Lehman, WaMu weaken further; Chesapeake bounces a little with shares; Tyson gains on debut

By Rebecca Melvin

New York, Sept. 10 - Lehman Brothers Holdings Inc. took center stage in the convertibles market again Wednesday, weakening further as uncertainty over the investment bank's future remained high despite an early release of its third-quarter earnings, the unveiling of a strategic plan and the accompanying conference call, market participants said.

"The call was good, not great. The questions on the call showed that people wanted more clarity," a New York-based sellside trader said.

Weakening of Lehman's stocks, bonds and credit default swaps extended Tuesday's slide, which was sparked by reports that talks between potential investor Korea Development Bank and the fourth-largest Wall Street investment bank had broken down.

Washington Mutual Inc. convertibles were also pulled down as its shares sank 30% amid concerns the bank may be unable to maintain sufficient capital in the face of rising mortgage losses.

Elsewhere, energy equities enjoyed a little bounce, with Chesapeake Energy Corp.'s convertibles rising in line in a move in its shares. The rise was seen as a bounce from prior overselling rather than a move correlated to the prices of the underlying commodities, a sellside source said.

Trading was light overall, with many players watching from the sidelines to see the outcome of the Lehman and Washington Mutual situations, and the financial scene handily upstaged new convertible issues that were released for secondary market trading on Wednesday.

Tyson Foods Inc. gained on its debut, to close pretty strong at 102.375 versus $12.75, according to a syndicate source. But trading volume was curtailed from what it might have been, sources said.

Little was heard from Mylan Inc., which priced an upsized $500 million of seven-year convertible notes after the close Tuesday to yield 3.75%, with an initial conversion premium of 20%.

An early bid was seen north of par, at 101.5, but no trades, sources said.

Meanwhile, Shanda Interactive Entertainment Ltd. priced an upsized $155 million of three-year convertible senior notes after the close Tuesday, to yield 2% with an initial conversion premium of 25.31%. But no trades were heard in that name either.

Pricing of NVR Inc.'s planned $325 million of 30-year convertible senior notes was expected late Tuesday, but was said to be delayed a day, with pricing expected after the close Wednesday, according to a market source. Syndicate sources could not be reached to confirm the information.

Lehman weakens further

Lehman Brothers' 8.75% mandatory convertible preferreds fell to a close of 309 versus $7.25 on Wednesday, compared to 341 versus a share price of $7.79 on Tuesday.

Earlier in the session, the 7.75s traded at 330 versus $8, according to one sellsider.

The older 7.25% Lehman preferreds traded at 36 compared to 41 on Tuesday.

Lehman's common stock (NYSE: LEH) also extended losses, closing down 54 cents, or 7%, in heavy volume, after plunging 45% on Tuesday.

A week ahead of schedule, Lehman announced quarterly earnings that revealed $5.3 billion in write-downs related to residential mortgages and $1.7 billion of write downs from commercial real estate.

Losses from mortgages have swamped the company. In response to the troubles, it is looking to sell assets, including a 55% stake in its investment management division that includes asset management unit Neuberger Berman and the private equity and wealth management businesses.

It also intends to spin off $25 billion to $30 billion in commercial real estate into a new publicly traded company in the first quarter of 2009. And it is in talks with BlackRock Inc. to sell $4 billion of its U.K. residential mortgage portfolio, which, with previous reduction, will cut its residential mortgage exposure by 47% to $13.2 billion.

Mortgage losses contributed to $5.6 billion in write-downs in the third quarter, which come in addition to more than $7 billion in earlier write-downs and losses since the credit crisis began. It has had $6.7 billion in losses in the last two quarters.

Meanwhile Washington Mutual's 7.75% series R non-cumulative perpetual convertible preferred shares, with a par of $1,000, closed Wednesday at $208.5 versus a share price of $2.32, compared to Tuesday's 292 versus a share price of $3.30.

Washington Mutual 5.375% PIES due 2041 traded at 13 versus the same share price of $2.32, compared to 15 versus the $3.30 on Tuesday.

When the shares were at $2.50, the 7.75% preferreds traded at 24 and the PIES traded at 14, according to one source.

Shares of the Seattle-based thrift (NYSE: WM) closed down 98 cents, or 30%.

"The old ones are offered at 14 - that's 20 cents on the dollar," a New York-based sellsider said, of the PIES. "Everyone is watching to see which one fails first, Lehman or Washington Mutual."

A West Coast-based sellside trader said, "People are sitting on their hands, trying to figure things out. As things go, they are enamored with the cheapness, but they don't want to go first, wondering if there are redemptions going on and whether things are going to get worse."

Tyson gains on debut

The new Tyson Foods 3.25% convertibles jumped out of the gate to around 102. Later they traded down a little a little to the 101.5 area, before closing "pretty strong" at 102.375 versus $12.75, which was the price at which the company sold 20 million shares of common stock concurrently with the convertibles.

"Someone lifted 500 bonds at 102.75 outright, with the 12.93 common pegged, but there was not a follow," a New York-based sellsider said.

Shares of the Springdale, Ark.-based meat processor (NYSE: TSN) closed up 8 cents, or 0.6%, at $13.10.

J.P. Morgan Securities Inc. and Merrill Lynch & Co. were joint bookrunners of the registered offering.

Mylan edges up early, quiet later

The new Mylan 3.75% convertibles were heard at 101.5 bid early in trade, but quieted down fairly quickly after an initial flurry, sources said.

"I didn't see a right side of the market," a New York-based sellsider said.

Mylan priced an upsized $500 million of seven-year convertible notes. Initially the deal size was expected to be $400 million.

Pricing came beyond the cheap end of talk for the coupon, which was 2.875% to 3.375%, and at the cheap end of talk for the initial conversion premium, which was 20% to 25%.

The Rule 144A offering was sold via joint bookrunners Goldman Sachs and Merrill Lynch.

The existing Mylan 1.25% convertible bonds traded right around 81 versus a share price of $11.10 during the session.

Shares of the Canonsburg, Pa.-based maker of generic drugs (NYSE: MYL) closed up 37 cents, or 3%, at $11.47.

Shanda quiet on debut

Shanda priced an upsized $155 million of three-year convertible senior notes after the close Tuesday, to yield 2% with an initial conversion premium of 25.31%, according to a release.

Initially, the size of the Rule 144A deal was expected to be $130 million of notes.

"I didn't hear Shanda," a New York-based sellside trader said.

Proceeds from the notes offering, together with cash in hand, will be used to buy back $175 million of the company's American Depositary Shares under an accelerated share repurchase program.

The company separately announced that its directors have approved the buy back of $200 million of stock.

Shares of the China-based interactive entertainment media company (Nasdaq: SNDA) closed down 40 cents, or 1.45, at $27.53.

© 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.