New Healthways trades around par; Newmont series A adds slightly; Molson slips again

By Rebecca Melvin

New York, July 2 - Healthways Inc.'s newly priced 1.5% convertibles traded mostly flat in the early going Tuesday after the Nashville-based health improvement company priced an upsized $125 million of five-year convertible senior notes at the midpoint of talked terms.

Later in the session, with a downturn in the broader markets, the new Healthways were bid below par, but the deal was seen as having done "OK."

Convertible bond trading was pretty light overall, sources said, as some market players opt to forego the holiday-shortened week with markets closed Thursday in observance of the U.S. Independence Day.

"The week ended yesterday," a New York-based trader said. "It was quiet today, and it's going to be worse tomorrow."

Newmont Mining Corp. was among the most actively traded names of the day after the shares were downgraded to "underperform" from "hold" by Jefferies and as gold and the mining sector continue to be an active area with a lot of volatility due to a range of opinions regarding the near term for this commodity.

Molson Coors Brewing Co.'s 2.5% convertibles, which mature at the end of this month, were trading and slightly lower, as the paper continues to "leak" value as the optionality wanes and it appears that the bonds won't be converted into shares.

New Healthways mostly flat

Healthways' newly priced 1.5% convertibles traded around par early Tuesday in light action.

Par bids were seen at mid-morning, and then there was a 99.875 bid versus an underlying share price of $15.90.

Those bids were "in the Street," where pricing isn't overly aggressive, a convertibles analyst said.

Shares of the Nashville-based health improvement company started out down slightly but turned lower around midday with the broader markets, ending down 49 cents, or 3%, at $15.73 in strong volume.

"It didn't come flying out of the gate; it was essentially flat," a West Coast-based trader said of the bond. He thought the new issue did OK, but compared to how paper of this caliber was trading in this market a month or so ago, it wasn't as strong, he said.

The trader thought the market's reception was a function of the "new reality" post Fed news two weeks ago. He was referring to June 19 when the Federal Open Market Committee indicated that as the economy improves it will taper current accommodative policies, including $85 billion a month of bond purchases.

"It's a small cap, nothing fancy, but the credit is fine and initially the 1.5% [coupon] and 20% [premium] was modeling up 2 points cheap," he said.

"The company has a somewhat quirky business model in the preventative health care space, but it has revenue and cash flows that you can lean on, and it didn't seem to get the benefit of the doubt," he said.

But the attitude of sources was that it was fine and it was upsized, and the market will take it.

"I'm happy with the issuance and I think it's going to keep coming. I think the cat's out of the bag," a New York-based trader said. "Things have changed. This was the first test post the Fed announcement; it came cheap and could have been absorbed and traded up, but it didn't.

Using a credit spread of 850 basis points over Libor and a 40% vol., one trader saw the paper more than 2 points cheap. A second source said he saw it 1 point cheap.

The company is small with a $550 million market capitalization, and one source said he didn't think many people played the deal, which was upsized to $125 million from $100 million but still considered a small deal.

Pricing came at the midpoint of talk, which was for a 1.25% to 1.75% coupon and 17.5% to 22.5% premium, and it was brought by joint bookrunners J.P. Morgan Securities LLC (active), SunTrust Robinson Humphrey Inc. and Morgan Stanley & Co. LLC (passive).

The bonds are non-callable and have contingent conversion if shares rise to 130% of the conversion price. They have dividend protection via a make-whole table and have takeover protection.

Proceeds will be used to reduce the company's credit agreement debt and for general corporate purposes, including acquisitions, strategic partnerships and expansion strategies, as well as to pay the cost of the hedge transactions.

The company entered into a call spread geared toward hedged investors. And while the stock was lower, there was a lot of volume in the name Tuesday on what is typically a fairly illiquid stock.

The deal was upsized to $125 million from $100 million and the over-allotment option for the Rule 144A offering was upsized to $25 million from $15 million.

Newmont up slightly

Newmont's 1.25% convertibles due 2014 were seen traded at about 101 and were seen at 101.5 to 102.

Shares of the Denver-based gold mining concern closed down $1.01, or 3.4%, $29.17.

The Newmont As were seen up 0.375 point and are traded mostly on an outright basis or on a light 15% delta.

"It looks like there was good two-way flow, but it was not directional," a New York-based convertibles analyst said.

Newmont's 1.625% convertibles due 2017 were also active and traded at 107.625, which was up 0.375 point, according to Trace data.

Newmont shares were downgraded to "underperform" from "hold" by Jefferies.

Gold has been an active area of late, with a lot of volatility as gold prices have come off sharply.

The day's volume in the two convertible bonds was pretty evenly split, a trader said of the high-grade name.

Molson slips 0.125 point

Molson's 2.5% convertibles due July 30 traded around 101.5 bid, 100.75 offered.

That was down about 0.125 point on the day and marked the continuation of a trend that has been ongoing for several months ahead of the issue's upcoming maturity.

"They are pulling to par," a convertibles analyst said. The optionality has fallen off as the shares have dropped off in the past few weeks, slipping further away from the strike price instead of moving closer to it.

A trader said parity on the bonds is 92. "Anything can happen as they say, but the stock would have to go more than $5, and the bonds are going away in 28 days," he said.

Mentioned in this article:

Healthways Inc. Nasdaq: HWAY

Molson Coors Brewing Co. NYSE: TAP

Newmont Mining Corp. NYSE: NEM

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