Convertibles secondary active; Titan, DryShips richen; PetroBakken sells $750 million deal

By Rebecca Melvin

New York, Jan. 8 - Secondary market trading activity in the convertible bond market picked up considerably for the first week of the new year, compared to the moribund state of things at year's end, and Friday was no exception, market sources said.

Pricing of many names improved, including companies in the health care sector and anything commodity related, including agriculture, mining or metals, energy and production-related companies.

Many were doing better in line with their underlying shares, but some were expanding dollar neutral. Among those was Titan International Inc., which saw its 5.625% convertibles due 2017 expand about 0.75 point on Friday, on top of a 0.5-point improvement on Thursday.

Titan, a Quincy, Ill.-based maker of wheels, tires and assemblies for off-highway vehicles, including tractors and combines, priced its offering in mid-December.

DryShips Inc., the Athens-based drybulk shipping company, was also active in trade.

"You could see a lot of that stuff doing better. Anything that has a fair amount of equity sensitivity was looking richer," a New York-based sellside trader said.

Alcoa Inc. convertibles were in trade again, retracing some of their loss Thursday, with activity possibly related to its fourth-quarter earnings report expected after the close Monday, a sellsider suggested.

Human Genome Sciences Inc. was also mentioned in trade at double par for its paper maturing in 2011 against shares that were 1% lower.

Of two new deals that priced in the primary market early in the week, Beazer Homes USA Inc.'s 7.5% convertible mandatories came at the tight end of talk and moved up to 27.5 in the immediate aftermarket from par of 25, and BioMed Realty Trust Inc.'s 3.75% convertible issue was upsized to $150 million from $125 million and priced at the cheap end of talk.

A third deal - an upsized $750 million of six-year convertibles issued by Canada's PetroBakken Energy Ltd. and brought by bookrunner ABG Sundal Collier Norge - priced at the midpoint of talk. This deal was considered to be geared toward European investors.

Titan, DryShips looking richer

Titan's 5.625% convertibles due 2017 traded at 116.185 versus a share price of $9.21 on Friday, which was up 0.75 point on top of a 0.5-point improvement on Thursday.

Shares of Titan gained 22 cents, or 2.4%, to $9.59 on Friday.

"It's definitely richer, but I still think it's cheap," a sellsider said.

DryShips' 5% convertibles due 2014 traded at nearly 114.5, which was up 3.75 points from the previous session, according to Trace data. Shares of the drybulk carrier moved up 30 cents, or nearly 5%, to $6.77 in heavier-than-average volume.

The upsized $400 million offering of five-year convertibles initially priced at the end of November.

According to Trace data, $14 million of the DryShips paper traded on Friday, and a sellsider said that the paper had been active for the last several sessions.

Human Genome at double par

Human Genome's 2.25% convertibles due 2011 traded at 200 versus a share price of $7.25 on Friday, according to a New York-based sellside desk analyst, which was actually not the paper's high mark in recent sessions.

Shares of the Rockville, Md.-based biopharmaceutical company shed 32 cents, or 1%, to $30.82.

Speaking to the speculative nature of these bonds, a sellsider said, "You couldn't give those bonds away in the early dark days of last year. The stock was below a $1 and the bonds were about 30. People made a ton of money."

Overall, it was a much busier week than the convertibles market has had for at least six weeks. Players attributed the pace to investors being back and ready to put money to work. They also noted the likelihood of new money coming in on the heels of last year's stellar returns in the convertibles market.

"There was a lot of marketing that people did at the end of the year that was supposed to bear fruit at the first of the year," a sellsider said.

PetroBakken prices

PetroBakken priced an upsized $750 million of six-year unsecured senior convertibles Friday to yield 3.125% with a 32.5% initial conversion premium.

The share reference price was based on a block of shares sold early Friday at C$31.00 per share to fundamental buyers, who helped clear a hedge put on by convertible holders.

The initial conversion price is US$39.61, or about C$40.80.

But the new paper from the Calgary, Alta.-based light oil production company was not heard in the U.S. market, and one sellsider said that it looked to be more geared to the European convertible market, although there were some larger funds and institutional people that were looking at it and probably involved.

"It's a Canadian underlying company that has little interest for the U.S. market," a sellsider said, comparing the deal to the market's recent Sino-Forest Corp. convertibles.

Sino-Forest, a commercial forest plantation operator in China, has shares listed on the Toronto Stock Exchange, and the company priced $400 million of seven-year convertibles via Credit Suisse Securities Canada and TD Securities as joint bookrunners.

The PetroBakken offering, which was distributed under Regulation S and Rule 144A, was upsized from an originally talked $500 million via ABG Sundal Collier Norge ASA, with co-lead advisors TD Securities Inc. and RBC Capital Markets.

Currently the convertible primary market is competing with a red-hot high-yield market, which appears to be the place issuers want to be at the moment.

But convertibles players anticipate that if stocks continue to move up, eventually more and more issuers will start to look at convertibles again as dilution becomes less of a hindrance.

Mentioned in this article:

Alcoa Inc. NYSE: AA

Beazer Homes USA Inc. NYSE: BZH

BioMed Realty Trust Inc. NYSE: BMR

DryShips Inc. Nasdaq: DRYS

Human Genome Sciences Inc. Nasdaq: HGSI

PetroBakken Energy Ltd. Toronto: PBN

Titan International Inc. NYSE: TWI

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