Morning Commentary: New Redwood Trust convertibles trade weakly; Vipshop better on swap

By Rebecca Melvin

New York, Nov. 19 – Redwood Trust Inc.’s newly priced 5.625% convertibles traded weakly in early action Wednesday after the Mill Valley, Calif.-based real estate investment trust priced $200 million of the five-year exchangeable senior notes at a discount to par of 99.5.

The new Redwood convertibles were seen trading at 99 bid, 99.25 offered with the shares up fractionally on the day.

Redwood’s older 4.625% convertibles were quoted at 98.125 bid, 98.625 offered, which was also weak compared to previous trades.

Redwood shares were last up 7 cents, or 0.4%, at $18.90.

Back in established issues, Vipshop Holdings Ltd.'s 1.5% convertibles due 2019 dropped on an outright basis, but were seen 1 point better on a dollar-neutral, or hedged, basis, after the Guangzhou, China-based online discount retailer posted third-quarter results that beat estimates but provided an outlook for the current quarter that was less than what investors had hoped for.

Vipshop’s convertibles changed has at 127.415, which was down nearly 8 points, according to Trace data.

Vipshop shares were last down $1.47, or 6.2%, at $22.23.

“Bonds are going better despite the stock move,” a New York-based trader said of Vipshop.

For the third quarter, Vipshop reported net earnings of $46.3 million, or 8 cents per share, compared to $15.1 million, or 3 cents per share, in the year-earlier period. Revenue was up 130% to $882.6 million for the quarter ended Sept. 30.

For the current quarter, Vipshop said it expects revenue of $1.2 billion to $1.22 billion.

Also in focus in early action were two deals expected to price after the market close, including Kindred Healthcare Inc.’s planned $150 million of mandatory convertibles that were talked with a distribution rate of 7% to 7.5% and a premium of 17.5% to 22.5% and Cloud Peak Energy Inc.’s planned $100 million of mandatory convertible preferred stock talked to yield 6.75% to 7.25% with an initial conversion premium of 22.5% to 27.5%.

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