New RTI International bid higher in gray; existing RTI seen rich; Rite Aid mostly quiet

By Rebecca Melvin

New York, April 11 - RTI International Metals Inc.'s planned offering of $250 million of 6.5-year convertible senior notes was bid higher by about 2 points in the gray market Thursday ahead of final terms seen being fixed after the market close.

Market players said they had seen no gray market trades in the planned paper. Meanwhile, a syndicate source said the deal may possibly be upsized to $300 million with a $45 million, or 15%, greenshoe.

RTI's existing 3% convertibles were down a point outright, which wasn't surprising given that the underlying shares were lower, but the issue was still seen about 4 points rich.

Fellow Pittsburgh-based company Wesco International Inc. saw its 6% convertibles due 2029 trade higher by more than 5 points to 256.5, and the issue was seen at 255 at the end of the session amid no particular news.

Wesco is heavily leveraged in non-residential construction and has a total debt to capital ratio of 50%.

Rite Aid Corp.'s convertibles gained more than 4 points on an outright basis to 117.625 after the Camp Hill, Pa.-based drugstore chain reported results that swung to a profit for its fiscal fourth quarter compared to the year-earlier period. But the generally tightly held Rite Aid convertibles were not actively traded, market sources said.

Elsewhere, Regeneron Pharmaceuticals Inc.'s convertibles were in trade, and printed at nearly 249, according to Trace data, as the underlying shares of the Tarrytown, N.Y.-based biopharmaceutical company reached a 52-week high.

In economic news, unemployment benefits fell more than expected last week, dropping 42,000 to 346,000, the Labor Department said. Economists had been expecting first-time applications for jobless aid to fall only to 365,000.

That was the largest weekly drop since mid-November, and it encouraged investors in the wake of last week's poor March jobs report. The Dow Jones industrial average extended gains and its string of record highs, adding 62.90 points, or 0.4%, to 14,865.14 on Thursday. The S&P 500 stock index also touched another record high, adding 5.64 points, or 0.4%, to 1,593.37, and the Nasdaq Stock market added a lesser amount of 2.91 points to 3,300.16.

Planned RTI looks cheap

The RTI $250 million of convertibles - which may potentially be upsized to $300 million in size - was seen about 2 points cheap at the midpoint of talked terms, using a credit spread of 450 basis points above Libor and a 30% vol.

Using a 35% vol. with the 450 bps spread got the paper 2.8% cheap at the midpoint of talk, a Connecticut-based trader said.

"I think 35% vol. is too high," the trader said.

A second source got the paper 2% cheap using a 400 bps spread and 30% vol.

The new deal was talked to yield 1.625% to 2.125% with an initial conversion premium of 30% to 35%, according to market sources. A syndicate source said late in the session that the talk hadn't been revised.

Joint bookrunners for the registered offering were Barclays and Citigroup Global Markets Inc., and FBR and Stifel were senior co-managers.

The notes will be converted into shares, cash or a combination of both at the company's election.

The notes have contingent conversion if shares are at least 130% of the conversion price. They are non-callable with no puts. There is also takeover and dividend protection.

Proceeds are intended for working capital and general corporate purposes, including capital expenditures as well as potential future acquisitions and repurchases of existing convertible notes.

Also at the time the offering was launched on Thursday, RTI updated its expected first-quarter results, saying it expects operating income to be lower by $4 million to $6 million in the range of $14 million to $16 million.

The new guidance includes the recovery of about $4 million of import duties under the company's duty drawback program previously expected to be recovered later in the year. But expected results do not include the impact of noncash charges related to the company's proposed disposition of certain non-core businesses as well as expenses related to a voluntary early retirement program offered to some employees.

In the aggregate, the negative impact of these two items is expected to be in the range of $4 million to $6 million, a portion of which may be reported as a discontinued operation, the company said.

Existing RTI mostly quiet

RTI's existing 3% convertibles due 2015 were seen changing hands during the session at 114.003 outright, and also at 114.45 versus an underlying share price of $29.97, according to a New York-based trader.

The older RTI paper trades about 4 points rich, which was a caveat when thinking about the new deal's valuation at 2 points cheap, an East Coast-based buysider said.

"The old ones trade rich, and I would assume, given the demand the new ones will too," he said.

Shares of the Pittsburgh-based producer of titanium mill products traded down $1.47, or 4.65%, to $30.16.

Rite Aid up some, quiet

Rite Aid's 8.5% convertibles due 2015 traded up on an outright basis Thursday to 117.625, or up 4.125 points outright, according to Trace data.

Rite Aid shares surged 33 cents, or 18%, to $2.12.

However, the bonds are not generally actively traded and were not seen in trade by many market players.

"If we could find some bonds, we could probably buy them," one buysider said.

The Camp Hill, Pa.-based drugstore chain reported earnings that were boosted by an inventory-accounting benefit and improved generic drug prescription profitability.

For the quarter ended March 2, Rite Aid reported a profit of $123.1 million, or 13 cents a share, compared to a loss of $161.3 million, or 18 cents a share, in the year-earlier period.

The latest period included an inventory accounting-related credit of $175.4 million.

Revenue fell about 10% to $6.45 billion compared with last year's quarter, which had an additional week.

The earnings were better than expected as analysts on average expected the company to break even on a per-share basis, and revenue was in line with estimates.

Mentioned in this article:

Regeneron Pharmaceuticals Inc. Nasdaq: REGN

Rite Aid Corp. NYSE: RAD

RTI International Metals Inc. NYSE: RTI

Wesco International Inc. NYSE: WCC

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