Forestar improves dollar neutral; existing Radian gains; new Radian launched; CEDC quiet

By Rebecca Melvin

New York, Feb. 25 - Forestar Group Inc.'s convertibles, which priced late last week and traded languidly on their debut, perked up Monday despite not much recovery in the underlying shares of the Austin, Texas-based real estate, mineral and fiber resources company.

"They were about 0.75 point better on a dollar neutral," a New York-based trader said.

Endo Health Solutions Inc.'s convertibles were higher outright, but may not have done so well on a dollar-neutral basis, as shares also surged after it was announced that Rajiv De Silva, 46, has been named president and chief executive of the Chadds Ford, Pa.-based pharmaceutical company, succeeding David Holveck, who is retiring.

De Silva comes from Valeant Pharmaceuticals, where he served most recently as president. While there he helped drive a turnaround plan that boosted revenue through acquisitions and organic sales growth, and resulted in substantial improvements in profitability and cash flow. Prior to joining Valeant, De Silva was an executive with Novartis.

Radian Group Inc.'s convertibles were up about 2 points on Monday along with a 2.5% rise in the underlying equity of the Philadelphia-based mortgage insurer.

"The shares have had a nice run in the last three months," a Connecticut-based trader said. There didn't appear to be any particular reason behind the improvement on Monday.

After the market close, Radian launched $200 million of convertible senior notes due 2019 that were talked to yield 3% to 3.5% with an initial conversion premium of 25% to 30%. The deal was seen pricing late Wednesday.

Central European Distribution Corp. was mostly quiet, although a tiny piece traded during the session at 23, and after the close the paper was quoted at 24 bid, 26 offered by one New York-based sellsider as shares of the Polish vodka maker and beverage distributor skidded by more than 50%.

Speculation is growing that CEDC may not be able to pay off the maturity on its 3% convertibles looming March 15 and that it may have to file for Chapter 11 bankruptcy protection from creditors.

Despite some positive moves in individual names, the convertible bond market overall was described as "quiet" and "heavy" on Monday. Equity markets were dragged down by uncertainty over the Italian election results and other headlines, and Treasury prices shot up.

The yield on the 10-year Treasury ended the day at 1.86%, which was down from more than 2% last week.

"That's a massive move," a New York-based trader said.

"It felt like things were better for sale, but I would have thought that it would have been more pronounced," he said. "We'll see what happens the rest of the month, and whether this is the start of a trend or a just a buying opportunity."

Forestar perks up

Forestar's 3.75% convertibles due 2020 traded fairly actively during the session and were seen up 0.5 point on an outright basis at 101.5.

Forestar shares saw some accelerated selling into the close and ended down 22 cents, or 1.3%, at $17.18.

On a dollar-neutral, or hedged, basis, the Forestar convertibles were seen to have improved by 0.75 point.

The improvement was chalked up to market players wanting to get involved in the new paper.

"Guys are going to gravitate toward that and the stock looks like it's' alright to me," a trader said.

When Forestar was released for secondary dealings late last week it traded actively during the session at both above and below par, but mostly below par.

The company priced $110 million of the seven-year convertible senior notes after the market close Wednesday at par to yield 3.75% with an initial conversion premium of 37.5%.

Existing Radian adds

Radian's 3% convertibles due 2017 traded up 1.875 points to 102.25 during the session.

Radian shares ended higher by 20 cents, or 2.5%, at $8.15, although they pared an earlier gain of 4.4%.

"I keep an eye on Radian. They are trading in the 102 context, and they were trading above par last week," a Connecticut-based trader said.

After the market close, the Philadelphia-based mortgage insurance business launched an offering of $200 million of convertible senior notes that was seen pricing after the market close Wednesday and was talked to yield 3% to 3.5% with an initial conversion premium of 25% to 30%, according to market sources.

The registered deal has a $30 million greenshoe and was being sold via joint bookrunners Morgan Stanley & Co. LLC and Goldman Sachs & Co.

There is a concurrent offering of 30 million shares of common stock and a 4.5 million share greenshoe.

The notes are non-callable for three years and are provisionally callable if the shares exceed 130% of the conversion price.

The company plans to use the proceeds from the offerings to fund working capital requirements and for general corporate purposes, including additional capital support for their mortgage insurance business.

CEDC shares slump

Central European's 3% convertibles due March 15, 2013 were mostly quiet on Monday but did trade in an odd lot at 23 and were seen 24 bid, 26 offered at the end of the session. That represented a retracement of gains to 30 last week.

The convertibles were not trading actively. There were no buyers for the paper, a trader said.

CEDC shares plunged 77 cents, or 55%, to $0.62.

One trader said that he didn't see any change in the fortunes of CEDC from Friday and he thought the stock move was a delayed reaction.

A second trader said that he hadn't watched the name "since 20 points ago" and had written off the name.

Meanwhile, the drop on CEDC shares put them at their lowest levels in 12 years.

Speculation was growing that the company would not be able to pay out the upcoming maturity and that the prospects in bankruptcy were not good.

One trader pointed out that it was already too late for a pre-packaged bankruptcy filing since a 20-day window had passed.

"The bonds in the 20s, the stock is at 65 cents; I mean anything could happen, but it's not likely going to be good for the converts," a trader said.

Mentioned in this article:

Central European Distribution Corp. Nasdaq: CEDC

Endo Health Solutions Inc. Nasdaq: ENDP

Forestar Group Inc. NYSE: FOR

Radian Group Inc. NYSE: RDN

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