Cemex up after refinancing, asset-sale news; Sunrise Senior mixed; Wright Medical on tap

By Rebecca Melvin

New York, Aug. 22 - Cemex SAB de CV's convertibles extended gains Wednesday on an outright and dollar-neutral, or hedged, basis after the Monterrey, Mexico-based cement producer followed up debt exchange news with an update on planned asset sales.

On Tuesday, the company announced 90% uptake on its debt exchange offer initially pitched in June. Later it said it was planning to sell a minority stake in its Latin American assets.

Elsewhere, Sunrise Senior Living Inc.'s convertibles surged outright but were mixed on a hedged basis after Health Care REIT Inc. agreed to buy the McLean, Va.-based senior living services company for $845 million in cash, or $14.50 per share, representing a 62.4% premium to the underlying shares.

Health Care REIT's two convertible issues were unchanged on the news, a New York-based trader said.

Meanwhile, Wednesday's session began with action in the primary market: Wright Medical Group Inc. launched an offering of $200 million of convertible notes due 2017 that was seen pricing after the market close.

During marketing, the Wright Medical deal was upsized to $260 million and price talk was tightened to a midpoint of a 2% coupon and a 27.5% initial conversion premium, according to sources.

The initial price talk was for a 2.25% to 2.75% coupon and a 22.5% to 27.5% premium.

The revised talk took most of the cheapness out of the bond, sources said.

MetLife Inc.'s 5% convertible mandatory equity units due 2014 ended the session down about a point to 69.34 in strong volume versus $34.85 on the common stock. That compared to 70 versus MetLife's common stock close of $35.33 on Tuesday and 69.5 versus MetLife's $34.99 close on Monday.

Trading action was said to have slowed some on Wednesday compared to Monday and Tuesday.

"Most of August has been decent. But today it slowed down. There was not a lot of focus. The stuff that is trading is incremental," a New York-based trader said.

Cemex extends gains

Cemex's 4.875% convertibles due 2015 traded up another 2 points to 98, while the Cemex 3.25% convertibles due 2016 traded up 2.6 points to 98.8. Those gains followed one to 1.5 point gains on Tuesday on an outright basis.

Cemex's 3.75% convertibles due 2018 weren't heard in trade but had moved up in line with the two other Cemex convertibles on Tuesday to the 96 to 96.5 range.

Cemex shares gained 30 cents, or 3.8%, to $8.15 on Wednesday, which was on top of a gain of 11 cents, or 1.4%, to $7.85 on Tuesday.

The Cemex convertibles were better by another 0.5 point on Wednesday, in addition to a 0.5 point to 0.75 point expansion on a dollar-neutral basis on Tuesday, a Connecticut-based trader said.

One component of the previously announced asset-sale alternatives that Cemex is pursuing is sale of a minority stake in its Latin American assets through a listing on Colombia's stock exchange, the company said in a news release. The company is also considering select U.S. assets sales as well as those in Europe and other non-core assets.

Cemex said earlier Tuesday that about 90% of lenders have said they are willing to participate in the exchange of the rest of the debt. The initial news didn't address progress on asset sales.

The company has extended the exchange offer until Sept. 7, giving holdouts a chance to exchange.

The Cemex bonds have been substantially stronger since the company announced its refinancing plans at the end of June.

Sunrise Senior mixed

Sunrise Senior's 5% convertibles due 2041 traded up to 142, a gain of about 40 points on an outright basis, but on a dollar-neutral, or hedged, basis, they pretty much broke even, or lost or gained slightly, market sources said.

Shares of the McLean, Va.-based provider of senior living services zoomed up 60% to $14.26, which was up $5.33.

"I got mixed signals," a West Coast-based trader said. "I heard that on a 90% delta, you got hurt, and on an 88% delta, you broke even. It really depended on the delta."

A second source said that the Sunrise convertibles improved on hedge, and a third source said on an 88% delta, hedged players may have gained 0.5 point.

There were a wide variety of deltas on this name depending on the players' views on it. But given the paper's long, 30-year duration at least some players were on very heavy deltas.

Health Care REIT Inc. agreed to a cash acquisition of all of the outstanding common stock of Sunrise Senior for $14.50 per share, which was a 60% premium to Sunrise's closing stock price on Tuesday.

Health Care REIT's convertibles, of which there are two issues, including a 3% convertible bond and a 6.5% convertible preferred, were said to be unchanged. Shares of the Toledo, Ohio-based Health Care REIT slipped $1.61, or 2.7%, to $58.14.

The acquisition positions Health Care REIT as among the world's largest owners of seniors housing with more than 58,000 units located in the United States, Canada and the United Kingdom.

The transaction is expected to close in the first half of 2013.

Wright Medical on tap

Arlington, Tenn.-based orthopedic medical device company Wright Medical planned to price $260 million of five-year convertibles after the market close on Wednesday at a coupon at the midpoint of the talked range of 2% and an initial conversion premium of 27.5%.

The Rule 144A offering was launched early Wednesday with a base deal size of $200 million and a $30 million greenshoe. Initial price talk was for a 2.25% to 2.75% coupon and an initial conversion premium of 22.5% to 27.5%.

The revised talk squeezed a lot of the cheapness out of the deal. Initially it was seen about 3% cheap, using a 600 basis points credit spread and a 30% vol. at the midpoint of original terms. But after the revised talk, the deal looked only about 0.5% cheap at the midpoint of talk, according to a trader.

"It had looked like a screaming buy, but now it's a tougher decision," the trader said.

Another source said he liked the new deal: "...the new CEO is sharp. Pricing looks good," he said. He also liked the use of proceeds. "They are taking out a floating term loan with the convert - and buying a call spread. They are keeping the balance for dry powder on their balance sheet," the trader said.

The bonds are non-callable for life with no puts. They have contingent conversion at a price hurdle of 130%, and takeover protection.

The deal will include one or more privately negotiated convertible note hedge and warrant transactions.

About $130 million of the proceeds will be used to pay an outstanding term loan under the company's senior credit facility, and a portion of the proceeds will fund the cost of the convertible note hedge transactions. The balance of the proceeds will be used to fund up to $30 million of the repurchase of its 2014 convertible senior notes and for general corporate purposes, including acquisitions.

Mentioned in this article:

Cemex SAB de CV NYSE: CX

Health Care REIT Inc. NYSE: HCN

MetLife Inc. NYSE: MET

Sunrise Senior Living Inc. NYSE: SRZ

Wright Medical Group Inc. Nasdaq: WMGI

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