Apache plans $1.1 billion sale of convertible mandatories; MGIC 'comes in' dollar neutral

By Rebecca Melvin

New York, July 20 - The convertible bond market continued to tread water in quiet trade Tuesday amid a fairly strong bid but with reluctant sellers.

"In the absence of new issuance, it's been better to buy for awhile now," a New York-based trader said of the market.

Liquidity has been tight for the last month or so, another trader said.

But the primary market perked up after the close of markets Tuesday, with a $1.1 billion offering of three-year mandatory convertible preferred stock announced by Apache Corp.

The convertible preferreds from the Houston-based oil and gas company were expected to price late Thursday.

Back in the secondary arena, MGIC Investment Corp.'s convertibles were in trade and came in about a point Tuesday compared to Monday after the Milwaukee-based mortgage insurer reported earnings that sent its underlying shares shooting higher while the convertibles moved up somewhat.

Earnings eyed

Earnings news didn't prompt much action among other convertible names, including Peabody Energy Corp. or Steel Dynamics Inc., however.

But earnings reports later in the week and especially next week are supposed to pick up and will churn things up potentially, a Connecticut-based sellside analyst said.

After the close of markets Tuesday, Gilead Sciences Inc. reported earnings that sent its underlying shares sharply lower in after-hours trade.

The Foster City, Calif.-based biopharmaceutical company reported revenue that missed estimates, even though profit was up 25%. The Gilead convertibles traded in line with the underlying stock on Tuesday, and the earnings news wasn't supposed to move the market too much on Wednesday, according to another sellsider.

"All the news that can come out is out already," the sellsider said.

Mylan Inc. was also in trade, with the Mylan 1.25% convertibles in trade and steady on a previous market, as the underlying shares edged up in light volume.

The lack of activity in recent weeks - with what action there has been dominated by a few, large, higher-grade issues like Transocean Ltd., Medtronic Inc., EMC Corp. and Amgen Inc., has made for a "lousy" market from the perspective of sellsiders, according to an analyst.

"There isn't paper whipping around because of events," the sellside analyst said. "The guys on the buyside don't have to trade. They can clip their coupons, and watch their prices ride up as maturities roll around, but sellsiders need to trade."

Apache offers $1.1 billion

Apache's registered, off-the-shelf offering was talked with a dividend of 6% to 6.5% and with an initial conversion premium of 18% to 22%.

The $1.1 billion offering of three-year mandatory convertible preferred stock, with a liquidation preference of $1,000 per share, was expected to price after the close of markets Thursday, together with an offering of common stock. The two offerings are not contingent on one another, however.

Goldman Sachs & Co., Bank of America Merrill Lynch, Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. are the joint bookrunners for the offerings.

Houston-based Apache is an oil and gas exploration and production company, with operations in the United States, Canada, Egypt, the U.K. North Sea, Australia and Argentina.

MGIC comes in a point

MGIC's 5% convertible notes due 2017 traded at 100.75 versus a share price of $8.20 on Tuesday, compared to a level at 97.125 versus a share price of $7.60 on Monday, a New York-based sellside analyst said.

The bonds came in about a point on the day, the analyst said.

The MGIC 5% bonds also traded at as low as 98.553 and later as high as 103.522 on Tuesday, according to Trace data.

Shares of the company jumped up 9% to 10%, and settled up by 73 cents, or 9%, at $8.55 on Tuesday.

"It was good to see those moving around, and hopefully there will be more of that with earnings," a sellsider said.

Another analyst said, "By my measure, the only truly active name tied to earnings is the MTG 5% bond. Maybe a little with the BGC 2% '14 issue. Otherwise, the top volume names continue to be RIG, MDT, AMGN and EMC."

The analyst was referring to General Cable Corp., which has several convertible bond issues and is expected to report earnings Aug. 3.

Mylan trades steady

Mylan 1.25% convertibles due 2012 traded at 102.75 versus a share price of $18.10. According to Trace data, the last time this paper traded it was also at 102.75.

Sister issues, the Mylan 3.75% convertibles due 2015 and Mylan 6.5% mandatory convertible preferred stock due 2010, weren't heard in trade.

The Canonsburg, Pa.-based generic drug maker's shares edged up steadily Tuesday, starting in negative territory, to end higher by 6 cents, or less than a third of a percentage point, at $18.17.

Mylan's 1.25% convertibles didn't move that much. They are just around par, and being due mid March 2012, they won't move that much, a sellside analyst said.

"It will move up with the stock, and on the downside, it will hold in pretty well," the Connecticut-based sellside analyst said.

"It's a good credit, low premium, and not much going to move it," the analyst said of the Mylan 1.25% convertibles.

The Mylan 3.75% convertibles weren't seen on Tuesday, but on Monday they were 149.58 bid, 149.87 ask, the sellsider said. With 10 percentage points of premium, it's basically a stock, he said.

The Mylan mandatory, which is converting in November, is trading above par.

Mentioned in this article:

Apache Corp. NYSE: APA

Gilead Sciences Inc. Nasdaq: GILD

MGIC Investment Corp. NYSE: MTG

Mylan Inc. NYSE: MYL

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