ATK active, expands on tender news; AmTrust better on hedge after article sends shares lower

By Rebecca Melvin

New York, June 2 - A couple of U.S. convertibles traded notably on Monday, the first trading day of the new month, in an otherwise quiet session.

Alliant Techsystems Inc.'s 3% convertibles were actively traded and gained 0.75 point to a point on a dollar-neutral basis after the aerospace and defense company announced that it is beginning a tender offer for the $196 million of notes outstanding, , a New York-based trader said.

For the session, "ATK was the biggest trader," the trader said.

AmTrust Financial Services Inc. was also trading actively after a Barron's article published over the weekend questioned what it said were accounting disparities in the property and casualty insurance company's regulatory and insurance filings.

Elsewhere, Renewable Energy Group Inc.'s 2.75% convertibles, which debuted on Friday, were seen to have changed hands little changed at 103 with the underlying shares of the Ames, Iowa-based biodiesel producer around where they closed Friday.

Late in the session, Jakks Pacific, Inc. launched a $75 million new issue in the U.S. convertibles market. But that small deal was overshadowed by activity in Europe where Alcatel-Lucent launched and priced €1.04 billion of convertible senior notes in two series in a Regulation S offering.

Equities ended narrowly mixed. Indexes fell early after an initial report from the Institute of Supply Management, but improved after the ISM corrected its early report to show that the pace of growth in the U.S. manufacturing sector accelerated in May.

The ISM said its index of national factory activity rose to 55.4 last month from 54.9 in April, with the May figure just shy of the 55.5 expected by a Reuters poll of economists. The ISM had initially said the reading came in at 53.2, but it was corrected due to an error in applying the seasonal adjustments.

Alliant expands on tender

ATK's 3% convertibles due 2024 traded at about 170 which was up from 162 and were said to have expanded 0.75 point to a point on a dollar-neutral basis, as the underlying shares added 2.6%.

Shares of the Arlington, Va.-based aerospace, defense, and commercial products company ended up $3.33, or 2.6%, to $129.62.

The company is "tendering for them early, and they were better to buy because people think there is a chance they can do better than the tender price," a trader said.

Under the tender, holders will receive an amount for each bond equal the average volume-weighted average price multiplied by 13.1023, the conversion rate, plus interest with an added fixed cash amount of $2.50.

The purchase price will be between $1,382.41 and $1,906.50 per $1,000 principal amount.

Holders also will receive accrued interest to but excluding the settlement date.

In addition, the company plans to make a payment to bondholders in connection with a dividend on its stock set for June 26. Holders must be of record at the close of business on June 2.

The payment for each $1,000 of notes will be in an amount equal to the per share amount of the dividend multiplied by 13.1023.

The tender offer will end at midnight ET on June 27.

AmTrust expands

AmTrust's 5.5% convertibles traded at about 166 and were said to have expanded about a point with shares of the property and casualty insurance company collapsing 6% early in the session.

Shares ended down 38 cents, or 0.9%, to $42.32.

The drop as attributed to "a Barron's piece over the weekend that pointed to outsized growth and exceptional margins for the acquisitive company but questioned "financial statements that don't square."

"They were more busy that usual," a New York-based trader said of the bonds.

"People were better buyers," he said, adding that "hedge funds are looking to buy deep in the money names.

The shares were down 6% early on but closed down only 1%.

The stock borrow has been better latterly and the option vol. might be a draw for hedged players, he said.

Mentioned in this article:

Alliant Techsystems Inc. NYSE: ATK

AmTrust Financial Services Inc. Nasdaq: AFSI

Renewable Energy Group Inc. Nasdaq: REGI

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