Newmont Mining sells upsized convertibles; existing Newmont paper tightens; financials surge

By Rebecca Melvin

New York, Jan. 28 - Convertible players were focused Wednesday on a new convertible issue from Newmont Mining Corp., which priced an upsized $450 million deal on the rich end of revised talk after the markets closed.

Demand for the three-year Newmont paper was so high that the issuer was able to degrade price talk during the session to 3% to 3.25%, with an initial conversion premium of 20% to 25%, compared with initial talk of 3.25% to 3.75%, up 15% to 20%.

The paper jumped in the gray market to 105 bid, 107 offered amid what a syndicate source called "significant demand."

Newmont's older, sister convertibles, with five-year and eight-year puts, traded in.

The market, which has been bereft of new issuance since September, was especially eyeing the deal as an indicator of pricing.

The gold mining company, which represents a solid credit, isn't the perfect "typical" issuer but provides a sense of what can get done.

The only other issue to come in the last four months was SandRidge Energy Inc.'s private offering of perpetual convertible preferreds that priced on Jan. 15. And that wasn't considered a good indicator of pricing.

In the secondary market, financial names dominated trading, and most financial convertible preferred shares surged by more than 10% and as much as 20%, according to a New York-based sellside trader.

Wells Fargo & Co. convertible preferreds rose 7 points, or 12%, and were called "still cheap" at 645 after the San Francisco-based bank reported a fourth-quarter loss that was wasn't as bad as it could have been.

Also boosting the markets were rumors that the administration of president Barack Obama backs a so-called bad bank/good bank plan, which would allow banks to get rid of bad assets quickly. Headlines about potential stimulus spending also helped the markets, in general.

"I think the market likes the good/bad bank idea. [The] market rallied on initial TARP idea that included reverse auction ... Looks like CP market has improved a shade as well. [The] market likes stimulus package less," a West Coast-based buysider said via e-mail.

Also in trade at higher levels were Fifth Third Bancorp and Huntington Bancshares Inc.

Stock markets rose for a third consecutive day. The Dow Jones Industrial Average gained 209.72 points, or 2.5%, to 8,375.45; the S&P 500 index added 28.38 points, or 3.4%, to 874.09; and the Nasdaq Stock Market jumped 53.44 points, or nearly 4%, to 1.558.34.

President Obama made comments on Wednesday to drum up support for the stimulus bill, or the American recovery and reinvestment plan, which he said he plans to sign into law within the next few weeks.

In comments delivered following a meeting with top business executives, Obama said there wasn't a moment to spare in getting the more than $800 billion in spending and tax cuts to the ailing economy. Republican response to the bill has ranged from tepid to icy.

Obama highlighted alternative energy, better roads, health care and schools as areas that merit funding.

Newmont issue is golden

Newmont Mining priced an upsized $450 million of three-year convertible senior notes at par to yield 3% with an initial conversion premium of 25% on Wednesday, according to a syndicate source.

The registered issue priced at the rich end of talk, which was repriced during Wednesday's session to a coupon of 3% to 3.25%, with a premium of 20% to 25%, which was lowered from a coupon of 3.25% to 3.75% and a premium of 15% to 20%.

"It's stupid cheap especially compared to the olds. I would assume that they get repriced or upsized. They are up as much as 5 points in the gray market ahead of pricing," a Connecticut-based sellsider said Wednesday ahead of the repricing action.

Newmont Mining's series A 1.25% convertible senior notes due July 15, 2014 were seen trading at 106.33 versus a share price of $40.00, which compared to 104.75 versus a share price of $36.00 on Jan. 13.

Newmont Mining's series B 1.625% convertible senior notes due July 15, 2017 were quoted at 104 bid, 104.5 offered versus a share price of $40.00, compared to 102.5 versus a share price of $36.00 on Jan. 13.

"I'm not surprised they would go lower as people would swap out of them into the new paper," a Connecticut-based sellside analyst said of the older Newmont paper.

While it may not be the perfect "typical" issuer, it was still indicative.

"We had nothing before, and now we have a BBB - rated (the old paper), which is trading like a BB+ in an attractive space," the analyst said.

"The existing converts were trading really wide, but that's the way things have been lately. Converts have been off from their straights," the analyst said.

And modeling wasn't as straightforward as it's been in the past. "Everybody was pricing off the CDS," the sellside analyst said.

Spreads ranged from Libor plus 400 basis points to Libor plus 600 bps, and most people were capping vol. at 45%, the sellside analyst said. So it was looking from 10% to 13% cheap.

"It's a popular way to expose your convertible portfolio to gold and away from U.S. stocks. It was popular with the outrights, who want to play gold," the analyst said.

As for whether the issue will help the market move past the autumn meltdown, one New York-based sellside desk analyst said, the Newmont stock "hung in pretty well, and there are some other companies that have hung in well, so for those, this is a blueprint."

A West Coast-based buysider said, "This shows how starved the market has been for investment-grade, non-financial paper."

"It could open the primary market a tad. Certainly there is demand for IG paper that is unrelated to finance. Let's see when a financial or a below IG bond comes - the truer test!" the buysider said.

Financials like Wells Fargo jump

Wells Fargo's convertible preferreds traded up to 650 and settled at about 645, while those of Bank of America Corp. changed hands at 550.

Fifth Third 8.5% perpetual convertible preferred stock traded at 43 versus a share price of $3.25.

"The names were up tremendously," a New York-based sellside trader said, citing as a boost the fact that Wells Fargo's loss was less than people were looking for.

Wells Fargo also said that it will not need to go back to the government for TARP funds and that it doesn't plan to cut its dividend.

"The key was Wells Fargo, and the fact that it's not going to blow up, and we're not nationalizing banks this week," the sellsider said.

"Citigroup was as low at 10 and now it's at 17.5, that's a 75% jump," the sellsider said.

Wells Fargo reported a $2.55 billion loss for its fourth quarter, with the bank citing mortgage assets it assumed when it took over Wachovia as a drag on profits.

Mentioned in this article:

Bank of America Corp. NYSE: BAC

Fifth Third Bancorp Nasdaq: FITB

Huntington Bancshares Nasdaq: HBAN

Newmont Mining Corp. NYSE: NEM

Wells Fargo & Co. NYSE: WFC

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