Newmont strikes gold; Kendle continues strong; Molson Coors seen refreshing; Huntsman drops a peg

By Evan Weinberger

New York, July 12 - The convertibles market started out strong Thursday, with new issues leading the way and a couple of old favorites seeing some action - not all of it good. But a record-setting day on Wall Street diverted investors' attention as the day moved along.

"I think it was steady," one sellside analyst said. "I think the last hour people started paying attention to the equity markets."

The Dow Jones Industrial Average posted its biggest jump in four years, finishing up 283.86 points, or 2.09%, at 13,861.73, a new record. The Nasdaq also posted strong gains, finishing up 49.94 points, or 1.88%, at 2,701.73.

New issues again rode to the fore of the convertibles markets, with investors taking a shine to the $1 billion issue from Newmont Mining Corp. that priced Wednesday after market close. Kendle International Inc.'s convertible bond offering that priced Wednesday was also active early Thursday.

Two other new issues that hit the market Wednesday, from SonoSite, Inc. and Live Nation, Inc., were relatively quiet as investors were spooked by SonoSite's plan to use proceeds for acquisitions and its general credit and by Live Nation's relative youth as well as its revenues being so heavily tied to consumer spending.

A new issue from Canada made its debut Thursday. Ivory Energy Inc. priced C$25 million in units of convertible secured subordinated debentures due July 19, 2012, and warrants with a 9.5% coupon and an initial conversion premium of 23.5%. There is a C$3.5 million greenshoe. The Calgary, Alta.-based oil and natural gas exploration and drilling company says it will use the proceeds to fund previously announced acquisitions and its 2007-2008 development program.

One previously hot issue began to fall a bit as a bidding war for Huntsman Corp. came to an abrupt end.

News of a major mining merger drove up the value of convertibles sector-wide, including Companhia Vale do Rio Doce (CVRD) and Newmont.

Investors were also seen turning to convertibles related to consumer products, with Molson Coors Brewing Co. seeing a strong trading volume. Investors continued to look for companies with good credit as fears of a general credit crunch linked to subprime mortgages and high oil prices continue to linger in people's minds.

In other secondary action, Intel Corp.'s 2.95% junior subordinated convertibles due 2035 were active, last seen Thursday at 99.75 versus a closing stock price of $26.00. They were last seen Wednesday at 98 versus a closing stock price of $24.57. The Santa Clara, Calif.-based computer chip maker's stock (Nasdaq: INTC) closed up $1.43, or 5.82%, joining other tech stocks in Wall Street's mammoth rise.

Medtronic Inc.'s 1.5% convertible senior notes due 2011 continued their rise Thursday, last seen at 106.5924 versus a closing stock price of $53.20. The convertibles were last seen Wednesday at 105.85 versus $52.87. The Minneapolis-based medical device maker saw its stock (NYSE: MDT) go up $0.33, or 0.62%. On the convertibles end, the Medtronic rise continued the push by investors to get into health care and medical products on the view that people will always get sick.

One convertible that didn't get to a partner in that dance was ImClone Systems Inc.'s 1.375% convertible senior notes due 2024. The New York-based biopharmaceutical company made infamous by celebrity homemaker Martha Stewart stayed flat as the company's stock fell on news that its drug Erbitux failed in lung cancer trials; there are further trials of the drug pending. ImClone stock (Nasdaq: IMCL) traded down $1.17, or 3.26%, to $34.73. The convertible was last seen Wednesday at 94 versus a stock price of $35.90.

"If you were short the [ImClone] stock and long the bond you probably did well [Thursday]," one sellside analyst said.

ImClone was one of a few stocks that didn't participate in Wall Street's meteoric rise Thursday.

Huntsman bidding over

Joining Imclone on the down side of the ledger was Huntsman and that includes its mandatory that had been rising steadily since Basell Polyolefins Co. announced it would buy the Salt Lake City-based chemical maker on June 26.

The 5% convertible mandatory preferred continued its rise when Hexion Specialty Chemicals, a portfolio company of private equity firm Apollo Management Ltd., rode in with a larger bid for Huntsman on July 4.

That deal is settled now that Basell announced late Wednesday that it would not up its $5.6 billion cash and stock deal for Huntsman. Hexion wins the bidding war with a $6.5 billion deal, worth $28 per share.

Huntsman mandatories (NYSE: HUN-P) dropped $1.02, or 2.02%, to $49.58.

"It's not good for the convert," one buyside portfolio manager said. "Obviously people were hoping for a higher bid. You are going to get some coupon."

The mandatories reach maturity on Feb. 16, 2008.

But a buyer getting in soon, with the mandatories trading below $50, has a chance to make some profit on the deal.

"You actually have 50 cents of upside," the portfolio manager added.

Huntsman stock (NYSE: HUN) also traded down Thursday, closing at $26.39, a drop of $1.18, or 4.28%.

New Newmont deal strikes early

With investors looking at mining convertibles as a hedge against credit problems, a stock market collapse or inflation, it should be no surprise that Denver gold miner Newmont Mining got a hearty reception when its convertible senior unsecured notes hit the market Thursday.

