Cobalt gains on debut; existing Cobalt slips; Molycorp slides after earnings; Insulet adds

By Rebecca Melvin

New York, May 8 - Cobalt International Energy Inc. priced its upsized $1.15 billion of 10- year convertible senior notes early Thursday - which was ahead of schedule - and the new bonds moved up in the secondary market after having met with a favorable response during marketing, sources said.

The new Cobalt 3.125% convertibles due 2024 were seen at 103.5 bid, 104.25 offered at late morning with the underlying shares of the Houston-based oil exploration and development company down 6%.

The new Cobalt convertible deal priced pre-open as opposed to after the market close, as expected, but it was oversubscribed, a syndicate source said.

Cobalt's existing 2.625% convertibles due 2019 slipped a couple of points in active trade to the vicinity of 93.

Molycorp Inc.'s convertibles dropped sharply on an outright basis as shares of the Greenwood Village, Colo.-based mining company skidded 18.5% on weaker-than-expected quarterly results.

But Insulet Corp. added on a dollar-neutral, or hedged, basis as shares sank 10% after the Bedford, Mass.-based medical device maker missed earnings estimates.

Meanwhile, Dendreon Corp.'s convertibles traded little changed at 74 bid, 75 offered despite a slide in the underlying shares by 13.5% after the Seattle-based maker of the Provenge prostate cancer drug reported a narrower quarterly loss on essentially flat revenue.

Despite lots of weaker shares, the convertibles market was described as having "stabilized" following heaviness on Tuesday and Wednesday.

"I have buyers slightly edging sellers in upstairs trading," a New York-based trader said.

Traders' attention was focused on the various earnings reports from convertible issuers that came late Wednesday, early Thursday and expected to continue late Thursday.

The S&P 500 stock index reversed early gains to end in the red by 2.58 points to 1,875.63. The tech-heavy Nasdaq stock market slipped 16.18 points, or 0.4%, to 4,051.50, but the Dow Jones industrial average jumped 32.43 points, or 0.2%, to 16,550.97.

Upsized Cobalt adds on debut

The new Cobalt International 3.125% convertibles were seen at 102 around midday after earlier trading up to 103.5 bid, 104.25 offered. The stock closed down $1.08, or nearly 6%, to $17.37.

Cobalt's older 2.625% convertibles due 2019 were seen to have shed a couple of points to 92.5 to 93. The older convertibles have a higher conversion price that the new ones, because shares are lower now than when the older issue priced in December 2012.

Like the older issue, the new deal is a $1 billion-plus deal. The new issue was upsized to $1.15 billion from $1 billion and the 10-year convertible senior notes priced at par to yield 3.125% with an initial conversion premium of 25%.

Pricing came at the cheap end of talk, which was for a 2.625% to 3.125% coupon and a 25% to 30% premium.

Goldman Sachs & Co. and RBC Capital Markets LLC were joint bookrunning managers of the offering, for which there is a $150 million greenshoe, which was not upsized.

The notes are non-callable until May 15, 2019 and then provisionally callable if shares exceed $30.00 for 20 out of 30 trading days. Cobalt shares closed at $18.45 on Wednesday. There are no puts.

Proceeds will be used to fund Cobalt's capital expenditures and for general corporate purposes.

Houston-based Cobalt is an independent oil exploration and development company.

Molycorp drops hard

Molycorp's 3.25% convertibles due 2016 traded down 3 to 4 points to 74 on Thursday.

Molycorp's 6% convertibles due 2020 sank 5 or 6 points to 71.

And the Molycorp 5.5% convertibles didn't trade, but they were also lower, a New York-based trader said.

Molycorp shares plunged 84 cents, or 18.5%, to $3.71.

The mining company reported first-quarter earnings that missed estimates. It lost $86 million, or 40 cents per share, compared to a loss of $38.2 million, or 27 cents a share, in the year-earlier period.

Revenue fell 18.5% to $118.5 million, short of expectations for $144.48 million in revenue.

The decrease in revenue was largely driven by a shifting product mix with higher sales volumes from its chemicals and oxides segment, offset by softened pricing for rare earths and magnetic powders, and lower sales volumes in its resources segment, the company said in a news release.

Insulet expands on hedge

Insulet 3.75% convertibles due 2016 traded last at 122.125 with the underlying shares at $31.69.

That was down on an outright basis, but higher dollar neutral as shares plunged $3.70, or 10.5%, to $31.69 on Thursday after earnings, and extending a step down on Wednesday ahead of earnings.

The Insulet bonds expanded about 0.75 point on a dollar-neutral basis and are 1.125 points to 1.875 points over parity versus a share price of $31.69, a New York-based trader said.

On Wednesday, the bonds were seen 0.5 point to a point over parity, the trader said.

He pointed out that the convertibles have a 130% provisional call trigger, at $34.05, from June 20.

The company missed earnings estimates, but revenue was in line and the outlook is in line with estimates for revenue in the current quarter and for the full year.

Mentioned in this article:

Cobalt International Energy Inc. NYSE: CIE

Dendreon Corp. Nasdaq: DNDN

Insulet Corp. Nasdaq: PODD

Molycorp Inc. NYSE: MCP

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