Convertibles action revives; gold names in focus; Energy XXI, Sino-Forest launch new deals

By Rebecca Melvin

New York, Dec. 1 - Action in the convertible bond market picked up on Tuesday after Monday's moribund session on the heels of what had been for many a four-day weekend for the Thanksgiving holiday.

Gold names were in focus Tuesday, with markets made in convertible names like Newmont Mining Corp., Freeport-McMoRan Copper & Gold Inc. and Goldcorp Inc., as gold reached a record price. Gold for February delivery rose $17.90 to settle at $1,200.20 an ounce on the Comex division of the New York Mercantile Exchange.

Also active were "cash surrogates" like PNC Financial Services Group Inc. and Omnicom Group Inc., which were better bid, a New York-based sellside trader said.

Market sources were unwilling to say there has been a shift in the dominant trend of do-nothing for most of November, but there was evidence of alternative strategies among convertible players.

"The way people are looking at it is to put cash to work in investment-grade names with decent yields, instead of sitting on their money," a sellsider said.

"The market overall is still quiet, but it was up from yesterday. Different clients have different strategies," the sellsider said.

Ford Motor Co. was better on what was described as "good SAARs numbers."

Human Genome Sciences Inc. convertibles were in trade on the company's plans for a secondary offering of common stock.

There were also names that have been pretty active in trade recently that were stronger on Tuesday, including UAL Corp., Cephalon Inc. and Eastman Kodak Co., which looked a little stronger compared to Monday.

In the primary market, Energy XXI (Bermuda) Ltd. said it was planning to bring $75 million of convertible perpetual preferred stock some time next week, with talk on the coupon and premium expected to emerge in the next couple of days.

Market players were not overly enthusiastic about the offering, citing the company's $2 stock and small-market capitalization as negatives for the issue.

"Looks like a tough one," a Connecticut-based sellside analyst said.

After the market close, Sino-Forest Corp. said it planned to price $400 million of seven-year convertible bonds by way of a private placement in the United States, a short form prospectus offering in Canada, and internationally via a syndicate of initial purchasers including Credit-Suisse Securities Canada and TD Securities as joint bookrunners.

The Sin-Forest deal was expected to price on Dec. 10, and like Energy XXI, no talk for the coupon and premium had gone out yet.

Market players expect a flurry of new issuance at some point before year-end.

"I would suspect a flurry; and I think there's a more than decent chance of some further retirement of paper in the next two weeks. So many deals at same time, just feels calendar induced," a New York-based sellside trader said.

Gold names strengthen

Newmont Mining's 3% convertibles issue due 2012, which was a $450 million issue of three-year convertibles that priced on Jan. 29, traded at 137 versus a share price of $55.25, according to a New York-based sellside desk analyst.

Goldcorp's 2% convertibles due 2014 traded at 122.375 versus a share price of $44.50. The Goldcorp convertibles traded below par on its debut in June and at par in July, when it was 100 versus a share price of $35.25.

On Tuesday, shares of the Vancouver, B.C.-based producer of gold, silver, copper, lead and zinc gained $2.76, or 6.6%, to $44.76.

Freeport-McMoRan's 6.75% mandatory convertible preferreds due May 2010 traded at 120.5 versus a share price of $84.75, which compares to a previous recent market of 118.5 versus a share price of $83.00.

Gold prices surged 14% in November and they are up 34% for the year to date.

Ford moves up

Ford Motor's new 4.25% convertibles due 2014 traded at 115.5 versus a share price of $9.00, which was up compared to 113.25 versus a share price of $8.80 on Monday.

Shares of the Dearborn, Mich.-based automaker pared earlier gains to end little changed on the day, or down a penny at $8.88 in heavy trading volume.

Ford reported that November sales were flat year over year versus expectations for a 4.1% increase. November car sales are up 14% from a year ago and crossovers are up 26%. Ford, Lincoln and Mercury total U.S. sales were 118,536, flat on year-ago levels.

Ford plans to build 550,000 vehicles in the first quarter of 2010, an increase of 201,000 units, or 58%, compared to the first quarter of 2009.

Ford's fourth-quarter production plan is unchanged from the previous forecast of 570,000 vehicles. Ford estimates total market share in November was higher than a year earlier and higher than its shares in the first 10 months of 2009.

Energy XXI, Sino-Forest to price

Energy XXI's $75 million of convertible perpetual preferred stock, or 750,000 shares at $100 a share, are expected to be assigned terms in the middle of marketing, a syndicate source said Tuesday.

The Hamilton, Bermuda-based oil and natural gas company, with properties in the U.S. Gulf of Mexico, also plans to price 90 million shares of common stock.

UBS Investment Bank and Credit Suisse Securities (USA) LLC are joint bookrunners for the offerings. Proceeds from both offerings are expected to be used to fund previously announced acquisitions.

The convertibles are non-callable until Dec. 15, 2014 and then provisionally callable if the daily VWAP of the common stock is 150% of conversion price for at least 20 out of 30 consecutive trading days.

Sino-Forest's offering of $400 million of seven-year convertible bonds was also launched sans terms.

The deal, which is being sold by way of a private placement in the Unites States, a short form prospectus offering in Canada, and internationally, has a greenshoe of 15%. And Sino-Forest also plans to price $300 million of common stock.

The bonds will be non-callable for life and will rank pari passu to Sino-Forest's outstanding 5% convertibles due 2013.

Proceeds will be used to repay term loan debt of about $150 million, for commercial plantation timber under its Guizhou master agreement of about $250 million, forestry investments in cooperation with state-owned plantation entities in the People's Republic of China totaling about $200 million, with remaining funds earmarked for payments required in connection with its Mandra Forestry transaction and for general corporate purposes.

Sino-Forest is a commercial forest plantation operator in China.

Mentioned in this article:

Cephalon Inc. Nasdaq: CEPH

Eastman Kodak Co. NYSE: EK

Energy XXI (Bermuda) Ltd. Nasdaq: EXXI

Freeport-McMoRan Copper & Gold Inc. NYSE: FCX

Ford Motor Co. NYSE: F

Goldcorp Inc. NYSE: GG

Human Genome Sciences Inc. Nasdaq: HGSI

Newmont Mining Corp. NYSE: NEM

Omnicom Group Inc. NYSE: OMC

PNC Financial Services Group Inc. NYSE: PNC

Sino-Forest Corp. Toronto: TRE

UAL Corp. Nasdaq: UAUA

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