Financials improve, Webster adds; General Growth little changed; Digital Realty trades at 102

By Rebecca Melvin

New York, April 16 - Convertibles players were buyers of financials again on Thursday, pushing up prices in a session that was active late in the day in tandem with a rally in stocks.

For a second consecutive day, stocks rallied to a positive close after wavering early in the session.

New York sellsiders said convertibles trading was active in the afternoon and that the tone was better.

Among financials, Webster Financial Corp. saw its convertible preferreds add as financials strengthened overall.

JPMorgan Chase & Co. - not a convertible issuer - became the third big bank in recent days to post positive earnings news, which is fostering expectations that the financial system may have turned a corner.

Even General Growth Properties Inc. recovered to a flat close after an early drop in active trading on news that the second-largest U.S. shopping mall owner filed for bankruptcy.

Among recent new issues, Ingersoll-Rand Co. Ltd. and Alcoa Inc. were both seen higher in trade. Alcoa's 5.25% convertibles traded as high as 161 versus a stock price of $9.20, and Ingersoll-Rand traded at 121 versus a stock price of $17.25.

Digital Realty Corp., which debuted in the secondary market on Wednesday, traded at 102 on Thursday.

The U.S. primary market was quiet; but on the other side of the pond, London-based mining group Anglo American plc priced a new convertible through the rich end of talk for the coupon and was viewed as attractive by at least one team of analysts, given deal terms, its investment-grade rating and large issue size.

Financials, Webster add

Investors are "stretching for yield," a convertible financials sellsider said. "I've seen guys looking for equity-like returns. People are buying."

Webster Financial's 8.5% convertible preferreds were seen trading outright at 420, compared to 410 on Tuesday.

Shares of the Waterbury, Conn.-based bank holding company added 19 cents, or 3.3%, to $6.05.

Among other financial names, Bank of America Corp. convertible preferreds traded at 545 and Wells Fargo & Co. convertible preferreds settled out at about 595 after having traded earlier at 604.

JPMorgan cited growth in deposits, a rise in mortgage refinancings, and lower interest as factors behind its better-than-expected first-quarter results.

The New York-based bank heavyweight earned $2.14 billion for the first quarter. Earlier this week Goldman Sachs Group Inc. reported earnings of $1.66 billion for the first quarter. And before that, Wells Fargo reported a record $3 billion quarterly profit. Citigroup Inc. was expected to report its earnings early Friday.

Another financial name in trade Thursday was Dollar Financial Corp. The convertibles of the Berwyn, Pa.-based provider of financial services firmed, trading at 45.

"I think the company is buying them back," a sellsider said of the 2.875% Dollar Financial convertibles.

General Growth ends unchanged

General Growth's 3.98% exchangeable senior notes due 2027 ended at 10 bid, 11 offered, after dipping earlier to as low as 8. A previous level on the 3.98% convertibles was 10 bid, 11 offered.

It was "very active," a Connecticut-based sellside trader said, despite the fact that the bankruptcy was widely anticipated.

General Growth is the country's second-largest mall owner, with more than 200 shopping centers. Its executives, such as chief executive Adam Metz, claim the bankruptcy wasn't caused by the REIT being unable to keep current on its mortgages, but because it couldn't roll over its mortgages when they matured.

The company has about $27 billion of debt that it has not been able to refinance, or roll over, to extend the maturities due to what executives referred to as a lack of capacity in the credit market.

Shares of the Chicago-based REIT closed unchanged as well at $1.05.

Elsewhere in REITs

Elsewhere in the REIT sector, Macerich Co.'s convertibles were "up a bunch," at around 62 bid, 64 offered, according to a sellsider. And REITs in general were better bid.

The new Digital Realty convertibles weren't as popular as other recent new issues. One sellsider surmised that it was because there is so much other REIT paper in the convertibles space and that, in general, it is more difficult to price REIT paper.

"They never end up looking as cheap," the sellsider said.

The new Digital River convertibles traded at 102, while shares of the San Francisco-based technology-related REIT slipped 8 cents, or less than a percentage point, to $36.80.

Anglo American prices

The new Anglo American 4% convertibles were valued at issue at about 106 at the rich end of talk by Barclays Capital's convertibles research group in London.

In a note, the research group said it used a credit spread of 650 basis points over Libor and volatility of 40%. The group said stock borrow was in line with levels indicated in the market.

"Aside from the optically attractive terms, the issuer's investment-grade rating and sector should be supportive. Further to this we expect the large issue size to merit inclusion in convertible bond indices, but also to weigh on technicals," the Barclays analysts Angus Allison, Luke Olsen and Heather Beattie wrote.

"Anglo American said it will use the proceeds for general corporate purposes and that the issue would help strengthen its balance sheet, diversify its sources of funding and lengthen its debt maturity profile," they continued.

Anglo American priced $1.5 billion of five-year convertibles to yield 4% with an initial conversion premium of 35%.

The Regulation S bonds priced through the rich end of talk for the coupon, which was 4.25% to 4.75%, and at the rich end of talk for the premium, which was 30% to 35%.

Goldman Sachs International and Morgan Stanley & Co International plc were joint lead managers and bookrunners of the offering, with BNP Paribas and UBS Ltd. acting as co-lead managers.

Mentioned in this article:

Alcoa Inc. NYSE: AA

Anglo American plc Nasdaq: AAUK

Bank of America Corp. NYSE: BAC

Citigroup Inc. NYSE: C

Digital Realty Trust NYSE: DLR

Dollar Financial Corp. Nasdaq: DLLR

General Growth Properties Inc. NYSE: GGP

Ingersoll-Rand Co. Ltd. NYSE: IR

Macerich Co. NYSE: MAC

Webster Financial Corp. NYSE: WBS

Wells Fargo & Co. NYSE: WFC

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.