United Rentals offered in the gray; TeleCommunication Systems bid at 101, Massey improves

By Rebecca Melvin

New York, Nov. 10 - Convertibles action was muted Tuesday amid a lack of sellers, as portfolio managers kept an eye on year-end returns and continued to strive to secure tremendous gains notched so far this year. Players also said quiet action was related to the Veterans Day holiday Wednesday when bond markets are closed.

"Things have run so much, no one wants to sell. It's pretty quiet," a Connecticut-based sellside trader said.

Even the primary side was quiet, with little gray market activity seen in United Rentals Inc., which planned to price $150 million of six-year convertible senior notes after the market close, or TeleCommunication Systems Inc., which planned to price $90 million of five-year convertible senior notes after the close.

The books for TeleCommunication, which was being sold via Oppenheimer & Co. and Raymond Jones, closed between 2 p.m. ET to 2:30 p.m. ET, and it was seen at plus 1 bid in the gray market during the session.

"There's no gray, nothing, which is kind of surprising because it's a decent name," a New York-based sellside trader said.

One source reported that United Rental was plus 4 offered in the gray market.

Massey Energy Co. was among the names in trade in the secondary market. The Richmond, Va.-based coal producer saw its 3.25% convertibles trading actively for a second consecutive day. The paper was higher in line with their underlying shares on Tuesday.

But Beazer Homes USA, which was quoted 3 points to 5 points higher, wasn't seen in trade by late afternoon after the Atlanta-based homebuilder posted a fourth-quarter profit and a nice improvement in gross margins. Beazer shares surged in early trade and settled higher by 9%. The convertible paper was quoted at 89 bid, 90 offered, up from about 85 previously.

Ford Motor Co.'s new convertibles were also in trade, strengthening for a second consecutive day, with a trade reported at 107.75 versus a share price of $8.18, compared to 106 versus a share price of $8.05 on Monday and 101 bid, 101.75 offered versus a share price of $7.68 on Friday.

New deals quiet in the gray

Because the two new deals were small, it was thought that investors were perhaps less likely to get involved, especially at this point in the year, when they are looking to secure returns and minimize risk.

The convertibles market right now is dominated by trading of big, liquid, investment-grade type issues, like Amgen Inc., Medtronic Inc. and Transocean Ltd., names that are seen as very safe investments.

"It's not the new issue market that's driving this market right now. It's what people want to do at the end of the year," a sellsider said.

Because investors have had a tremendous year so far, they are more inclined to hit a bid of less liquid names. "They will sell just because it's that much less secure," a West Coast-based sellside trader said.

"It's not a fire sale, but if there's a bid, they are more inclined to sell," the sellsider said, and that may be why there was less involvement Tuesday in the smaller new deals expected to price after the close.

Investors are well invested in names that have no risk, he said. "They may have a SanDisk or mid- or small-cap type names, and maybe they are doing well, but they are not quite out of the woods.

"It's not that there is anything wrong with them, but you just don't know."

"They may like the story, but anything could happen, so they see how real that bid is," he said.

Another sellsider said that while investors may want to lighten up because they've had such a good year, they are unlikely to do so with current pricing at such soft levels.

"They have to replace it too, and that's not always so easy," he said.

United Rentals to price

United Rentals' existing 1.875% convertibles were slightly better on the day, trading at 97, compared to quotes in the middle of October of 96 bid, 97 offered.

United Rentals stock ended down 9% on the day.

United Rentals launched an offering of $150 million of convertibles on Monday that was talked to yield 4% to 4.5% with an initial conversion premium of 22.5% to 27.5%.

Syndicate sources said that final terms weren't available at Prospect News' deadline.

The five-year notes were being priced concurrently with a $400 million offering of straight notes due 2019 in a separate registered public offering.

Bank of America Merrill Lynch, Morgan Stanley & Co. and Wells Fargo Securities are joint bookrunners for both offerings, with Bank of America acting as lead bookrunner of the convertibles deal. Co-managers are Barclays Capital Inc., Calyon Securities (USA) and Scotia Capital.

Proceeds from the convertibles offering, together with cash on hand, will be used to redeem a portion of United Rentals' 14% senior notes due 2014.

The company will use cash on hand to pay the cost of the convertible note hedge transactions that it intends to enter into in connection with the sale of the convertible senior notes.

United Rentals is a Greenwich, Conn.-based equipment rental company.

Massey adds in line

Massey's 3.25% convertible senior notes due 2015 were last quoted at 82.662, according to Trace data, compared to trades on Monday at 81. Shares of the Richmond, Va.-based coal producer gained $1.10, or 3.2%, to $35.15.

The shares gained more than $1 to mark a 52-week high.

Sources weren't sure why the convertibles paper was trading so actively.

Mentioned in this article:

Beazer Homes USA NYSE: BZH

Ford Motor Co. NYSE: F

Massey Energy Co. NYSE: MEE

TeleCommunication Systems Inc. Nasdaq: TSYS

United Rentals Inc. NYSE: URI

© 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.