Western Refining up on hedge; Radian extends losses; Jaguar looks cheap; EMC active again

By Rebecca Melvin

New York, Feb. 3 - EMC Corp. once again accounted for a large chunk of the session's volume Thursday, although earnings and other news, plus two new issues on tap, ensured action in some other names as well, market sources said.

Western Refining Inc. was higher by about a point on a hedged basis as its shares continued to spurt higher amid an ongoing rally in refining names.

RightNow Technologies Inc.'s convertibles were higher by about half a point on hedge after the Bozeman, Mont.-based cloud computing software company offered a weak first-quarter forecast to accompany earnings that beat expectations.

Radian Group Inc. dropped again, extending a losing streak of several days, after the Philadelphia-based mortgage insurer reported a large fourth-quarter net loss before the market open.

Rival mortgage insurer MGIC Investment Corp. saw its 5% convertibles due 2017 change hands at 108.5 versus a share price of $8.55.

In the primary arena, Jaguar Mining Inc. looked cheap, and although market players suspected possible repricing of the convertible note offering, that deal stuck at the initially talked $90 million deal size, with pricing looking like it would be 5.5% for the coupon with an initial conversion premium of 37.5%, which was within the talked price range.

Jaguar's existing 4.5% convertibles due 2014 were seen flattish at 88.5 bid during the session.

Hovnanian Enterprises Inc.'s $75 million of tangible equity units also priced late Thursday at the tight end of talk for a 7.25% dividend and a 22% premium. Further details weren't available by Prospect News' deadline.

2011 new issuance

U.S. new convertibles issuance should remain stable to slightly higher relative to 2010 with expectations of $45 billion to $55 billion in proceeds, Citigroup's U.S. convertibles sales and trading team wrote in a market update report.

Tight credit, slightly higher rates and a large number of stocks at or near 52-week highs were cited as supporting steady to stronger issuance.

The composition of new issuance will continue to be unrated or lower rated companies and deals will continue to be smaller than previous years' averages, according to the Citigroup report.

Weaker companies will have access to capital markets, which should keep default rates low, it said. And volatility will "grind lower" as surplus cash and relatively free credit will support near-term fluctuation.

Jaguar seen extremely cheap

Jaguar Mining's $90 million Rule 144A offering of five-year convertibles was seen "extremely cheap," with talked terms of 5.5% to 6% for the coupon with an initial conversion premium of 32.5% to 37.5%, according to a Connecticut-based sellside analyst.

And that is why many suspect that the deal may be repriced, or at least come on the rich end of talk, he said.

Using a credit spread of 1,000 basis points over Libor and a 40% vol., another source got the paper 6% cheap at the midpoint of talk.

A second source saw the deal at 7% cheap using the underwriter's credit spread of 800 bps over Libor and going a little wider of the underwriter's 40% vol.

When the paper values like that, you expect a repricing," the sellsider said.

Deficient borrow

The stock borrow though was not top rate and there was a minus 1 or minus 2 borrow cost associated with the deal.

The stock is not very liquid and the borrow cost is what an investor needs to pay to borrow the stock.

The figure affect cheapness because given a normal borrow the paper would be valuing about 9% cheap, the Connecticut-based sellside trader said.

Solid gold company

The Concord, N.H.-based gold mining concern has a small market capitalization of $462.5 million but was liked for its fundamentals by two sellside analysts queried by Prospect News.

The company operates in Brazil, which is considered a pretty stable country to be in, one analyst said. And it has opened up a third mine, which should start to yield product.

Proceeds from the offering are earmarked to develop Jaguar's Gurupi Project in Northern Brazil, and for working capital and general corporate purposes.

Shares of the company took a beating after the deal was announced, posting a down day contrary to an unqualified positive sector move.

Jaguar shares ended down 53 cents, or 8.8%, at $5.49 on Thursday.

"Hedgies are beating it up nicely," a sellside trader said.

Bank of America Merrill Lynch was the bookrunner of the offering, with RBC Capital Markets as the co-manager. There is an over-allotment option for up to an additional $13.5 million of notes.

Western Refining up on hedge

Western Refining's 5.75% convertibles due 2014 traded at 150.125 versus a share price of $13.95, according to a sellsider, who said the paper was up about $1 on swap.

Shares of the El Paso, Texas-based crude oil refiner added 37 cents, or 2.7%, to $13.94 on Thursday in heavier-than-average volume.

"The refining sector has been active," the sellsider said. "The stock has been up for the last several days."

A strong refining rally through the fourth quarter continued into January.

RightNow gains 0.5 point

RightNow Technologies' 2.5% convertibles due 2030, which initially priced in November, gained about half a point on swap to trade at 110 versus a share price of $26.83.

Shares of the company were mostly lower on Thursday but nosed into positive territory near the close, to stand at $27.34, which was up 10 cents, or 0.4%.

RightNow said strong sales and new contracts boosted its quarterly earnings to $23.5 million, or 64 cents a share, compared to $2.6 million, or 8 cents a share, in the same period a year earlier.

Revenue jumped 24% to $51.4 million, beating estimates for a $50.75 million top line.

The company said it signed more than 18 deals, each worth more than $1 million, in the fourth quarter. Excluding items, the company earned 17 cents a share, which was above expectations.

Radian extends losses

Radian's 3% convertibles due 2017 traded at 93.5 on Thursday versus an underlying share price of $7.00, compared to 95.75 versus a share price of $7.30 on Wednesday and 97.25 versus a share price of $7.55 on Tuesday.

That compares with prints at 105.25 versus a share price of $9.10 in early January, but it's still better than trades at 91.5 versus a share price of $7.20 at the end of November, a few weeks after the paper initially priced.

Shares of the company fell 24 cents, or 3.3%, to $7.11 on Thursday.

The No. 2 U.S. mortgage insurer suffered a large fourth-quarter loss of $1.1 billion, or $8.55 per share, compared to a loss of $91.9 million, or $1.12 per share, in the year-earlier quarter. The most recent loss included a charge of $841.5 million, or $6.35 per share, related to a valuation allowance against net deferred tax assets and a loss from the change in fair value of derivatives.

Mentioned in this article:

EMC Corp. NYSE: EMC

Hovnanian Enterprises Inc. NYSE: HOV

Jaguar Mining Inc. NYSE: JAG

Lennar Corp. NYSE: LEN

MGIC Investment Corp. NYSE: MTG

Radian Group Inc. NYSE: RDN

RightNow Technologies Inc. Nasdaq: RNOW

Western Refining Inc. NYSE: WNR

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