Morning Commentary: Planned Medicines convertibles look cheap; Resource Capital also on tap

By Rebecca Melvin

New York, Jan. 7 – Market players were sizing up two new deals in the convertibles space early Wednesday, including Medicines Co.’s planned $300 million of seven-year convertible bonds expected to price after the market close.

The Medicines deal looked cheap using a credit spread of 500 basis points over Libor and a 32% vol., according to one market source, who said those inputs made the deal worth 102.75 at the midpoint of talk.

Medicines’ existing 1.375% convertibles contracted somewhat in early trade. With Medicines shares down $1.03, or 4%, at $24.24, the existing Medicines 1.375% convertibles were in about a point dollar neutral at 108.125 bid, 109.125 offered, a second market source said.

The Medicines 1.375% convertibles were also quoted at 107.875 bid, 108.875 offered versus a share price of $24.12.

The planned Medicines deal is non-callable for four years and then provisionally callable if shares exceed 130% of the conversion price.

Also pricing after the market close on Wednesday is Resource Capital Corp.’s planned $100 million of five-year convertibles.

Shares of the New York-based commercial loan company were off 20 cents, or 4%, at $4.83 at late morning. The company’s existing bonds were not heard in trade early Wednesday, but they had changed hands on Tuesday at 97.75.

Elsewhere, Yahoo! Inc.’s convertibles were up a point and change at 112.4, according to Trace data. But Yahoo! shares were down about 1% at $48.75. There has been chatter about its potential tie up with Twitter Inc.

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