Convertibles 'better to buy'; New issue market welcomes new United Therapeutics paper

By Stephanie N. Rotondo

Portland, Ore., Oct. 11 - Convertible bonds were "a bit better to buy" on Tuesday, according to a trader.

"Yield-y names, those are better to bid," he said.

AMR Corp.'s 4.5% convertible notes due 2024, for instance, were up around 56 versus a midday stock price of $2.70.

Not all names, however, were gaining ground. Cemex SAB de CV's 4.875% convertible notes due 2015 fell to 44.25 versus a stock price of $2.95.

But the big news of the day was a new issue from United Therapeutics Corp., a $210 million Rule 144A offering. The news was topical as the convertibles new issue market has dried up of late.

"It's been way past quiet," a trader said. "Moribund is more accurate."

Of the new issue, he said the terms "aren't totally horrible."

On the back of that news, United Therapeutics' existing convertibles - which mature Oct. 15 - were trading actively.

United Therapeutics on tap

United Therapeutics announced it would sell up to $250 million - including the $40 million over-allotment option - of convertible notes due 2016.

Proceeds from the deal underwritten by Deutsche Bank Securities Inc. will be used for a recently approved stock repurchase program.

Price talk is for a yield of 0.5% to 1% and an initial conversion premium of 20% to 25%. The deal was expected to price after the bell Tuesday but did not immediately come.

"The new [issue] models out pretty cheap at 40% volume, plus 500," a trader said. "The interesting thing is that the old 0.5% converts mature on Friday and the shares are trading right near the conversion price."

After the close, a trader said parity was "probably 105.5-106."

The maturing convertibles - a $250 million issue - traded actively and better, closing with a 107 handle.

The stock closed up $1.88, or 4.97%, to $39.74 on Tuesday.

Broad market tidbits

Elsewhere in the convertibles marketplace, a trader said Old Republic International Corp.'s 8% convertible notes due 2012 were "better than they have been" at 101.75 bid, 102 offered.

Another trader said PHH Corp.'s 4% convertible notes due 2012 were trading at 99.75 versus a stock price of $16.40.

And Textron Inc.'s 4.5% convertible notes due 2013 - which are currently being tendered for - were at 152.75 versus a stock price of $18.45.

Mentioned in this article:

AMR Corp. NYSE: AMR

Cemex SAB de CV NYSE: CX

PHH Corp. NYSE: PHH

Textron Inc. NYSE: TXT

United Therapeutics Corp. Nasdaq: UTHR

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