Steel Dynamics jumps to 109 on debut; Biovail gains; JetBlue creeps up; more supply on tap

By Rebecca Melvin

New York, June 4 - The latest batch of new convertibles issuance released for secondary market trading Thursday marked an improvement from those issues that debuted Tuesday.

Fort Wayne, Ind.-based Steel Dynamics Inc., which priced an upsized $250 million of 5.125% convertibles, jumped to 109 versus a share price of $14.75 Thursday. However, the issue eased from that level later in the session.

Toronto-based Biovail Corp., which priced an upsized $300 million of 5.375% convertibles, traded at 104.75 on an outright basis.

JetBlue Airways Corp., which priced an upsized $175 million of 6.75% convertibles, started the session sluggish, but over par, and crept up to the 104 mark, where it was left bid.

That compares to Tuesday's new issuance debuts in which Goldcorp Inc.'s $750 million of 2% convertibles were pulled up from below par during the session only by a climb in their underlying shares.

MasTec Inc., which priced $100 million of 4% convertibles, languished slightly below par throughout the session and traded Thursday at 99 versus a share price of $12.20.

Hertz Global Holdings Inc. is another recently priced issue trading below par. But Johnson Controls Inc., which priced $750 million of convertible bonds and mandatory preferreds in early March, saw its bonds trade at nearly double par on Thursday. The Johnson Controls' 6.5% bonds traded at 199.5 versus a share price of $21.65.

Also in the primary, Exterran Holdings Inc., which launched a $250 million offering of five-year convertible notes after the close Wednesday, was seen in the gray market at 100 bid, 103 offered ahead of pricing expected after Thursday's close.

Western Refining Inc. wasn't heard in the gray market, according to a source, but it was also expected to price after the close.

New deal size

The number of new issues being priced in the convertibles market recently has been impressive, but volume has lagged other primary markets and hasn't outpaced the level of convertible redemptions by much.

For May, 20 new deals had an average size of $295 million and raised a decent $5.9 billion in proceeds. But redemptions were high as well, with $4.8 billion in convertibles taken out of circulation during the same period, Bank of America-Merrill Lynch convertibles analyst Tatyana Hube noted in a report earlier this week.

A New York-based sellsider agreed that issue size has been on the small size - but nonetheless important - noting that with the potential upcoming calls/puts of Prudential Financial, a multi-billion dollar deal on June 16, and the July 20 call/put of the $1 billion Wyeth floater, it would take 15 to 20 of the smaller deals to make that up.

JetBlue seen 2% to 4% cheap

JetBlue's newly priced 6.75% convertible debentures, of which $175 million were priced in two tranches, were described as fairly active in the early going, starting out with trades at 101. Later it crept up to 102 and then 102 bid, 103 offered, and finally 104, a New York-based sellside trader said. They were left "bid 104 any and all."

The trader said that the two separate tranches, one putable in October 2014 and the other putable in October 2016, traded generally as "one and the same."

JetBlue's existing 3.75% convertibles due 2035 traded last at 96.5, according to Trace, which was up to 96.25 on Wednesday.

The underlying shares of the New York-based low-cost air carrier were down early but turned $4.42 in heavy volume.

On Wednesday the new deal was up in the gray at par to 103 and seen at about 2% cheap at the mid-point of price talk.

Both tranches priced to yield 6.75% with a 15% initial conversion premium, which was the cheap end of talk.

The deal was increased from a planned $150 million. The carrier also sold an upsized 23 million shares of common stock at $4.25 per share, increased from 20 million shares. Lufthansa AG will buy 3,578,800 of the shares.

Morgan Stanley & Co. Inc. was the bookrunner for both offerings, with Goldman Sachs & Co. and J.P. Morgan Securities Inc. acting as co-managers for the debenture offering.

The convertibles were divided into $100 million of series A debentures due 2039 and $75 million series B debentures, also due 2039.

Series A is non-callable for five years, with investor puts in years 2014, 2019, 2024, 2029 and 2034. Series B is non-callable for seven years, with investor puts in years 2016, 2021, 2026, 2031 and 2036.

There is a $15 million greenshoe on series A and $11.25 million on series B. The stock sale has a 3.45 million share over-allotment option.

Proceeds are earmarked for general corporate purposes.

Steel Dynamics gains

Steel Dynamics' newly priced 5.125% convertibles traded up to 109 versus a share price of $14.75. It was also seen in trade lower at 106 and it peeled back some gains toward the end of the session, in tandem with its underlying shares.

Shares of the Fort Wayne, Ind.-based maker of steel products traded up to as high at $15 at around midday and ended below that level at $14.84 but still up nearly 6% on the day, in heavy volume.

It was called a good debut by a New York-based sellside desk analyst.

Pricing came at the aggressive end of talk for the coupon and beyond the aggressive end of talk for the initial conversion premium. Initial talk was for a coupon of 5.125% to 5.625% and was 22.5% to 27.5% for the premium.

Steel Dynamics also priced 27 million shares of common stock at $13.50 each. The stock offering was not upsized.

Steel Dynamics' products are primarily for the construction and original equipment manufacturer, including auto maker, end markets, which are cyclical industries.

"In particular, recent developments in the auto industry, including the filings for bankruptcy protection by Chrysler LLC and General Motors Corp., may have a material adverse impact on our sales and on our ability to collect amounts that customers owe us," Steel Dynamics said in its prospectus.

"Our financial results are substantially dependent upon overall economic conditions in the U.S., in Europe and in Asia. A prolonged or a deepening recession in the U.S., or globally, could substantially further decrease the demand for our products below already currently depressed levels and adversely affect our business," the prospectus said.

The pace of construction activity is also at historically low levels today, the prospectus said.

Biovail adds

Biovail's newly priced 5.375% convertibles traded at 104.75 at the end of the session. Trades were mostly outright. Although one sellsider opined about he thought the paper should be trading on a hedged basis at that level and wondered why they weren't.

Another source said he had seen the Biovail paper trade higher than the 104.75 level.

Shares of the Toronto-based specialty pharmaceutical company started the session strong but sagged in the early going to close down 3 cents, or a quarter of a percentage point, at $11.80.

The Rule 144A issue was upsized by 50% and priced at the rich end of talk, which was for a coupon of 5.25% to 5.75% with an initial conversion premium of 20% to 25%.

The notes will be non-callable for three years and will be provisionally callable thereafter at a price hurdle of 130%, which was the same for the Steel Dynamics paper.

Proceeds will be used for working capital and general corporate purposes, which may include funding its operations, development and in-licensing arrangements, capital expenditures and acquisitions.

Mentioned in this article:

Biovail Corp. NYSE: BVF

Goldcorp Inc. NYSE: GG

Hertz Global Holdings Inc. NYSE: HTZ

JetBlue Airways Corp. Nasdaq: JBLU

Johnson Controls Inc. NYSE: JCI

MasTec Inc. NYSE: MTZ

Steel Dynamics Inc. Nasdaq: STLD

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