Midday Commentary: Post's planned $300 million convertibles look 'decent'; Finisar also in focus

By Rebecca Melvin

New York, Dec.10 - Two new deals were in focus in the convertible market early Tuesday. Post Holdings Inc.'s offering of $300 million of perpetual convertible preferred shares, which launched late Monday and was seen pricing late Tuesday, was seen fair to cheap, according to market players.

The Post convertible preferreds have a breakeven within the hard call, a Connecticut-based trader said, and it "looks decent."

A second source said he saw the Post preferred deal looking "fair."

The St. Louis-based cereal maker's deal was being sold via joint bookrunners Credit Suisse Securities (USA) LLC, Barclays, Goldman Sachs & Co. and Wells Fargo Securities LLC.

Finisar Corp.'s planned $200 million of convertibles, which also launched late Monday and were seen pricing late Tuesday, were seen cheap by one source but not very appealing by a second source.

Using valuation inputs of 350 basis points over Libor and a 38% volatility, makes the Finisar deal worth about 100.6 on the midpoint of talk, one trader said. The deal was seen pricing at a 0.5% coupon and a 40% initial conversion premium, which is "ugly," the trader said.

A second source said the Finisar deal looked 3% cheap, using a higher 45% vol. And even at 40% vol., the convertibles are fair value, he said.

A third source said he wouldn't use a 45% vol. The vol. input should be discounted given there are no guarantees that the current vol. number will be valid down the line, he said.

The Finisar deal was being sold via bookrunner BofA Merrill Lynch.

Elsewhere, the new merged American Airlines and US Airways started trading under ticker symbol AAL. The companies completed their merger Monday, and the new entity is called American Airlines Group Inc. An American Airlines mandatory preferred started trading Tuesday, a New York-based trader noted.

A second source said, "It's a mandatory convertible that will convert 25% every 30 days. It uses the volume weighted average price of the last five days less 3.5% when it converts. (That is a kiss.) So it should only exist for four months."

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