Morning Commentary: Anthem’s planned $900 million deal looks ‘cheap’; New Source sells $44 million

By Rebecca Melvin

New York, May 6 – U.S. convertibles players were sizing up the planned Anthem Inc. $900 million of mandatory convertibles that were being offered in the market on Wednesday for pricing expected after the market close.

The deal looked cheap, one source said. The source, using a 2 skew, said the deal was about 3% cheap using a credit spread of 100 basis points over Libor and a 24% and 22% vol.

A second source said he expected the deal’s talked terms would re-price because they look over 3.5% cheap even at the rich end.

The deal was talked to yield 5.25% to 5.75% with an initial conversion premium of 25% to 30%.

Anthem’s existing’s 2.75% convertible bonds due 2042, of which a portion will be repurchased with proceeds of the new deal, remained active in trade after trading actively on Tuesday. The securities were steady at around 208 with the stock at about $154.50.

Back in the primary market, New Source Energy Partners LP priced $44 million of 11% convertible preferred units in a registered deal that has a $6.6 million greenshoe.

The convertibles were sold via Stifel, Nicolaus & Co. Inc. as lead bookrunning manager with Robert W. Baird & Co.

New Energy shares were to the upside, but the new $25.00 units were not heard trading in the secondary market.

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