RTI issues expand on swap on Alcoa takeout; Starwood trades better; Actavis at 101.5-102

By Rebecca Melvin

New York, March 9 – RTI International Metals Inc. was a primary focus in the convertibles market on Monday as the stock of the Pittsburgh-based producer of titanium mill products surged 40% on news that it is being taken over by Alcoa Inc.

The M&A-induced spike caused RTI’s two convertible bonds to jump on an outright basis – action was largely focused on the longer-dated RTI 1.625% convertibles – and they were unhurt on a dollar-neutral, or hedged, basis, a New York-based trader said, “because the premium was big enough.”

Alcoa’s 5.375% mandatory convertible preferreds slipped $1.65, or 3.5%, at $45.00, compared to Alcoa’s common shares, which fell 78 cents, or 5.4%, to $13.70, on the day.

In other M&A news, Simon Property Group Inc. offered to buy fellow mall-REIT Macerich Co. for $16 billion in cash and stock, but the news didn’t stir other convertibles in the REIT space, traders said.

Starwood Property Trust Inc. traded a little bit, one New York-based trader said. The Starwood 3.75% convertibles due 2017 traded at 103.34, which was up 0.156 point on the day, and the Starwood 4% convertibles due 2019 changed hands at 112.3, which was up 2 points.

But other than that and a bit of activity in Campus Crest Communities Inc., there was no notable action among the real estate investment trust sector. The shares of both Starwood and Campus Crest were up fractionally on the day.

The Simon Property-Macerich deal is “sort of a special situation. Everything else is too big. Who is going to buy DDR Corp.?” a New York-based trader said. “American Realty Capital Properties is a possible, but anything else is too big for anyone to digest easily.”

Elsewhere, the convertibles market was quiet on Monday.

“We’ve been focused on some of the new faces in the new issue market,” a New York-based trader said.

The Cheniere Energy Inc. deal last week “came out of nowhere, and we’ve had a lot of new issuance and we think that it will continue,” the trader said.

The mega, $4.6 billion mandatory issue from Actavis plc, which priced Feb. 24, has remained a feature of trade since it priced, and they were last seen at 101.5 bid, 102 offered with the underlying shares at $290.00.

A trader noted that market dynamics were favorable for further convertible new issuance given the elevated level of the S&P 500 stock index and where vol. is.

RTI adds on swap

RTI’s 1.625% convertibles due 2019 surged about 22 points to 118, a New York-based trader said.

The RTI 3% convertibles due December 2015 traded less actively but also jumped to 114.25 from about par, according to Trace data.

The bonds expanded by a point on swap or a little more, a trader said.

RTI shares surged $10.72, or 39%, to $38.00.

Under the terms of the Alcoa-RTI stock-for-stock deal, RTI shareholders will receive 2.8315 Alcoa shares for each RTI share, representing a value of $41.00 per RTI share based on Alcoa’s closing share price on Friday.

The deal has an enterprise value of $1.5 billion, including $330 million of RTI cash on hand and up to $517 million in RTI’s convertible notes.

RTI will expand Alcoa’s aerospace portfolio and also help it to move into three-D manufacturing for medical applications and other applications.

Mentioned in this article:

Actavis plc NYSE: ACT

Alcoa Inc. NYSE: AA

Alcoa Inc. mandatory NYSE: AApB

American Realty Capital Properties Inc. Nasdaq: ARCP

Campus Crest Communities Inc. NYSE: CCG

DDR Corp. NYSE: DDR

RTI International Metals Inc. NYSE: RTI

Starwood Property Trust Inc. Nasdaq: STWD

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