New Forestar, upsized Post notch lackluster debuts; Goodrich slips again; Hologic improves

By Rebecca Melvin

New York, Feb. 21 - The primary focus of the convertible bond market on Thursday was a new deal from Forestar Group Inc., which slipped below par in the early going with the underlying shares down as much as 5.5%.

Later, the new Forestar 3.75% convertibles traded at par and slightly above as shares pared losses to trade around 3.5% lower at midsession.

They moved around a lot and traded below 99, a sellsider said of Forestar. At the end of the session, it was thought that the new paper might have closed with a 98 handle, but that could not be confirmed.

The session's second new issue, Post Holdings Inc.'s 3.75% perpetual convertible preferred stock, wasn't as actively traded and was quoted at 100.25 versus a share price of $37.70 around midday.

The new Post issue held up largely on the back of support from the underlying shares, which were up 1% on the day.

In the early going, the new Post convertibles were seen very wide at 98 bid, 100 offered, a New York-based trader said.

"Neither one traded particularly well, I don't think," a New York-based trader said.

Elsewhere, convertibles were generally quiet and weaker in line with equities.

"It's been real quiet," a New York-based analyst said. And given an uptick in vol. from recent lows, "I see nothing substantially different in terms of market valuation [this week]," he said.

Goodrich Petroleum Corp.'s convertibles slipped again despite a pop in the underlying shares after the Houston-based oil and gas exploration and production company reported a quarterly loss late Wednesday.

Moving higher though was Hologic Inc.'s newest 2% convertibles due 2043, which were trading at 103.38 even with the underlying shares lower, a New York-based trader said.

"It's a good credit name," the trader said of the Hologic paper.

Forestar sags with shares

Forestar's newly priced 3.75% convertibles due 2020 were seen trading actively during the session at both above and below par, but mostly below par. They were seen at the close at somewhere in the 98 context given where shares ended. But that could not be confirmed.

"It closed below par. If you were on swap you did OK, but if you were outright, you're not that happy," a New York-based trader said.

Forestar shares shed another 82 cents, or 4.6%, to $16.99. That move was on top of a 10% drop Wednesday.

The Austin, Texas-based based real estate, mineral and fiber resources company priced $110 million of the seven-year convertible senior notes after the market close Wednesday at par to yield 3.75% with an initial conversion premium of 37.5%. That was at the midpoint to rich end of talked terms.

The notes are non-callable with full dividend protection in the form of a conversion rate adjustment and takeover protection.

Goldman Sachs & Co. was bookrunner, with co-managers KeyBank Capital Markets Inc., JMP Securities LLC, Capital One Southcoast Inc., J.P. Morgan Securities LLC and UBS Securities LLC.

Post posts so-so debut

Post's newly priced 3.75% convertible perpetual preferreds were seen closing around 100.25 to 100.375 with the shares up nearly 1% at $38.12.

Many traders said they hadn't seen it trading, but a syndicate source said they were trading fairly well given that the stock "held in" and were around par at midday.

The St. Louis-based cereal maker priced an upsized $210 million of the 3.75% convertible perpetual preferreds at the rich end of talked terms.

One New York-based trader, who questioned why the deal was upsized, said, "It's tough to like perpetual preferreds with small dividends."

A second trader said, "I thought the pricing was a little aggressive."

The Rule 144A deal was initially going to be $175 million in size. It also has a $31.5 million greenshoe, which was upsized from $26.25 million.

The preferreds are non-callable until Feb. 15, 2018 and then are provisionally callable if the underlying shares exceed 130% of the conversion price.

There is takeover and dividend protection.

Morgan Stanley & Co. LLC, Wells Fargo Securities LLC and Credit Suisse Securities (USA) LLC were joint bookrunners of the offering.

Goodrich slips

Goodrich's 5% convertibles due 2029 traded between 97 and 100 on Thursday and were last seen at 97, which was down on the day, compared to 97.625 bid, 98 offered on Wednesday and 98.25 on Tuesday.

Goodrich shares surged and settled off their highs at $12.68, which was still up 75 cents, or 6.3%. That move was on the heels of a 4.4% decline on Wednesday.

Despite the higher shares, the convertibles are a yield play and don't necessarily follow the stock.

Goodrich reported a loss of 19 cents per share compared to a loss of 38 cents a share in the year-earlier period. For the year, losses amounted to 90 cents a share, which was a penny better than the losses of 2011.

Revenue for the fourth quarter fell to $48.2 million versus $51.4 million in the year-earlier quarter.

Mentioned in this article:

Forestar Group Inc. NYSE: FOR

Goodrich Petroleum Corp. NYSE: GDP

Hologic Inc. Nasdaq: HOLX

Post Holdings Inc. Nasdaq: POST

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