Redwood Trust trades weakly; Vipshop up on swap; Lexicon Pharmaceuticals joins calendar

By Rebecca Melvin

New York, Nov. 19 – Redwood Trust Inc.’s newly priced 5.625% convertibles traded weakly on their debut in the secondary market on 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 for much of the session, with shares up fractionally until about midsession, when they turned fractionally lower.

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

Back in established issues, Vipshop Holdings Ltd.’s 1.5% convertibles due 2019 dropped on an outright basis but were better on swap by about a point 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.

Much of the day’s volume was in these two names, but Red Hat Inc.’s 0.25% convertibles due 2019 were also mentioned as a name that improved on a dollar-neutral, or hedged, basis on lower shares. The Red Hat convertibles were better by about 0.5 point, a New York-based trader said.

Otherwise, volume was pretty light, and “there was nothing to suggest weakness or strength” in Wednesday’s session, the trader said.

With respect to the new deals expected to price after the market close, the trader said that given the current pricing trend, the deals were likely to come on the cheap end of talk.

Kindred Healthcare Inc.’s planned $150 million of mandatory convertibles were talked with a distribution rate of 7% to 7.5% and a premium of 17.5% to 22.5%.

“’... given that everything else has come on the cheaps, I don’t see why that theme would cease,” the trader said.

Meanwhile, Cloud Peak Energy Inc. announced late Wednesday that its planned $100 million of mandatory convertible preferred stock was canceled. The company cited market conditions that would not allow terms that would have been in the best interests of stockholders.

Also after the market close, the Woodlands, Texas-based Lexicon Pharmaceuticals Inc. launched an offering of $75 million of seven-year convertibles that was expected to price after the market close on Thursday. The convertibles were talked to yield 4.75% to 5.25% with an initial conversion premium of 20% to 25%.

Lexicon is also offering $50 million of common stock concurrently with the bonds.

New Redwood slips

Redwood’s 5.625% convertibles traded at 99 bid, 99.25 offered in the early going on Wednesday when shares were fractionally higher. Later the shares slipped into negative territory.

The company priced $200 million of the five-year exchangeable senior notes at a discount to par of 99.5.

Pricing for the planned Redwood deal was fixed toward the cheap end of talked terms for a coupon of 5.625% and a 15% initial conversion premium during marketing, compared to initial talk of a 5.25% to 5.75% coupon and a 17.5% and 22.5% premium.

One trader said that the new deal was notably weak, but the overall convertibles market was not weak.

Proceeds of the new issue will be used to fund business and investment activity of Redwood and its subsidiaries, which may include funding purchases of residential mortgage loans, funding the origination of commercial loans and acquiring mortgage-backed securities for their investment portfolio, as well as for general corporate purposes.

Vipshop adds on swap

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

Its shares were down about 6% at that point. The shares ended down $1.27, or 5.4%, at $22.44, and the bonds were last at about 128.75.

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

“People seem to be comfortable with the credit, so the bonds didn’t trade even though the stock sold off,” a trader said.

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.

Lexicon to price

Lexicon plans to price $75 million of seven-year convertibles and $50 million of common stock late Thursday.

The Woodlands, Texas-based biopharmaceutical company will use proceeds to develop drug candidates and also for non-clinical research and development.

Pricing was seen at a 4.75% to 5.25% coupon and a 20% to 25% premium, which was about a point higher on the coupon and lower on the premium compared to the other Woodlands, Texas-based company that priced a $75 million convertible deal this week, LGI Homes Inc.

The stock and bonds were being sold via joint bookrunners J.P. Morgan Securities LLC and Goldman Sachs & Co.

Mentioned in this article:

Cloud Peak Energy Inc. NYSE: CLD

Kindred Healthcare Inc. NYSE: KND

Lexicon Pharmaceuticals Inc. Nasdaq: LXRX

Red Hat Inc. NYSE: RHT

Redwood Trust Inc. NYSE: RWT

Vipshop Holdings Ltd. Nasdaq: VIPS

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