Convertibles mixed to weaker; PMI, MGIC lower; Newmont Mining up; Synovus at 101 in gray

By Rebecca Melvin

New York, April 28 - The convertible bond market was mixed to weaker Wednesday, with a pair of financial convertibles that have been in favor in recent sessions losing steam, although PMI Group Inc. was not lower on a hedged basis and with better bidders on investment-grade names, market sources said.

MGIC Investment Corp., the other financial name, which priced its 5% convertibles last week, saw that paper come off sharply, trading at 107.75 versus a share price of $9.90 on Wednesday, compared to 111.5 versus a share price of $10.60 Tuesday.

MGIC shares pared losses during the session to end the day at $10.25, lower by only a third of a percentage point.

"The European debt crisis is a big overhang in the market, and I'm not surprised to see people flying to investment-grade names," a New York-based sellside analyst said. "I heard IG names better to buy today."

Fanning worries about the Euro-zone sovereign-debt crisis was Standard & Poor's downgrade Wednesday of Spain's long-term credit rating by one notch. The move followed S&P's downgrades of Portugal and Greece on Tuesday, including Greece's cut to junk status amid concerns that that nation's policy options are narrowing because of weak economic growth prospects.

Investors sought the safe haven of gold, and Newmont Mining Corp., the gold mining company, gained ground.

FOMC eyed

Also closely watched by market players during the session was the Federal Open Market Committee's decision to stand pat on interest rates shortly after 2 p.m. ET, leaving rates unchanged at essentially 0%.

The FOMC cited continued mild economic recovery and subdued inflation and said that it believed the stabilization of inflation warranted no change in interest rates for an extended period.

Gilead Sciences Inc. traded in good volume, at mostly flat on a hedged basis, amid no particular company news. Bank of America Merrill Lynch convertibles research recommended the Gilead 0.625% convertibles due 2013 in a note Wednesday, citing the current favorable valuation of Gilead shares and continued growth prospects for the Foster City, Calif.-based biopharmaceutical company.

Ford Motor Co. convertibles extended losses on the heels of the Dearborn, Mich.-based automaker's better-than-expected quarterly earnings report Tuesday.

In the primary arena, Synovus Financial Corp. traded at plus one in the gray market and was seen at 101 bid, 101.5 offered late in the session.

The Columbus, Ga.-based financial-services holding company was expected to price an upsized $300 million of three-year equity units late Wednesday, according to a syndicate source. The deal had been upsized from $200 million.

PMI, MGIC lower

PMI's recently priced 4.5% convertibles due 2020 were seen settling at about 98 Wednesday, compared to about 100 on Tuesday, according to one pricing source.

Another source had the paper trade at 98.75 versus a share price of $5.50 on Wednesday and at 101 versus a share price of $5.75 on Tuesday, their debut in secondary market trading.

Also on their debut they jumped early to trade as high as 109 bid, 109.5 offered.

Shares of PMI, the Walnut Creek, Calif.-based residential mortgage insurer, have stumbled badly since the paper priced. On Wednesday, the shares closed down 28 cents, or 5%, at $5.33, extending a 13% slide on Tuesday.

PMI priced an upsized $261 million of 10-year convertible senior notes at the tight end of revised talk late Monday.

Sellsiders suggested that financials were hurt due to potential exposure to the sovereign debt crisis.

S&P lowered Spain's long-term rating to AA, which is just two notches under AAA. But the rating has a negative outlook. S&P said a downgrade could occur if Spain's fiscal position underperforms to a greater extent than it currently anticipates. Greece's latest rating is at BB+, eight notches under Spain, while Portugal is at A-, or four notches lower.

MGIC's 5% convertibles due 2017 were seen closing at about 109.9 versus a share price of $10.25, compared to 111.35 versus a share price of $10.28 on Tuesday.

The Milwaukee-based mortgage insurer's shares had moved higher last week after Keefe, Bruyette & Woods analyst Nathaniel Otis lifted his rating on the stock to "outperform" from "market perform," citing improving trends at the company and the fact that first-quarter earnings for the company were better than expected.

MGIC's capital raise last week included pricing about $700 million of common equity, in addition to its $300 million convertibles offering. The shares were priced at $10.75 each for that sale, and they peaked last week at $11.98 per share in robust trade.

Mortgage insurers in general have had a good run up in recent months as the federal government seeks to push banks to help bail out homeowners by reducing their potential liabilities.

Gilead trades actively

Gilead's 0.625% convertibles due 2013 were seen ending the session at about 118.8, which was up 0.8 point from their previous level.

The Gilead 0.5% convertibles due 2011 were seen settling little changed at 112.5.

Shares ended higher by 31 cents, or nearly a percentage point, at $40.68.

"They were definitely trading today," a New York-based sellside analyst said, adding that the 2013 paper, or the Bs, were "pretty flat on a hedged basis."

Bank of America Merrill Lynch said that it likes the 2013 convertibles in particular because of where the stock is trading now, which marks a decline in the stock value, or the underlying value.

Gilead shares dropped recently on health care reform concerns and a set back in its product pipeline. So right now it has the lowest price/earnings multiple of its peers and is undervalued relative to its sector, the analyst said.

Regardless of the company's exposure to health care reform and patent expiration, however, it still has a solid growth engine in the next two to three years.

Gilead said health care reform would negatively impact its top line by $200 million in 2010 and in 2011 that amount isn't yet quantifiable.

Synovus trades at 101

Synovus saw its planned tangible equity units trade at 101 in the gray market on Wednesday.

The deal was upsized to $300 million in size from $200 million, according to a syndicate source, but pricing wasn't final by 6:30 p.m. ET.

The paper was being talked at 8.25% to 8.75% with an initial conversion premium of 15% to 20%.

The offering, together with common stock being offered, and an exchange offer, was part of an initiative, the company said, to help it align its capital structure with regulatory standards and provide a cushion if needed, according to a company news release.

Each tangible equity unit, or tMED, which has a par value of $25, will be comprised of a prepaid stock purchase contract in respect of Synovus' common stock and a junior subordinated amortizing note.

JPMorgan is the bookrunner for the offerings.

Mentioned in this article:

Ford Motor Co. NYSE: F

Gilead Sciences Inc. Nasdaq: GILD

MGIC Investment Corp. NYSE: MTG

Newmont Mining Corp. NYSE: NEM

PMI Group Inc. NYSE: PMI

Synovus Financial Corp. NYSE: SNV

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