New HeartWare surges; ShengdaTech quiet on debut; Beckman Coulter comes in on sale talk

By Rebecca Melvin

New York, Dec. 10 - HeartWare International Inc.'s newly priced $125 million of 3.5% convertibles surged higher on their release for secondary trading Friday, trading as high as 109 before settling back at 108 bid, 108.75 offered versus the closing share price.

"They nuked up with the shares and maybe were a little better [on a hedged basis]," a syndicate trading source said.

ShengdaTech Inc. priced an upsized $130 million of five-year convertible senior notes at par but were not heard in trade. A syndicate source said they were pretty quiet overall but closed at 100 bid, 102 offered, trading outright.

A portion of Southern Pacific Resource Corp.'s newly priced 6% convertibles in Canada was available in the United States, but that paper wasn't heard in trade.

Back in established issues, Beckman Coulter Inc. came in on a hedged basis by about 4 points to 4.5 points as the underlying shares surged on the possibility of a sale of that company.

Meanwhile, LifePoint Hospitals Inc. traded up in line with its underlying shares, having recently come in, a New York-based sellside trader said, in action spurred by Community Health Systems Inc.'s $7.3 billion bid for fellow hospital operator Tenet Healthcare Corp.

Meanwhile, Great Atlantic & Pacific Tea Co. saw its stock and bonds, including the convertibles, sink on reports that the Montvale, N.J.-based grocery store chain may be close to filing for Chapter 11 bankruptcy protection.

New HeartWare jolts higher

HeartWare's newly priced 3.5% convertibles due 2017 traded up to as high as 109, with a higher bid at 110 versus a share price of $88.00 seen in the market on Friday after the medical device company located in Framingham, Mass., and Sydney, Australia, priced an upsized $125 million deal after the close Thursday.

The paper priced at the rich end of coupon talk, which was 3.5% to 4%, but near the cheap end of premium talk.

"This company has great shareholders. I'm surprised they didn't push the premium," a New York-based market player observed regarding the pricing of HeartWare.

The strong move up of HeartWare's stock and convertibles Friday was said to be an equity story, with the shares rebounding up $5.13, or 6%, to $86.44 from a steep slide on Thursday when the convertibles deal was launched.

This is "an equity story. Recent study results came in even better than expected. But this company hasn't been EBITDA positive and won't be for a couple of years, so this was an outright play. Underwriters said they were Libor plus 800 basis points with a 40% vol. But Libor and 1,000 bps is more appropriate," a New York-based sellside trader said.

"That thing looked impressive," another market player said of the deal.

HeartWare had a reasonable yield and premium combination and the stock has been acting great, but pulled back because of the convertible. That offered a chance to jump aboard, a New York-based sellside trader said.

"An easy one for outright to like - hot stock with a profile that looked like a convertible, even if the seven-year put-free structure was not ideal," he said.

Concurrently, HeartWare stockholder Apple Tree Partners I, LP sold 900,000 shares of common stock at $81.31 under an effective shelf registration.

J.P. Morgan Securities LLC was the bookrunner for both offerings. Canaccord Genuity Inc., Lazard Capital Markets LLC and Wells Fargo Securities LLC were the co-managers.

Proceeds will be used for general corporate and working capital purposes, including, but not limited to, expansion of manufacturing capabilities and/or licensing of or investment in complementary products, technologies or businesses.

New ShengdaTech quiet

ShengdaTech's newly priced 6.5% convertibles due 2015 were quiet, having been mostly put away by outright investors.

But it was marked at 100 bid, 102 offered at the close.

Shares of the Tai'an City, China-based maker of NPCC and coal-based chemicals didn't recover any ground on Friday after sliding Thursday. They closed down 8 cents, or 1.6%, at $4.98 in slightly better-than-average volume.

The company priced an upsized $130 million of five-year convertible senior notes at par after the market close Thursday to yield 6.5% with an initial conversion premium of 20%, which was the cheap end of talk.

Deal size for the Rule 144A offering included a $30 million greenshoe that was exercised at pricing. The original base deal was expected to be $90 million in size.

Morgan Stanley was the bookrunner of the deal, with Oppenheimer & Co. acting as the co-manager.

About $67 million of proceeds is expected to be used to buy back ShengdaTech's existing convertible notes due 2018.

Remaining proceeds will be used to finance the company's nano-precipitated calcium carbonate production capacity expansion, research and development and working capital.

Beckman comes in

Beckman's 2.5% convertibles due 2036 traded at about 112.34 on Friday versus a share price of $72.00, compared to a previous level of 107.7.

Shares of the Brea, Calif.-based maker of biomedical testing systems surged $14.99, or 26%, to $72.08 in ultra-heavy volume.

Shares surged on reports that the company is exploring the possibility of a sale and hired Goldman Sachs to consider its options.

Beckman declined to comment.

The company reported a decline in second-quarter profits and cut its annual profit and sales estimates, citing lower revenue and developed markets. Scott Garrett resigned unexpectedly as the company's chairman, chief executive and president in September.

"Beckman was coming in 4.5 points on swap, trading on a 45% delta, a New York-based sellside trader said.

Note the bonds are on a 60% to 65% delta, but when the news hit the tape they were on a 45% delta, he said.

A second sellsider said, "Beckman was one of the ugliest bonds around, clearly owned almost exclusively by outrights that were hiding behind its investment-grade status. I can't imagine many hedge funds owned these....These bonds were an accident waiting to happen."

"I suppose if you owned them outright, even though you massively underperformed the stock economically, for accounting purposes they are still several points higher than they were yesterday," the sellsider said.

A&P tanks on filing fears

The A&P 5.125% notes due 2011 fell into the high-20s on Friday from levels around 78 on Thursday.

There was a 20 bid for the A&P 6.75% convertibles due 2012.

"The converts got killed," a trader said.

In distressed markets, Great Atlantic & Pacific Tea was the "trade of the day," the trader said, on reports that the company could file for bankruptcy over the weekend.

Why the 5.125% convertibles were bid around 27 and the 6.75% was bid at 20 was unclear.

The difference in those two issues was "strange," the source said, as the notes rank pari passu. "They should be trading on top of each other."

But he said it may be simply because the amount of supply in the general market was much less than the amount of interested investors.

There is too much money committed to converts and not enough [supply]," he said. "The reality is those things are worthless; they should be trading at zero."

"It's like Blockbuster all over again," he quipped.

The source also remarked that on Thursday, he saw rumors that the company was shopping a debtor-in-possession facility. With the reports out Friday, those rumors seem to carry weight.

Stephanie Rotondo contributed to this report

Mentioned in this article:

Beckman Coulter Inc. NYSE: BEC

Great Atlantic & Pacific Tea Co. NYSE: GAP

HeartWare International Inc. Nasdaq: HTWR

LifePoint Hospitals Inc. Nasdaq: LPNT

ShengdaTech Inc. Nasdaq: SDTH

Southern Pacific Resource Corp. Toronto: STP

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