Central European jumps 8-9 points outright; Molina Healthcare comes in 2 points on hedge

By Rebecca Melvin

New York, July 9 - Action in the convertible bond market continued to be light on Monday as summer schedules remained on tap and doldrums in the broader markets weighed on sentiment.

"I think we are in full summer mode," an East Coast-based buysider said.

But Central European Distribution Corp. shot up 8 or 9 points on news that the Polish vodka maker has signed an amended definitive agreement on a previously announced strategic alliance with Russian Standard Corp.

Molina Healthcare Inc. traded higher outright, but lower on a dollar-neutral, or hedged, basis Monday on the back of news that Wellpoint Inc. plans to buy managed care competitor Amerigroup Corp., a former convertibles issuer, for $4.9 billion.

Patriot Coal Corp.'s convertibles slumped more than 68% to 10 bid, 15 offered, on a Bloomberg report that said the financially strapped company planned to file for Chapter 11 bankruptcy as early as Monday. On Friday, the bonds were 31.5 bid, 32 offered.

Navistar International Corp. was weaker on a dollar-neutral, or hedged, basis Monday, extending Friday's move lower after the Lisle, Ill.-based maker of engines and commercial and military trucks announced plans to transition to a new engine type. The Navistar 3% convertibles traded at 90 and then 89, a New York-based trader said Monday.

Isis Pharmaceuticals Inc. was higher outright as that paper, which is callable now, continues to move into outright hands.

Monday marks the unofficial kick-off of earnings season, with Alcoa Inc., due to report its second-quarter earnings after the close. Alcoa's 5.25% convertibles due 2014 traded slightly lower outright Monday at 148.133, according to Finra trace data.

Beazer Homes to price

Beazer Homes USA Inc. launched a $75 million offering of three-year tangible equity units, or 3 million units at $25 per unit, after the market close Monday, which was expected to price after the close of markets on Tuesday.

The issue, if completed, will mark the first new issuance of the third quarter.

Market players expected that the new issuance market might fire back up after the July 4 holiday-shortened week last week, but no major fireworks were expected.

The pace of new issuance during the current quarter should continue in line with the previous quarter's level, a New York-based syndicate source told Prospect News.

In the last quarter, there was $7.23 billion in new issuance in 25 deals, with the deals falling roughly in thirds over the three months, or 31% of the total for April, 34% of the total in May and 35% of the total in June.

For the year to date, there has been $10.76 billion in new issuance, which is down compared to $19.57 billion for the first two quarters of 2011.

There is a chance, if stock markets rally into the end of the year, that the level of new issuance will pick up considerably.

"Right now, stocks have come off. But we have seen opportunistic issuers step in when stocks are higher," the syndicate source said, referring to both Tibco Software Inc., which sold $600 million of 20-year convertibles in mid-April, and Priceline.com Inc., which sold $1 billion of six-year convertible notes at a discount of 99.5 in early March.

The underlying shares of both those companies were near 52-week highs when the convertibles were issued.

Central European shoots up

Central European's 3% convertibles due 2013 traded up 8 or 9 points to 97 and change after the vodka maker and beverage distributor said it signed an amended alliance, which will essentially guarantee that the company can repurchase all of the 3% convertibles, which are due in less than one year.

In general the alliance is expected to strengthen CEDC's balance sheet and create enhanced production, distribution and sales channels of a strong portfolio of brands throughout Central and Eastern Europe.

The agreement provides for a reaffirmation by Roust Trading to purchase $210 million of newly issued unsecured CEDC senior notes due July 31, 2016 at a blended interest rate of 6%, and it also raises the potential Roust stake in CEDC shares to more than 40% from 33%.

CEDC also announced the resignation of its chairman, president and chief executive officer William Carey. He will serve as a consultant to the company during a transition period. David Bailey, who is the current head of the board of directors, has been appointed interim chief executive.

Molina comes in

Molina Healthcare's 3.75% convertibles were 2014 jumped 6 points to 115.5 outright but were seen contracting on a hedged basis by about 2 points, a New York-based trader said.

In late afternoon, the Molina paper was seen at 114.5 bid, 115 offered versus an underlying share price of $26.80, the trader said.

Shares of the Long Beach, Calif.-based Medicaid insurer shot up $4.05, or 18%, to $27.12 in heavier-than-average volume. It and shares of other Medicaid insurers jumped on the WellPoint acquisition of managed care company Amerigroup for $92 a share, or $4.9 billion in cash, to expand its presence in the Medicaid space.

WellPoint said that after the deal closes in the first quarter of 2013, it will serve more than 4.5 million beneficiaries of state-sponsored health programs and will be in 19 states insuring Medicaid patients and in 13 states with significant dual eligibility opportunities.

Moody's Investors Service downgraded WellPoint's senior debt rating to Baa2 from Baa1 and the insurance financial strength ratings of its operating subsidiaries to A2 from A1. Standard & Poor's revised its outlook on WellPoint to stable from positive and affirmed its A-/A-2 counterparty credit rating on the company.

Patriot slumps

Patriot Coal's 3.25% convertibles due May 31, 2013 fell to 10 bid, 15 offered from 31.5 bid, 32 offered on Friday after a Bloomberg report Monday that said a bankruptcy filing from the St Louis-based coal company is imminent.

Since the news, the bonds were not seen trading, but the market was quoted at 10 bid, 15 offered, a Connecticut-based trader said.

The Bloomberg story said that the company has lined up debtor-in-possession financing that is being provided by Citigroup Inc., Barclays plc and Bank of America Corp.

Patriot shares fell $1.58, or 72%, to $0.61 in heavy volume.

Beazer to price

Beazer Homes plans to price $75 million of three-year tangible equity units, or 3 million units at $25 per unit, after the close of markets on Tuesday.

The registered units, which will be sold concurrently with $75 million of common stock, were talked to yield 7.5% to 8% with an initial conversion premium of 17.5% to 22.5%, according to a market source.

There is an over-allotment option for an additional $11.25 million, or 450,000 of units.

Credit Suisse Securities (USA) LLC, Goldman Sachs & Co., Deutsche Bank Securities Inc. and UBS Securities LLC are serving as the joint bookrunners for the offerings, and KKR Capital Markets LLC and Moelis & Co. LLC are serving as co-managers for the offerings.

Proceeds from the concurrent offerings are expected to be used for growth capital, including about $100 million for potential land investments in Florida, California, Texas, North Carolina and Arizona, and for general corporate purposes, including the repayment of outstanding debt.

Beazer is an Atlanta-based homebuilder.

Mentioned in this article:

Beazer Homes USA Inc. NYSE: BZH

Central European Distribution Corp. Nasdaq: CEDC

Isis Pharmaceuticals Inc. Nasdaq: ISIS

Molina Healthcare Inc. NYSE: MOH

Navistar International Corp. NYSE: NAV

Patriot Coal Corp. NYSE: PCX

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