Ares, Photronics jump on debuts; Gilead gains on deal; James River up in gray; Kinross up

By Kenneth Lim

Boston, March 23 - New issues dominated the convertible market on Wednesday, with two new deals gaining on their first day of secondary trading.

Gilead Sciences Inc. rose after the company sold $1 billion of straight debt, raising hopes that the company would be able to meet its obligations on its maturing convertible issues.

In the gray market, James River Coal Co. was bid up on positive demand for its planned offering, which was to price Wednesday after the close.

The market in general had another quiet session, as high market volatility continued to dampen investors' willingness to make any major trades.

"Trace was light today, only about $500 million," one trader said, noting "very light volumes. People were focusing on the new issues."

Kinross Gold Corp.'s 1.75% convertible due 2028 rose slightly with the common stock on the back of a broad rally in mining names.

The convertible was last marked at 100.875 bid, 101.375 offered versus the closing stock price of $16.40. Kinross Gold common stock rose 3.34%, or 53 cents, on the day.

"KGC was kind of flat for most of the day, then the stock took off in the afternoon and the converts stayed mostly in line," a sellsider said.

Gold prices rose on Wednesday on the back of safe-haven buying. Investors were worried about the cost of damages from the Japan earthquake, which triggered a tsunami and set off a nuclear crisis in the country, the sellsider said. The ongoing strikes in Libya and a simmering debt crisis in Portugal also raised demand for resource and mining stocks.

"There was a pretty good bid for those names, especially in the afternoon," the sellsider said.

Ares up modestly

Ares Capital Corp.'s new 5.125% convertibles due 2016 opened trading Wednesday to gain about half a point outright after pricing at par near the cheaper end of talk.

Ares' common stock ended the session at $16.24, up by 0.25% or 4 cents.

The $200 million deal priced Tuesday after the close with an initial conversion premium of 17.5%.

Price talk was at a coupon of 4.875% to 5.375% and an initial conversion premium of 15% to 20%.

Bookrunners Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Merrill Lynch and Wells Fargo Securities LLC have an over-allotment option for an additional $30 million.

Proceeds will be used to redeem the company's outstanding $161.2 million of 6% notes due April 1, 2012, to repay revolving debt and for other general corporate purposes.

Ares is a New York-based private equity firm targeting middle-market companies.

The deal got a decent reception from investors, one sellsider said.

"I think it was priced fairly," the sellsider said. "They were up by only a little bit, but the stock was down most of the day, so they did OK."

The sellsider said the common stock's high dividend yield of about 8% may have left a bitter taste in the mouths of some investors who did not like the idea of getting a lower yield on the convertible, but said the rest of the terms were decent and some investors simply did not have a choice.

"It's a pretty solid name, and some of the outrights, because of the rules they have to follow, they can only buy the converts," the sellsider said.

Photronics jumps higher

Photronics, Inc.'s new 3.25% convertibles due 2016 also did well Wednesday, trading higher on their secondary market debut for most of the day.

The new notes, which sold at par, traded as high as 104 during the day before easing to around 102 as the stock fell. The common stock ended the day 1.79%, or 14 cents, lower at $7.69.

"Photronics traded up strong to a little higher than 104, then the stock sold off and the bonds came down," a trader said.

The $100 million offering priced Tuesday after the close at the rich end of price talk, with a coupon of 3.25% and an initial conversion premium of 32.4%.

Price talk was at a coupon of 3.25% to 3.75% and an initial conversion premium of 25% to 30%.

JPMorgan was the bookrunner of the Rule 144A offering.

There is an over-allotment option for an additional $15 million.

Proceeds will be used to buy up to $30 million of the company's outstanding 5.5% convertible senior notes due 2014 and to repay up to $23 million of other outstanding higher interest bearing debt. Any remaining proceeds will be used to buy back the 2014 notes from the open market and for general corporate purposes.

Photronics is a Brookfield, Conn.-based maker of semiconductor manufacturing components.

Investors liked that the deal was positive for the company's credit, a sellsider said.

"They're taking out a bunch of debt and restructuring their revolver, so they're cutting down their interest expense," the sellsider said. "And they've got a pretty good cash flow business. But it's also quite a risky name, a lot of volatility in the stock, and the fact is they're still highly levered."

James River up in gray

James River Coal's planned $125 million offering of seven-year convertibles was seen bid at 102.5 in the gray market on Wednesday, suggesting a good reception from investors amid talk that the deal would be upsized.

The deal was to price Wednesday after the market closed.

Price talk was at a yield 3.25% to 3.75% with an initial conversion premium of 25% to 30%, according to a market source.

Concurrently, James River plans to price $250 million of straight senior notes due 2019. Both offerings will be distributed under Rule 144A and Regulation S via UBS Securities LLC and Deutsche Bank Securities Inc. as the joint bookrunners.

James River also plans to sell 6 million shares of common stock.

The convertible deal has a greenshoe for up to an additional $18.75 million of notes. The notes are non-callable, with net share settlement. There is contingent conversion with a price hurdle of 130%.

Proceeds are earmarked to pay a portion of the purchase price of the company's previously announced acquisition of International Resource Partners LP with any remaining proceeds going to general corporate purposes, including acquiring or investing in businesses or repayment of debt.

If the deal is not consummated, James River can redeem the convertibles or use the funds raised for general corporate purposes, including acquisitions or repaying debt.

James River is a Richmond, Va.-based coal producer.

Gilead up with offering

Gilead's convertibles gained on Wednesday after the company sold $1 billion of 10-year senior unsecured floating-rate notes to yield 125 basis points over Treasuries.

"Gileads were a little active because of the $1 billion of straight debt that they issued," a trader said.

The company's older 0.5% notes due May 2011 rose 3 points to 108 outright, while the 0.625% notes due 2013 added 2 points to 120.

Gilead common stock closed at $41.32 on Wednesday, higher by 2.18% or 88 cents.

Mentioned in this article

Ares Capital Corp. Nasdaq: ARCC

Gilead Sciences, Inc. Nasdaq: GILD

James River Coal Co. Nasdaq: JRCC

Kinross Gold Corp. NYSE: KGC

Photronics, Inc. Nasdaq: PLAB

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