GM adds to gains; Freeport up with stock; Goldcorp prices; MasTec, Western Refining to price

By Rebecca Melvin

New York, June 1 - General Motors Corp.'s convertible bonds extended their recent gains Monday after the carmaker's widely anticipated Chapter 11 bankruptcy was filed in New York.

General Motors' convertible debentures improved steadily last week ahead of the expected June 1 filing date. But while gains were substantial, the $25 par GM retail bonds remain severely distressed. The 6.25% convertible due 2033 settled at $2.91 on Monday, for example.

The GM filing, under which GM will complete a sale of substantially all of its assets to a newly formed company, came fast on the heels of an approval of the Chrysler LLC asset transfer, for which a ruling was signed late Sunday.

Although president Barack Obama referenced the "fast" and "efficient" Chrysler process when outlining the GM situation on Monday, many investors have faulted the unorthodox approach of the transaction, which ignored priority status of senior lenders.

"Uncertainty in the capital markets is something no one appreciates," a New York-based sellside desk analyst said regarding the auto bankruptcies.

Elsewhere, CapitalSource Inc. was in trade at little changed levels on completion of the renewal and extension of its remaining secured credit facilities maturing in 2009.

Webster Financial Corp. continued to climb in response to its exchange offer, which commenced last week.

Freeport-McMoRan Copper & Gold Inc.'s mandatory preferreds gained in tandem with the company's common stock. BMO Capital Markets upgraded the stock to "market perform," citing it as a proxy for copper.

"Over the last month, copper LME inventories have declined some 20% or over 100kt and now stand at less than seven days' supply," according to the BMO research note.

Equities rallied amid the latest batch of economic data, which was taken as positive in that it was less bad than before. Commodities in particular were strong.

Meanwhile, the convertibles market saw things "better to buy," according to a sellsider

In the primary, Goldcorp Inc. launched a large issue of $750 million of convertibles early Monday, which priced after the close at the cheap end of talk with a yield of 2% and an initial conversion premium of 30%.

In addition, MasTec Inc. planned to price a drive-by offering of $100 million of convertible notes after the close Monday, with talking putting them to yield 3.75% to 4.25%, with an initial conversion premium of 27.5% to 32.5%,

Western Refining Inc. also launched an offering Monday of $100 million of five-year convertible notes. Its deal is expected to price after the market close on Thursday.

GM climbs despite bankruptcy

General Motors' 5.25% convertible due 2032, or the GPM bonds, settled at $2.91, which was up $0.25, or 9.4%, in heavy volume from Friday.

GM's 6.25% convertible due 2032, or the GBM bonds, settled at $2.98, which was up $0.26, or 14%, compared to Friday's close.

The Detroit-based automaker said it has reached agreements with the U.S. Treasury and the governments of Canada and Ontario "to accelerate its reinvention and create a leaner, stronger New GM positioned for a profitable, self-sustaining and competitive future."

President Obama said the U.S. government will be making a significant additional investment of about $30 billion in GM.

"I recognize that this may give some Americans pause. So let me explain as clearly as possible why we are making this investment. We inherited a financial crisis unlike any that we've seen in our time. This crisis crippled private capital markets and forced us to take steps in our financial system - and with our auto companies - that we would not have otherwise even considered. These steps have put our government in the unwelcome position of owning large stakes in private companies for the simple and compelling reason that their survival and the success of our overall economy depend on it," Obama said Monday.

The company said it will use its cash on hand and $33.3 billion in debtor-in-possession financing to ensure an uninterrupted supply of goods and services and provide for other cash requirements before closing of the asset sale; to fund liabilities to secured lenders; and to provide contingency funding to handle any potential unexpected needs.

In conjunction with the sale, the U.S. Treasury and the Canadian and Ontario governments will also provide funds to administer the wind down of the remaining assets and the closing of the Chapter 11 cases, GM said in the release.

According to the DIP financing motion, the lenders will be the U.S. Department of Treasury and Export Development Canada.

The company is seeking interim access to $15 billion of the DIP financing

CapitalSource steady

CapitalSource's 4% convertibles due 2034 traded at 75 on Monday, which was "in line with last print," a Connecticut-based sellside trader said.

The common stock of the financial services firm for small- and medium-size businesses gained 18 cents, or nearly 5%, to $3.93 in average volume.

The Chevy Chase, Md.-based company, working with its lenders, has combined its CS Funding III and QRS Funding I into a new $107 million facility with a three-year term. In addition, the €101 million facility which funds the company's European-based loans was also extended.

The company said that it has better matched the duration of its liabilities with the duration of our assets in these facilities.

Freeport rises with shares

Freeport's 6.75% mandatory preferred convertibles due 2010 traded at 89 versus a share price of $58.50, according to a sellsider.

Its shares gained $3.98, or nearly 7%, to settle at $58.12 on Monday.

BMO Capital Markets revised its stock price target to $50, citing the expectation of stability in copper prices going forward.

BMO analysts David Radclyffe and Tony Robson wrote that speculative trading activity has returned to the copper market, but demand "seems reasonable."

Copper is well placed relative to other base metals as the recovery cycle begins, the analysts wrote.

Near term Freeport has a flat production profile. Management's comments suggest that there is no indication it intends restarting curtailed production at this time.

BMO expects net debt to decrease dramatically in years ahead with a debt neutral position by 2012. The company's favorable debt repayment schedule sees it well placed to meet near-term obligations, the analysts wrote.

Goldcorp prices $750 million deal

Goldcorp attracted some attention in the convertible bond market when it unveiled plans early Monday to price $750 million of five-year convertible senior notes after the close.

In fact it priced that amount of notes at the cheap end of talk which was 1.5% to 2% with an initial conversion premium of 30% to 35%.

"It's a big enough issue that it's going to attract some attention," a sellsider said. "I don't know the company, but as a $30 billion company, there's not too many people that aren't going to be interested."

The Rule 144A offering, was sold via bookrunners JP Morgan, Morgan Stanley and Merrill Lynch.

There is a greenshoe of up to an additional $112.5 million of notes.

The notes will be non-callable with no puts, with takeover and dividend protection, and may be settled in cash or a combination of cash and shares.

Proceeds from the sale of notes are earmarked to repay indebtedness under Goldcorp's revolving term credit facility, with the balance to be used for general corporate purposes, including capital expenditures.

Vancouver, B.C.-based Goldcorp is a producer of precious metals including gold, silver, copper, lead, and zinc.

Standard & Poor's Ratings Services rated the offering BBB+, reflecting the agency's belief that the company will generate strong credit statistics, but will likely be modestly free cash flow negative through 2010 because of elevated capital expenditures.

Fitch Ratings said it assigned both the new $750 million senior unsecured convertible note issue and the $1.5 billion senior unsecured revolving credit facility a BBB rating. The outlook is stable, it said.

Mentioned in this article:

CapitalSource Inc. NYSE: CSE

Freeport-McMoRan Copper & Gold Inc. NYSE: FCX

Goldcorp Inc. NYSE: GG

MasTec Inc. NYSE: MTZ

Webster Financial Corp. NYSE: WBS

Western Refining Inc. NYSE: WRN

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