Ford edges up in the gray; Vornado exchange lifts REIT names; Schering-Plough takeout kicks in

By Rebecca Melvin

New York, Nov. 3 - Ford Motor Co.'s planned $2 billion of convertibles traded actively in the gray market Tuesday ahead of final terms, seen coming after the close. But the issue didn't trade up as strongly as many recent new deals.

At the close, the Ford paper was at about 100.5 in the gray market, which pales in comparison to other recent deals, a New York-based sellsider trader said.

When terms were set, the deal was upsized to $2.5 billion and priced to yield 4.25% with a 25% initial conversion premium, at the middle of talk.

Forest City Enterprises Inc., for example, was 104 bid, 105 offered in the gray market ahead of final pricing on Oct. 20.

"It's a lot of supply and not a pristine name," the sellsider said of Ford. "But the hedge guys will be there. You can set it up on an 80 delta, and that eliminates a lot of your risk, plus CDS," the sellsider said, referring to credit default swaps.

Vornado Realty Trust's 2.85% convertibles and 3.625% convertibles also traded actively in an extension of a move started Monday when the real estate investment trust announced a cash tender for those convertibles, which together total more than $2 billion.

Schering-Plough Corp. saw its mandatories trade slightly lower on word of final terms of the takeout protection expected on those convertibles in connection with Schering-Plough's merger with Merck & Co. Inc.

Jefferies Group Inc.'s convertibles, which priced last month, were fairly active Tuesday, amid no particular news. That paper traded at 96.88 versus $27.90 near the close of markets.

Overall, trading volume in convertibles was fairly strong, with "a lot of the usual suspects" changing hands.

In addition to Vornado, Transocean, Ford's older 4.25% convertibles and Intel were active in trade, the sellsider said.

Billionaire investor Warren Buffet's acquisition of the Burlington Northern Santa Fe railroad, which was being touted as an affirmative pronouncement on the U.S. economy, wasn't seen as having a profound effect on sentiment; but it was a net positive, at least, according to one sellsider.

The Dow Jones Industrial Average ended the day down 17.53 points, or 0.18%, at 9.771.91; the S&P 500 stock index closed up 2.53 points, or 0.24%, at 1,045.41; and the Nasdaq Stock Market added 8.12 points, or 0.40%, to 2.057.32.

Gold, meanwhile, surged to an all time high. November gold was up $24.40 to $1,077.80 an ounce, after climbing to a high of $1,079.70. The previous intraday record was set Oct. 13, when gold rose to $1,069.70 an ounce.

Ford adds a bit in the gray

Ford's $2 billion issue of convertibles, which were talked to yield 4% to 4.5%, with an initial conversion premium of 22.5% to 27.5%, was last 100.25 bid, 100.75 offered after earlier being as high as 101.25 bid, 100.625 offered.

"It was up in the morning, and bounced around, and then kind of crept down," a New York-based sellside analyst said.

A second sellsider said the size of the issue was definitely notable. "It was clear that they weren't going to reprice this thing. They closed the books early for the hedge guys and left them open later for the outright guys, trying to get more outright interest."

Ford's existing 4.25% convertibles due 2036 were little changed after jumping up Monday to 104 or 105 versus $7.58.

Shares of the Dearborn, Mich.-based carmaker ended lower by 14 cents, or 1.9%, to $7.44, after adding 8% on Monday.

The Dearborn, Mich.-automaker Monday posted an unexpected net profit of $997 million, or 29 cents per share, for the third quarter, compared with a net loss of $161 million, for the same period a year ago. Revenue fell $800 million to $30.9 billion.

Analysts had been expecting a per share loss for the quarter.

In addition to the convertibles, Ford plans to sell up to $1 billion of common stock under an equity distribution agreement, expected to begin in December and to be conducted over a several-month period.

Proceeds from the convertible offering will be used for general corporate purposes.

Vornado remains in trade after tender news

Vornado 2.85% convertibles due 2027 traded up just a tad higher to just under par; and the Vornado 3.625% convertibles due 2026 traded at par.

The investment-grade real estate investment trust's cash tender caused the entire better REIT category to improve some, a sellsider said. But there was little trading among those names.

"We are seeing investment-grade REITs strengthen a little, but we're not seeing anything trade," the sellsider said.

"Levels for all the REIT paper are moving up a bit, especially among other potential tender candidates in similar ranges. But REITs are tightly held, and the companies have pretty much flushed the market [of supply]," he said.

He said he didn't see the CDS move at all based on the tender. Vornado commenced its cash tender offers for any and all of those convertibles on Monday.

Schering-Plough slips as deal closes

Schering-Plough's 6% mandatory convertible preferred shares due 2013 closed the day at 241.50, which was down 1.50, or 0.62%.

Shares of the Kenilworth, N.J.-based drug maker traded mildly lower at $28.15, down 25 cents, or 0.88%.

The deal closing terms, announced Tuesday, were expected since Schering-Plough entered into a definitive agreement with rival Merck & Co. in a reverse merger in early March.

"They have all of the terms for the takeout protection. You just have to do the math," a New York-based sellside analyst said.

"There's a little bit of an arb spread left there. If you buy the mandatory, which traded at 243.1 with the Merck stock at $30.76, there is a 40 cent arb spread between the two," the analyst said.

Schering-Plough will change its name to Merck and its common stock will trade under the ticker symbol "MRK" on the New York Stock Exchange. Beginning Wednesday, the mandatories will trade under the ticker symbol MRK PR B.

From the completion of the merger today through Nov. 19, the mandatories will be convertible at a make-whole conversion rate of 8.2021. For each share of preferred stock converted during this period, the holder will receive $86.12 in cash ($10.50 x 8.2021) and 4.7302 "MRK" common shares (0.5767 x 8.2021).

Holders will also receive, for each share converted, a dividend make-whole payment of between $10.79 and $10.82, depending on the date of conversion.

The deal marks continuing consolidation in the pharmaceutical industry, which faces competition from generics and uncertainty about exactly what policy is going to look like under the Obama administration's universal health care plan.

Mentioned in this article:

Ford Motor Co NYSE: F

Jefferies Group Inc. NYSE: JEF

Schering-Plough Corp. NYSE: SGP

Vornado Realty Trust NYSE: VNO

© 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.