year senior convertible notes late Tuesday.

Several energy names were on the move upward despite an early drop in oil. But later in the session, oil prices mostly retraced their losses.

Coal company Peabody Energy Corp. saw its 4.75% convertibles jump on a 7% climb in their underlying shares. Transocean Inc. also gained after edging lower earlier in the week.

Outright players traded United Rentals Inc., which was mostly steady on a 3.2% climb in its underlying shares.

Health Management rises

Health Management, which has been looking for opportunities to sell assets or establish joint ventures this year, said Thursday it planned to price up to $225 million of 20-year convertible senior subordinated notes, part of which would be used to refinance its large, existing issue of 1.5% convertibles.

"I think the deal was 10 times oversubscribed. Health care is a good place to hide, with the hyper options associated with it, there are options to realize some richening if things come around," a West Coast-based buyside trader said.

The Rule 144A deal, being sold via bookrunners Banc of America Securities LLC, J.P. Morgan Securities Inc. and Wachovia, was seen about 2% cheap by one New York-based sellside analyst, who valued the deal using a credit spread of 525 basis points to 550 bps above Libor and a volatility of 30% to 31%.

However, another analyst said other valuations put the deal as much as 4% to 6% cheap, which would explain the high trades in the gray.

"They have CDS outstanding that was 400 bps last trade," the sellsider said.

The notes, which will be non-callable for six years, with puts in years six, 10 and 15, were talked at a coupon of 4% to 4.75% and an initial conversion premium of 57.5% to 62.5%.

Proceeds from the offering are earmarked for repurchasing a portion of its 1.5% convertible senior subordinated notes due 2023.

Health Management priced $575 million of 1.5% convertibles with a conversion price of $27.39 in July 2003 via Banc of America Securities LLC, Lehman Brothers and Wachovia. They are putable on Aug. 1.

The Naples, Fla.-based hospital operator owns and operates about 57 hospitals in non-urban U.S. communities.

Shares of Health Management (NYSE: HMA) closed up 15 cents, or 2.1%, at $7.35.

JA Solar retraces some gains

JA Solar's 4.5% convertibles closed at about 102.75 versus a stock price of $23.81 on Thursday, compared to a close of about 105 versus a share price of $24.17 on Wednesday.

JA Solar priced an upsized $350 million of five-year senior convertible notes. The Ningjin, China-based company designs, makes and markets solar cells and sells its products to solar-module makers.

Peabody Energy, Transocean higher

Transocean's 1.625% convertible A tranche due 2037 added nearly 3 points to close at 113.75 on Thursday versus a stock price of $155.40. That compared with a close of 110.9 versus a stock price of $147.2 on Wednesday.

Shares of the Houston-based oil driller (NYSE: RIG) gained $8.20, or 5.57%.

Peabody Energy's 4.75% convertible due 2066 jumped nearly 8 points to trade at 147.5 versus a stock price of $79.69, compared to a level of about 140 versus a share price of $71.02 on Wednesday.

Peabody common stock (NYSE: BTU) jumped 7.8%, or $5.57.

Peabody is a St. Louis-based coal mining company.

United Rentals holds in

United Rentals, a Greenwich, Conn.-based equipment rental company, saw its convertibles in play Thursday, with outright players on both sides of trades, according to a sellside trader.

The trader said he appreciated the trades all the more since it is rare to see the name. "I like to see things trade that I haven't seen in a while. They're busted converts, but they're holding in or gained a little strength," the trader said.

"Everyone is outright on that stuff; if they trade on swap it's at a very low delta," he added.

Standard & Poor's on Thursday assigned its BB+ secured bank loan rating to United Rentals' proposed $1 billion senior secured asset-based credit facility due 2013.

S&P said its ratings reflect its weak business risk profile based on its participation in the cyclical, highly competitive and fragmented equipment rental sector, as well as its aggressive financial policy.

United Rentals' 1.875% convertible senior subordinated notes due Oct. 30, 2023 were indicated to close Thursday at 105.93 versus a closing stock price of $20.52. They were indicated to close Wednesday at 104.8 versus a stock price of $19.89.

United Rentals shares (NYSE: URI) gained 63 cents, or 2.3%.

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