"I think it's a function of a safe haven as the credit markets have gyrated the past couple of weeks," one sellside analyst said.

The fact that the two tranches, one due 2014 and the other due 2017, totaled $1 billion added to the attraction.

"That gets people's attention," one sellside trader said.

Coupons at the tight end, 1.25% for the 2014 tranche and 1.625% for the 2017 tranche were not a barrier either. Conversion premiums at the upper reaches of talk, but still low by the market's recent norm with both tranches coming in at 15%, added to the attraction.

"Newmont one was kind of interesting because it had very attractive terms," one buyside portfolio manager said.

But what may have finally sold investors is that Newmont Mining hasn't been performing as well as its fellows in the gold mining sector, so analysts and investors think that the stock has a chance to move up fast.

"They're the second-largest by market cap in the world," the portfolio manager added. "You know that the gold business is going to be around in seven years."

The only unattractive part of the deal, traders, portfolio managers and analysts said, was the lack of puts.

"In an ideal world, you would've liked a put after 1, 2, 3, 4, 5 years," a portfolio manager said. "It's always about give and take."

At last look, the 2014 tranche was trading at 103.5 versus a closing stock (NYSE: NEM) price of $41.11. The 2017 tranche was last seen 103.625. The stock was up $0.93, or 2.31%.

Other miners attractive, too

Merger and acquisition activity in the mining sector - Rio Tinto plc announced it was buying Canadian aluminum miner Alcan - sparked interest in other mining companies. That was particularly true of CVRD, whose two convertibles traded up Thursday.

But it may not be just the mergers and acquisitions driving people to look into mining, but also the economic jitters hovering over the broader markets.

"The world is ending," one sellside analyst said, tongue-in-cheek referring to perhaps an over-reaction to inflationary concerns.

"There's a lot of M&A rumors in terms of the mining companies. There's been a significant amount of M&A activity already. There could be more. It's an inflation hedge. If there's inflation, it's what you want to own."

The Rio de Janeiro-based mining company's 5.5% convertible mandatories due 2010 (NYSE: RIO-P) were up $2.54, or 6.09%, to $44.23.

The company's common stock (NYSE: RIO) was up $2.92, or 5.91%, to $52.29.

Molson Coors a cool drink on a hot day

Of course, onlookers said, if the credit troubles investors are hedging against do come to pass, they might need a little more than metal to keep themselves afloat - they might need a beer.

That may be part of the reason investors were looking closely at Molson Coors convertibles Thursday.

There are other economic reasons. Molson Coors has better credit than issues from smaller companies like SonoSite. It also a well-known name and has product sales that are easily quantifiable.

"You can make a case that those types of names [consumer products] are under-represented in the convert space," one sellside analyst said.

Molson Coors 2.5% convertible senior notes due July 30, 2013 were last seen Thursday at 104.85 versus a closing stock price of $92.77. They finished Wednesday at 103.4 versus a closing stock price of $92.77. Molson Coors stock (NYSE: TAP) was one of the rare losers Thursday, finishing down $0.14, or 0.15%.

Three new issues end mixed

Kendle International, SonoSite and Live Nation all priced convertibles Wednesday. And all had different reactions in the marketplace.

Kendle, a Cincinnati-based clinical research company, was the best received. Its 3.375% convertible senior notes due July 15, 2012 generally got positive reviews from traders. Because of the greater demand for outsourcing in the pharmaceuticals sector and a history of generating cash, investors were pleased with the offering.

"We thought that [Kendle] was an attractive little company," one buyside portfolio manager said.

The Kendle convertibles were last seen Thursday at 102.304 versus a closing stock price of $37.19. They were last seen Wednesday at 100.9963 versus a closing stock price of $36.51. Kendle stock (Nasdaq: KNDL) finished up $0.68, or 1.86%.

There were a few more concerns voiced about SonoSite. One was the use of the proceeds - acquisitions. Another was the credit.

"[The] borrow's a problem for SonoSite," one sellside analyst said.

The Bothell, Wash., ultrasound machine maker's convertible finished Thursday at 102.0619 versus a closing stock price of $30.92. The bonds were last seen Wednesday hovering around par. The company's stock (Nasdaq: SONO) finished up $0.16, or 0.52%.

Live Nation probably fell victim to the bevy of new deals over the course of the week, onlookers said.

"With so many deals, you can't really play them all," the portfolio manager said.

There were also concerns about the company's relative youth - it has only been around in its current form for two years - and the size of the issue, $200 million. The Los Angeles-based concert promoter's 2.875% convertible senior notes due 2027 didn't trade much at all. Checks at desks around the country got repeated "no's" when asked whether it traded. On Wednesday it was last seen near 101. The stock (NYSE: LYV) on Thursday closed up $0.63, or 2.93%, at $22.13.

The convertibles may be seen again, however.

"I think it's a name we might come back to," the manager added.

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