Planned Stillwater looks cheap, existing bonds quiet; Clearwire surges; Royal Gold up on hedge

By Rebecca Melvin

New York, Oct. 11 - Stillwater Mining Co.'s planned $300 million of 20-year convertible senior notes were seen cheap during marketing Thursday after the Montana-based precious metals miner launched the deal early in the day.

The long-dated Stillwater deal at first blush didn't seem that good given price talk at 1.75% to 2.25% for the coupon and 47.5% to 52.5% for the initial conversion premium, but nevertheless market players were seeing it 3% to 8% cheap.

Stillwater's existing 1.875% convertibles, which are putable in March, were quiet and steady at 99.875 bid, 100.25 offered.

Elsewhere, Clearwire Corp. surged 16 points or more to 90.5 after news that Japanese mobile carrier Softbank Corp. may buy a majority stake in Sprint Nextel Corp., a deal likely to include the struggling Clearwire, sources said.

Royal Gold Inc. made 2 points on a dollar-neutral, or hedged, basis for holders of the 2.875% convertibles after the gold company said it was offering a small amount of common stock, or 5.25 million shares, a New York-based trader said.

Navistar International Corp. was higher after billionaire investor Carol Icahn said he plans to start a tender offer of $32.50 for Oshkosh shares, a 21% premium over Wednesday's close. Icahn holds a 14.9% stake in Navistar and there has been speculation that he would try to push Oshkosh and Navistar to merge or combine their defense businesses.

Icahn's agreement this week with Navistar averted a proxy fight that the investor had threatened.

Realogy Corp. convertible paper doesn't really trade, a Connecticut-based trader said. But it was up big with the initial public offering of the Parsippany, N.J.-based real estate and relocation services provider on Thursday.

Equities ended mixed to lower, mostly erasing early gains. The Dow Jones industrial average ended the day down 18.58 points, or just 0.1%, at 13,326.39 and the Nasdaq stock market ended down a couple of points to 3,049.41, while the S&P 500 stock index ended in the green but by less than a point at 1,432.84.

Stillwater's deal seen cheap

"While optically it doesn't look all that great, it does model up okay, an East Coast-based trader said of the planned $300 million issue of notes that Stillwater Mining planned to price late Thursday.

Using a vol. of 40% and a credit spread of 650 basis points over Libor, the new deal looked to be worth 103 at the midpoint of talk, the buysider said.

A second market source said he got the new deal almost 8% cheap, using similar inputs and a third market source said, "It should model higher than that with those assumptions, unless using really bad stock borrow."

A fourth source said he was using a lower credit spread.

The deal has an incremental share feature, under which holders receive extra shares on conversion if the stock reaches certain benchmarks.

The incremental share factor was talked at 0.475 to 0.525 times the base conversion rate.

"It's not seen as a bad thing if the stock goes up, you can make a whole bunch. But if the stock doesn't go up, then investors likely overpaid, a New York-based trader said of the incremental share factor.

The registered, off-the-shelf offering has a $45 million over-allotment option and was being sold via Credit Suisse Securities (USA) LLC and Wells Fargo Securities are joint bookrunning managers.

The notes are non-callable for seven years, with puts in years seven, 12, and 17.

The notes are convertible into cash, shares or a combination based on the company's choice.

Proceeds will be used to repay amounts that may come due under the company's outstanding 1.875% convertible debentures in March 2013, with any additional proceeds earmarked for general corporate purposes.

Stillwater is a Billings, Mont.-based producer of palladium and platinum.

Existing Stillwater quiet

The existing Stillwater convertible, for which the new deal is planned to finance an upcoming put, were said to be tightly held and not trading.

When it does trade, it does so on an outright basis, sources said. And it was heard in the market at 99.875 bid against the previous close of $12.12

A second source called the market 99.875 bid, 100.25 offered.

"They are short dated, so they don't seem to be affected," a Connecticut-based convertibles analyst said.

Clearwire surges

Clearwire's 8.25% convertibles due 2040 jumped to as high as 91.5 before settling back to 90.5 and were seen closing at 90 bid, 91 offered, which was up from Wednesday's close of 74.

"It finished 90-91 and was very active," a Connecticut-based trader said.

Softbank is said to be angling for a foothold in the U.S. wireless market, and its deal with Sprint, if concluded, could include a change of control. A stake for worth more than $12.8 billion was being discussed in the media.

Sprint owns 49% of Clearwire, which owns U.S. spectrum and is planning a next generation network using technology called TDD LTE.

Royal Gold expands points

Royal Gold's 2.875% convertibles traded last at 117.16 versus an underlying share price of $91.50, a trader said in midafternoon.

Shares of the precious metals royalty company fell $3.86, or 4.1%, to $91.40 in very heavy volume.

"That was up 2 points on a hedged basis on the downward stock move," a trader said.

Royal Gold announced that it is issuing 5.25 million shares of common stock to a group of underwriters led by Goldman Sachs & Co. in an underwritten, at-the-market public offering.

The stock offering, based on the $94.16 per share price on Oct. 9, is expected to close on Oct. 15.

Goldman, Sachs & Co. is bookrunner for the offering, and HSBC Securities (USA) Inc. and Scotia Capital (USA) Inc. are lead managers.

Royal Gold intends to use proceeds for the acquisition of additional royalty or similar interests and for general corporate purposes.

Mentioned in this article:

Clearwire Corp. Nasdaq: CLWR

Navistar International Corp. NYSE: NAV

Realogy Corp. Nasdaq: RLGY

Royal Gold Inc. Nasdaq: RGLD

Stillwater Mining Co. NYSE: SWC

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