Allergan off on call news; Hutchinson drops; TiVo on tap; Cemex launches $1.2 billion deal

By Rebecca Melvin

New York, March 8 - Allergan Inc.'s 1.5% convertibles were lower in trade Tuesday, coming in by about 1.25 points on swap, after news that the Irvine, Calif.-based multi-specialty health care company is calling its $649.729 million outstanding of those bonds.

The notes, which traded down to 113 on Tuesday, will be redeemed on April 5 at par plus interest.

Hutchinson Technology Inc. was also a loser on Tuesday after the Hutchinson, Minn.-based maker of suspension assemblies for disk drives announced a restructuring plan that includes a 30% to 40% reduction in its current workforce.

In the primary market, TiVo Inc. launched an offering of $120 million of five-year convertible senior notes early Tuesday that rose in the gray market ahead of final pricing expected after the close.

"People like them," a New York-based sellside trader said of TiVo. "I think they look good."

After the market close, three new deals were launched.

WebMD Corp. launched a $300 million offering of five-year convertible senior notes that was seen pricing before the market open Wednesday; Cemex SAB de CV launched a dual-tranche $1.2 billion offering of five- and seven-year convertibles; and ReneSola Ltd. planned a $175 million offering of seven-year convertible bonds expected to price after the market close.

Internationally, TUI AG priced €339 million of five-year convertible bonds with shareholder subscription rights after the market close Tuesday that came at the midpoint of coupon talk at 2.75% and with a 30% initial conversion premium.

Allergan comes in

Allergan's 1.5% convertibles due 2026 traded at 113.70 versus a share price of $71.85 late Tuesday, compared to 114.64 versus a share price of $71.80 on Monday.

That represented about a 1.25-point reduction on a swap basis, according to a New York-based sellside trader.

The premium collapsed to positive 0.25 point from 1.25 point on Monday.

Allergan shares closed up 20 cents, or 0.3%, to $72.06 on Tuesday.

News of the call created quite a stir in the convertibles market early Tuesday, as market players attempted to confirm the call in the face of rumors of a retraction.

That rumor proved to be false. "We did not retract the redemption," Allergan treasury manager Daryn Martin told Prospect News.

Martin said he was "getting inundated" with calls about whether the redemption news was final or not.

The call seemed to take players by surprise, and the paper went "cheaper than they were [Monday]," a New York-based sellside trader said.

He believes the high price that has been paid not only for this issue but for many others is a function of the high demand for paper in a limited-supply space.

But convertible issues often trade a bit over the call price before a call as players are "paying a point to have some optionality in regard to that next coupon," a New York-based sellside analyst said.

Companies will often be a month or two late with the call, and the convertibles will trade above the call, he said. He also said that convertible players may have been assuming that the company would call some of the other bonds that it has outstanding with higher coupons.

Hutchinson falls

Hutchinson Technology's 3.25% convertibles due 2026 traded down 6 or 7 points to about 76 in active trade Tuesday.

Hutchinson's issue of 8.5% convertibles due 2026, which is a small $40 million issue, wasn't seen in trade but was estimated to be about 88 compared to previous trades around 90.

Hutchinson shares lost 30 cents, or nearly 10%, to $2.80.

An analyst pointed out that the Hutchinson convertible drop was very company specific, and even though there have been several other situations of late in which convertibles players have lost on credit plays, he thought the company's specifics made drawing any conclusions limited.

For example, one source suggested that in the face of renewed volatility, convertibles players were switching their focus from credit plays to high-dollar, low-premium names like BorgWarner Inc.

In regard to Hutchinson, "it was very specific. Some of these companies are in pretty binary situations," the analyst said.

Hutchinson said it is consolidating its Hutchinson, Minn., components operations into its operations in Eau Claire, Wis. The company's site in Hutchinson will continue to serve as its corporate headquarters and its center for research and development and other specialized operations.

The company is also seeking to reduce costs and improve cash flow while keeping core capabilities intact and cut jobs by 30% to 40%.

The company's current U.S. workforce totals about 2,275 people.

These actions are expected to take place over the next 12 months and to lower the company's costs by $45 million to $60 million a year.

The company estimates that its financial results over the next 12 months will include $8 million to $10 million of severance and other costs and $5 million to $10 million of asset impairment charges and accelerated depreciation related to the consolidation of operations.

Due to recent reductions in its customers' production plans, the company said that it now expects its fiscal 2011 second-quarter suspension assembly shipments to decline as much as 5% from the fiscal 2011 first quarter.

The company expects negative gross margin in the company's fiscal 2011 second quarter and a larger operating loss compared to the preceding quarter.

After the first eight weeks of the fiscal 2011 second quarter, the company's cash and investments balance was $66.3 million compared with $101.2 million at the end of the fiscal 2011 first quarter. This decrease includes $31.2 million of cash used to complete the company's previously announced tender/exchange offer.

TiVo to price

TiVo's planned $120 million of five-year convertibles was seen cheap at the talked pricing, and the paper was seen bid up in the gray market as high as 103.625.

Early in the day, the gray market bid was only plus 1.

The Alviso, Calif.-based provider of technology and services for digital video recorders was seen pricing the paper after the market close at a yield of 4% to 4.5% and a 22.5% to 27.5% initial conversion premium.

UBS Investment Bank is the bookrunner of the Rule 144A offering that has a 15%, or $18 million, greenshoe.

The bonds area non-callable for life with no puts. They are convertible into shares of TiVo stock, and there is takeover and dividend protection.

Proceeds are earmarked to fund intellectual property litigation and research and development spending and for general corporate purposes, which may include funding sales and marketing expenses, increasing working capital, making capital expenditures and potentially for strategic acquisitions.

WebMD, Cemex, ReneSola on tap

After the market close Tuesday, a trio of new deals was launched in the primary market.

WebMD was expected to price $300 million of five-year convertibles before the market open on Wednesday. The deal is notable in that it follows right on the heels of a new issue in the convert market in January.

After the market close on Wednesday, Mexican cement maker Cemex was expected to price an extra large $1.2 billion of five- and seven-year convertibles that were being sold via J.P. Morgan Securities LLC, Citigroup Global Markets, Bank of America Merrill Lynch, Barclays Capital, ING, RBS Securities, BNP Paribas, Santander, BBVA and HSBC.

And ReneSola was expected to price $175 million of seven-year convertibles under Rule 144A that were being sold via Credit Suisse and Barclays Capital.

Mentioned in this article:

Allergan Inc. NYSE: AGN

Cemex SAB de CV NYSE: ADS: CX

Hutchinson Technology Inc. Nasdaq: HTCH

ReneSola Ltd. NYSE: ADS: SOL

TiVo Inc. Nasdaq: TIVO

TUI AG. Frankfurt: TUI

WebMD Health Corp. Nasdaq: WBMD

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