Kaiser higher bid in the gray, deal upsized; Beckman Coulter holds up; Cemex paper on tap

By Rebecca Melvin

New York, March 23 - Convertibles players sized up Kaiser Aluminum Corp.'s convertible bond offering during Tuesday's session, and the new paper was looking cheap and bid higher by plus 1.5 points in the gray market, with no offers, ahead of final terms that came after the close.

Kaiser, a Foothill Ranch, Calif.-based aluminum products maker, priced an upsized $150 million of convertibles toward the rich end of talk to yield 4.5% with an initial conversion premium of 26%.

In the secondary market, Beckman Coulter Inc.'s convertibles moved lower, but they held up pretty well relative to the underlying shares. The Brea, Calif.-based biomedical testing instrument company said it needs to get new regulatory approval for a test, a move that may have a "material adverse impact" on its previously issued 2010 full-year outlook.

Massey Energy Co. was also a focus of trade Tuesday. The coal producer's 3.25% convertibles due 2015 were seen at 97 bid, 97.5 offered versus a share price of $50.00 at the end of the session, according to a New York-based sellside analyst.

Massey shares ended little changed at $50.88, after opening more than $1 lower. Trace data showed the bonds in trade at 96 during the session.

After the market close, Mexico's Cemex SAB de CV launched a $500 million offering of five-year convertibles that was talked to yield 5.25% to 5.75% with an initial conversion premium of 27.5% to 32.5%, according to a syndicate source. The bonds were expected to price post close on Wednesday.

In Europe, a wholly owned subsidiary of Banco Espirito Santo SA was pricing a $1 billion issue of three-year exchangeable bonds, which were talked to yield 1.5% to 1.75% with an initial conversion premium of 35%.

Price talk was tightened during marketing from an initial coupon spread of 1.25% to 1.75%.

Banco Espirito at par in gray

Banco Espirito's planned $1 billion three-year exchangeable bond into Banco Bradesco SA common stock will probably not enjoy much of a replacement trade from holders of existing paper, a London-based trader said.

The notes traded at par in the gray market on Tuesday, the trader said. Price talk on the deal was at a coupon of 1.25% to 1.75% and an initial exchange premium of 35%.

An existing series of Banco Espirito Santo exchangeables into Banco Bradesco due 2011 traded at 99.25 bid, 99.5 offered.

"It's very, very close in price, but a shorter maturity," the trader said.

The similarity of the two notes and the shorter maturity of the older series could limit how much interest there is for the new deal, the trader said. Holders of the existing paper are unlikely to want to switch out.

Hedge players wary

"It's been received OK in the market, but they don't seem to think there's too much value left on the table for investors," the trader said.

The linking of the convertible to Bradesco's ADRs was also seen as an obstacle, and investors who are "looking for a decent amount of delta" also probably will not be too keen because the bond will tend to lag a rising stock.

"The bond won't move up on that delta," the trader said.

Another source said that the bank did a similar deal previously, also based on ADRs of Bradesco, and those that hedged using the more liquid ADRs lost money as the ordinary shares outperformed.

Nevertheless, the European convertible market remains hungry for new paper, and the Banco Espirito Santo offering - the biggest so far this year - will attract money that has been waiting for somewhere to go.

"There's a lot of demand for paper in the convertible market in the international universe," the trader said. "There's a lot of money on the sidelines."

The deal was seen concluding successfully Tuesday but wasn't expected to be upsized due the nature of an exchangeable entity being tied to Banco Bradesco SA's ADRs.

There is an over-allotment option for up to another $50 million of bonds.

The reference price will be based on a formula including the WVAP of the Bradesco shares on the New York Stock Exchange and the Brazilian foreign exchange rate.

Joint bookrunners of the Regulation S deal were Credit Agricole Corporate & Investment Bank, Espirito Santo Investment and Morgan Stanley.

There are no calls or puts, and the bonds have a cash settlement provision.

Application has been made to list the bonds on the Luxembourg Stock Exchange Euro MTF market.

Banco Espirito Santo is a Portuguese financial services company based in Lisbon.

Kaiser prices toward rich end

Kaiser's bond offering, which came upsized and toward the rich end of talk after the session's close, was seen bid up in the gray market ahead of final pricing. Initially bids were plus 0.5 point, and gradually they increased to plus 1.5 points, sources said.

The deal was seen cheap, with one sellsider seeing the deal 2.6% cheap at the midpoint of talk using 650 basis points over Libor and 30% vol.

Shares of the aluminum producer rose during the session, which came as a surprise to some given that any shorting of the stock would have brought the shares down.

Hedge players were said to like the deal. "They liked the terms, with decent coupon and a relatively low premium," a sellsider said.

Perhaps the shares - which settled up $1.28, or 3.5%, to $38.35 on Tuesday - were up because prices for aluminum, the company's raw material, were lower, one source suggested.

Stock borrow was said to be normal, and a syndicate source for the deal said it went "very well."

Beckman holds in

Beckman Coulter's 2.5% convertibles due 2036 traded last at about 111 after trades during the session near 114. One sellsider reported a trade at 113 versus a share price of $64.50.

Shares of the Brea, Calif.-based company fell $4.88, or 7%, to $64.22 after the company said in a filing with the Securities and Exchange Commission that the FDA believes the company made modifications to its ACCUTnl troponin test kits on its UniCel DxI immunoassay system without obtaining approval. Beckman had alerted its customers on Feb. 5 to a positive bias in this test's results.

"Based upon our discussions with FDA we believe that we will be required to impose further restrictions or conditions on the use of troponin test kits on DxI systems in the U.S., and those conditions will likely include transitioning U.S. DxI customers to some other form of troponin testing until we can obtain 510k clearance from FDA for troponin testing on DxI," the company's filing stated.

The filing went on to say that it believed the necessary clearances would be obtained, but it wasn't certain when it would be able to resolve matters with the FDA.

The company also reported that in 2009, it had U.S. revenue of about $60 million for troponin tests. It estimated that 25% to 50% of this revenue was derived from test kids run on its DxI systems. These matters may have a material adverse impact on its previously issued 2010 full-year outlook, the filing stated.

Cemex to price

Cemex launched a $500 million five-year convertibles offering in U.S. dollars that was talked to yield 5.25% to 5.75% with an initial conversion premium of 27.5% to 32.5%.

Citigroup, BBVA, BNP, HSBC, JPMorgan and RBS Securities are the joint bookrunners of the Rule 144A offering, which was expected to price Wednesday after the market close.

Pricing will be based on its ADRs that trade on the New York Stock Exchange.

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.

Mentioned in this article:

Banco Espirito Santo SA Lisbon: BES

Beckman Coulter Inc. NYSE: BEC

Cemex SAB de CV NYSE: ADRs: CX

Kaiser Aluminum Corp. Nasdaq: KALU

Massey Energy Co. NYSE: MEE

© 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.