Convertibles weaker outright; RTI steady on hedge; Stillwater Mining up dollar neutral

By Rebecca Melvin

New York, April 15 - The convertible bond market was weaker outright on Monday amid a sharp sell-off in the broader markets, including equities, gold, oil and other commodities. On a hedged basis, convertibles were initially mixed but saw some weakening later in the session, sources said.

One trader said that the impact of the broader markets' sell-off for convertibles was negligible for much of the session. He felt that a bigger move downward was required to move the dial in any significant way given the current tight-supply situation in convertibles.

But later in the session, as equity selling intensified into the market close, "things went to the bid side," or weakened, a Connecticut-based convertibles analyst said.

The down move was small, however, "about half a point or thereabouts," the analyst said.

A Connecticut-based trader said at the end of the day, "things definitely feeling a little weaker."

RTI International Metals Inc.'s new 1.625% convertibles, which debuted in the market on Friday, were lower outright but unchanged on a hedged basis as shares of the Pittsburgh-based titanium mill products maker slumped. The new bond had expanded by 2.5 points to 2.7 points last week against lower shares.

Stillwater Mining Co.'s 1.75% convertible senior notes fell more than 8 points on an outright basis, but were up about 2 points on a dollar-neutral, or hedged, basis, as shares of the Billings, Mont.-based precious metals producer slid first 9% and ended down more than 13%.

The hedge on this name is more than 100%.

National Financial Partners Corp. jumped outright, but was lower on a hedged basis after news that the New York-based advisory and brokerage services company has agreed to be taken private by Madison Dearborn Partners LLC for more than $1 billion.

Meanwhile, the convertibles of gold miners Newmont Mining Corp. and Goldcorp Inc. were lower again outright as a slide in the underlying equities continued.

In the broader markets, "a gold unwind," or a sharp sell-off, precipitated by weaker-than-expected gross domestic product for China in the first quarter, was battering the markets.

China's economy grew at a 7.7% rate in the first quarter, which was below estimates, and down from 7.9% growth in the fourth quarter as industrial production weakened.

China has set a 7.5% GDP growth target for 2013. But commodities from gold to crude oil to copper fell after the latest data and U.S. equities also slid.

As for the move in equities affecting convertibles, one West Coast-based sellsider said around midafternoon, "We need a much bigger move. We've seen these 1% moves in the market before. Maybe if it was a 5% move that would make a difference," he said, referring to a change in pricing that would enable market players to step in and build new positions.

In fact, the Dow Jones industrial average dropped 265.86 points, or 1.8%, to 14,599.20; the S&P 500 stock index lost 36.49 points, or 2.3% to 1,552.36; and the Nasdaq stock market lost 78.46 points, or 2.4%, to 3,216.49.

RTI drops outright

RTI's 1.625% convertibles fell outright on Monday to 98.5 bid, 99 offered versus an underlying share price of $27.20. That compared to the paper trading around 102.625 bid, 103.125 offered versus $29.79 on Friday.

"RTI has had high volume, but it hasn't really moved," a Connecticut-based analyst said.

A second source said he had looked at the issue in the early going and said that he was still "not too excited."

"We're waiting for things to come in. Recent pricing out has been fair to a little bit cheap. We need it to come in," the sellsider said.

Shares of the company fell $2.12, or 7.2%, to $27.17 in a broad-based market sell-off of particularly commodity-related names.

The new RTI deal was upsized to $350 million in size from an initially talked $250 million, and the 6.5-year convertible senior notes were priced on the rich end of talk.

Meanwhile, the underlying shares of RTI, a Pittsburgh-based producer of titanium mill products, have now extended losses to three days, falling 2.9% on Friday and 4.7% on Thursday when the deal was launched.

Stillwater Mining improves

Stillwater's 1.75% convertibles due 2032 traded down 8 points on Monday, according to a Connecticut-based analyst. One print seen was at 106.7, which was down 6 points on the day, according to Trace data.

Shares of the Billings, Mont-based palladium and platinum producer fell $1.56, or 13%, to $10.41. The shares closed at their lows of the session in heavy volume.

Stillwater trades on a very high delta of about 100%. The high delta is related to its hyper structure, which includes an incremental share feature, under which holders receive extra shares upon conversion if the stock reaches certain benchmarks. The stock has to move significantly higher for this feature to make a difference, and as of Friday the paper was up 8% since the paper priced Oct. 11, but now the shares are lower.

National Financial slips

National Financial Partners' 4% convertibles due 2017 were seen at 202 bid, 202.25 offered versus a share price of $25.00 on Monday.

The price was up about 9 points on an outright basis, but the pricing represented a contraction on a hedged basis of about 1.5 points, a Connecticut-based analyst said.

Shares of the New York-based financial firm jumped $1.60, or 6.8%, to $25.01 in heavy volume on news that the company has agreed to be purchased for $25.35 per share, a price that represented about a 26% premium over the company's closing share price on March 12 when reports first surfaced about a possible sale, and with about an 8% premium over its Friday market close.

Last month, National Financial said it was exploring a sale, saying that it had received indications of interest from private-equity firms and that its board has formed a committee of independent directors to consider the sale.

Mentioned in this article:

Goldcorp Inc. NYSE: GG

National Financial Partners Corp NYSE: NFP

Newmont Mining Corp. NYSE: NEM

RTI International Metals Inc. NYSE: RTI

Stillwater Mining Co. NYSE: SWC

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