New Rovi adds on debut; week's new issuance totals reach $1.62 billion; Ford, Hologic up

By Rebecca Melvin

New York, March 12 - Rovi Corp.'s newly priced 2.625% convertibles traded up about 2 points during the session and were heard last at 102 bid, 102.5 offered versus a share price of $37.70 on their debut Friday, with the underlying shares also moving up 2%.

Liquidity in the convertible bond market improved in the past week, with $1.62 billion of new issuance spurring activity in the secondary market as well as the primary and with M&A activity also promoting trade, sources said.

"Volume was good this week partly because of new issues and M&A," a New York-based sellside analyst said.

It was the heaviest week in terms of issuance so far this year.

The fact that there has been pent up demand for new paper also meant that there was little evidence, if any, that portfolio managers were selling established issues to make room for new ones.

"The technicals are still strong, so there's no sign of that, at least not yet," the analyst said.

A New York-based sellside desk analyst said, "Things seem to feel a little better lately."

Ford Motor Co. was also in trade on Friday with the stock and bonds of the Dearborn, Mich.-based automaker continuing strong.

And Hologic Inc., which was strong and very active Thursday amid a takeout rumor, was in trade again and steady compared to yesterday's level at a lower stock price.

New issuance picks up

Of the week's five new offerings, three were upsized, including Ciena Corp.'s upsized $375 million of 4% convertibles, ProLogis' upsized $400 million of 3.25% convertibles and International Coal Group Inc.'s upsized $100 million of 4% convertibles.

Also in the primary market, Health Care REIT Inc. surprised the market Wednesday with the launch and pricing of a $342 million issue of 3% convertibles in a private deal.

The coupons have been low relative to the recent past. The Rovi deal has a coupon of only 2.625%, and the ProLogis coupon is 3.25%.

The average yield in 2009 was about 4.4%.

"That is not that high by any means, and the interest rate is so low," a New York-based sellsider said.

Premiums, on the other hand, look "OK," but they are higher than previously, the analyst said.

In 2009, the average premium was 25%; and the premium currently is a little higher than average. In the past week, Ciena's initial conversion premium was the highest at 35%. The premium of ProLogis was 29% and for Rovi 28%, while for International Coal it was 30%. But the premium for Health Care REIT was only 17.5%.

Rovi adds about 2 points

Rovi's 2.625% convertibles due 2040 traded a 102.125 versus a share price of $37.50 during the session, according to one sellsider, and they were heard last at 102 bid, 102.5 offered versus a share price of $37.70.

That was better compared to Thursday's gray market in the pending deal, which was 100.5 bid, 102 offered, according to a buysider. Some called the gray market 100.5 bid, 101.5 offered.

Shares of the Santa Clara, Calif.-based digital entertainment technology solutions company rose 82 cents, or 2.2%, to $37.82 on Friday.

In addition to the coupon of only 2.625%, the new Rovi convertibles have an initial conversion premium of 28%.

The Rule 144A deal came about at the midpoint of price talk, which was 2.5% to 3% for the yield and 25% to 30% for the initial conversion premium.

There is a $60 million greenshoe, and the deal was sold via joint bookrunners J.P. Morgan Securities Inc., Goldman Sachs & Co. and Morgan Stanley & Co. Inc., with co-managers UBS and Piper Jaffray & Co.

The bonds have an initial conversion price of $47.36. They will be non-callable for five years, with puts in years five, 10, 15, 20 and 25. There is standard dividend and takeover protection, with par cash settlement.

Proceeds will be used to pay down the $159.6 million remainder of a term loan, to repurchase up to $100 million of common stock concurrently with the bond offering, to repurchase up to $75 million of existing 2.625% convertible debt and for general corporate purposes.

Ford higher

Ford's 6.5% convertible trust preferred shares traded Friday at 48.50 versus a common share price of $13.20, compared to Wednesday when the preferreds were marked at 47.80 versus a share price of $12.80.

Bank of America Merrill Lynch analysts Yichae (Alan) Yu and Tatyana Hube put out research this week highlighting the call risk on the Ford 6.5% preferreds.

"While we agree that the deferred dividends seem to be safe and that it is in Ford's interest to take out the 6.5% convertible sooner rather than later, we believe it is important to understand the call risk on the 6.5% convertible in the context of the company's recent amendment to its 2013 secured credit agreement," the analysts wrote.

"With the amendment to the restricted payment provision and recent equity offering, Ford appears to have the capacity to call the 6.5% convertible (at least a large portion) for redemption at an all-in price of $54.84/share. We don't think we can rule out a forced redemption (in cash) as an option for Ford to take out the 6.5% convertible," they said.

From a trading perspective, the analysts still see decent upside for outright investors.

"There remains a good chance for Ford to initiate a common stock exchange offer for the convertible that is valued at a premium to the market price," they said in the report.

In addition, the call price represents 15% upside to the current market price. For arbitrage investors, the Bank of America Merrill Lynch analysts said they are "concerned" that the convertible could exhibit zero to negative gamma if the stock price keeps rising, which increases the call risk.

"Therefore, we recommend hedging at a delta of 0.5 - 0.6 in order to protect a scenario of rising stock price and shrinking conversion premium," they said in the report.

Hologic steady at 91

Hologic's 2% convertibles due 2037 traded steady at 91, after rising 4 points to that level on Thursday. But the trade was versus a stock price of $18.50 compared to the same level and a stock price of $19.28 on Thursday.

Shares of the Bedford, Mass.-based maker of medical devices for women's health care needs edged lower, settling down 64 cents, or 3.3%, at $18.64.

The convertibles market suspects that a deal is possible. "Shares are up about 10% today. But the move in the shares is not enough to justify the move in the converts," a sellsider said.

Nevertheless it wasn't certain how Hologic would respond to a bid with shares at this level. Shares reached a 52-week high in the early going.

Mentioned in this article:

Ciena Corp. Nasdaq: CIEN

Ford Motor Co. NYSE: F

Health Care REIT Inc. NYSE: HCN

Hologic Inc. Nasdaq: HOLX

International Coal Group Inc. NYSE: ICO

ProLogis NYSE: PLD

Rovi Corp. Nasdaq: ROVI

© 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.