Cemex talk revised, deal upsized; new Kaiser higher, mostly quiet; MF Global up; Newmont off

By Rebecca Melvin

New York, March 24 - Cemex SAB de CV's upsized $650 million deal of five-year convertibles saw price talk tightened during marketing Wednesday, and a gray market formed late in the session at 103.25 bid, 103.75 offered, according to a buyside source.

Initially the gray market was 103 bid, 105 offered, and then tightened slightly to 102.5 bid, 104 offered near the end of the day. The deal was upsized from an initially talked $500 million of notes.

Kaiser Aluminum Corp.'s newly priced 4.5% convertibles were higher but mostly quiet on their debut after the upsized $150 million of bonds priced late Tuesday. One source said the new Kaiser paper closed at 103.5 versus a stock price of $38.10, which represents about 3.5 points of premium over pricing, according to a New York-based sellsider.

MF Global Holdings Ltd. saw its convertibles pulled into active trade amid a 10% climb in the underlying shares after the New York-based broker announced it tapped Jon Corzine as chairman and chief executive officer immediately. Corzine is a former New Jersey governor, U.S. senator and Goldman Sachs chairman.

Another name among the most actives on Wednesday was Newmont Mining Corp. The Newmont 3% convertibles were weaker, shedding about 5.5 points amid a 3.4% drop in the underlying shares.

Allergan Inc. convertibles were also trading actively and appeared weaker on the day as were Steel Dynamics Inc.'s.

But Ford Motor Co. convertibles continued to trade strongly even as their underlying shares ended the day unchanged in light volume. The Ford convertibles have become a mainstay of the convertible bond market, along with liquid, investment-grade names like Amgen Inc. and Medtronic Inc.

Ford's new 4.25% convertibles due 2016 traded at 162.75 versus $13.90 on Wednesday, compared to 158.25 versus $13.40 a week ago.

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Europe mostly quiet

European and Asian markets were quiet on Wednesday despite recent new issues, a London-based trader said.

"Things aren't really trading at the moment," the trader said. "It's very, very illiquid in the European market. A couple of new issues have traded OK...but ultimately the European convertible market is very quiet at the moment."

Banco Espirito Santo SA's new 1.625% exchangeable bond due 2013 into Banco Bradesco SA closed at par after pricing at an initial exchange premium of 35%. Price talk for the $950 million offering was at a coupon of 1.25% to 1.75%, which was narrowed to 1.5% to 1.75% late Tuesday.

Existing Espirito Santo exchangeables due 2011 into Bradesco closed at 99 bid, 99.5 offered, the trader said.

Espirito Santo is a Lisbon, Portugal-based bank. Bradesco is a Brazilian bank.

The new offering was "digested without setting the boat on fire," but investors were not especially enamored, the trader said. News that Fitch Ratings on Wednesday downgraded Portugal's long-term credit to AA- from AA with a negative outlook also hit demand for the new paper.

"It's not very easy to hedge, and investors are wary of any Portuguese issues," the trader said. "The downgrade by Fitch doesn't really help today. Sentiment is not the best."

Cemex up in the gray

The Cemex convertibles were at 103.25 bid, 103.75 offered in the gray market ahead of pricing, and the deal was well oversubscribed, a syndicate source said.

The late-day 103-ish gray market was after price talk was revised to 4.75% to 5.25%, with an initial conversion premium of 30%, compared to an initially talked 5.25% to 5.75% coupon, with an initial conversion premium of 27.5% to 32.5%.

The notes priced toward the rich end of talk for the coupon at 4.875%.

Citigroup, BBVA, BNP, HSBC, JPMorgan and RBS Securities were the joint bookrunners of the Rule 144A offering for the Mexican company pricing in U.S. dollars.

Proceeds will be used to repay debt and to fund the purchase of a capped call transaction.

Cemex is a cement producer based in Monterrey, Mexico.

Unlike Tuesday's Kaiser Aluminum deal, which saw its stock move up ahead of final pricing, Cemex's American Depositary Receipts were down 54 cents, or nearly 5%, at $10.46 Wednesday ahead of final terms.

Hedge players shorting the stock ahead of the deal can make the share price go down. But also on Wednesday Cemex said in a filing with the Securities and Exchange Commission that during the first quarter of 2010, the global economic crisis continued to hurt demand for its cement across many of its markets. Cemex also blamed severe storms in its key European and U.S. markets for dampening construction in a difficult winter season.

"As a result, we expect our results of operations for the first quarter of 2010 to be significantly below those for the first quarter of 2009, and it is likely that we will report a consolidated net loss for the first quarter of 2010," the company said in the filing.

Cemex - the largest cement company in the world - also would have reported a consolidated net loss for the first quarter of 2009, had it not been for the positive effect of recognizing a non-cash deferred tax benefit of about $253 million at the average exchange rate for the first quarter of 2009.

On March 18, the required lenders under Cemex's financing agreement consented to amendments that will provide the company with increased flexibility and will assist us refinancing efforts and reducing leverage.

Among other things, the amendments include, increasing the time after a fundraising by which the proceeds need to be applied pursuant to the terms of the financing agreement, permitting the company to designate proceeds to a reserve for the repayment of its Mexican public debt instruments and short term promissory notes coming due within a particular relevant period, and permitting the issuance of convertible subordinated securities and the purchase of related call spread or capped call transactions.

Cemex's business strategy is to continue focusing on its core businesses, the production and sale of cement, ready-mix concrete and aggregates, and the vertical integration of these businesses.

Kaiser higher, quiet on debut

Kaiser Aluminum's 4.5% convertibles convertible bonds traded up in the initial hours after release from the secondary market. But shortly after the opening of stock markets, the paper was mostly quiet.

"We didn't see the new Kaiser at all," a New York-based sellsider said.

Investors were said to have liked the terms

Shares of the Foothill Ranch, Calif.-based aluminum products maker ended lower by 25 cents, or 0.65%, at $38.10.

-Kenneth Lim contributed to this report

Mentioned in this article:

Allergan Inc. NYSE: AGN

Banco Bradesco SA ADRs NYSE: BBD

Banco Espirito Santo SA Lisbon: BES

Cemex SAB de CV NYSE: ADRs: CX

Ford Motor Co. NYSE: F

Kaiser Aluminum Corp. Nasdaq: KALU

MF Global Holdings Ltd. NYSE: MF

Newmont Mining Corp. NYSE: NEM

Steel Dynamics Inc. Nasdaq: STLD

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