New A. M. Castle convertibles expand on hedge; Intel, Meritor, MF Global paper edges lower

By Rebecca Melvin

New York, Dec. 13 - A. M. Castle & Co.'s newly priced 7% convertibles due 2017 traded up on their debut in the secondary market Tuesday after the Oak Brook, Ill.-based maker and distributor of specialty metals and industrial plastics priced $50 million of the six-year convertibles.

The deal was small, and largely ignored by some convertibles players, but it had a decent mix of hedged and outright investors, a syndicate source said, and settled at 103 versus an underlying share price of $8.38, which was better on a hedged basis by 5 points.

Intel Corp.'s convertibles remained active and slipped a little further in a continuation of Monday's move when the Santa Clara, Calif.-based chip giant said fourth-quarter revenue will be lower than expected.

Auto industry supplier Meritor Inc. was in focus, and slightly lower, but with its newer 4% convertibles seeing more offers than bidders, while the older 4.625% convertibles were seeing more bids than offers, a Connecticut-based trader said.

"It wasn't that much volume," the trader said of the Meritor trades.

Meanwhile, Salesforce.com's convertibles were at about 14.5 points.

Among distressed issues, MF Global Holdings Ltd.'s two convertible bond issues due 2016 and 2018 were in trade around the 31.5 mark, with the 2018 bonds said to be more active, while a third MF Global issue, a 9% convertible, remained quiet, a New York-based trader said.

Overall, volume in the convertible market improved slightly on the second day of the last full week of trading for 2011, but it was still light and market players said there wasn't much going on.

"It was a little more active than yesterday, but volume was pretty light, with people waiting for what the Fed had to say, and then there was a mini vol. event, given the pretty big reversal in stocks," a Connecticut-based trader said.

Stocks were higher prior to the U.S. Federal Reserve issuing a policy statement Tuesday afternoon, and then reversed course for a lower close.

The trader thought the reversal might have spurred some activity in convertibles. After the announcement, "trades on the fence probably got done," he said.

The central bank said it will stand pat on interest rates at near 0% and maintain other existing policies like reinvesting principal payments from its holdings of agency debt. There was no reference to more potential stimulus.

On Monday a sellsider said volume levels in the convertibles market were like what would have been seen on Christmas Eve a couple of years ago.

"There are guys that are closed for the year," the sellsider said of his accounts.

A. M. Castle gains on hedge

A. M. Castle's new 7% convertibles due 2017 traded up on Tuesday, settling at 103 versus an underlying share price of $8.38.

Given that the underlying shares were lower, the new paper gained about 5 points on a hedged basis, a syndicate source said.

Several market players said the new issue was too small to look at, but among those who played it, it was deemed successful.

The six-year paper, with four years of call protection, priced beyond the cheap end of talk for the coupon, which was 5.5% to 6%, and at the cheap end of 20% to 25% premium talk.

The convertibles' greenshoe was downsized to $7.5 million from $10 million.

The Rule 144A deal was priced concurrently with $225 million of five-year straight notes. The deals were sold via bookrunner Jefferies & Co. Inc. The company also expects to enter into a new $100 million revolving credit facility.

The secured 12.75% straight notes priced at 96.5 to yield 13.741%. The secured notes offering was contingent on completion of the convertible notes offering. Closing for both is set for Thursday.

Proceeds were expected to be used to help finance the acquisition of Tube Supply Inc. and refinance existing debt.

A. M. Castle shares slipped further, ending down 30 cents, or 3.5%, to $8.27, after sliding 31% on Monday.

Meritor shuffles

Meritor's 4% convertibles due 2027 traded at 65.5, which was up about a point outright.

Meritor's older 4.625% convertibles due 2026 traded at 75.125, which compares to 70.5 versus an underlying share price of $4.90 on Nov. 21 and 84 versus an underlying share price of $8.95 on Nov. 3.

Meritor shares shed 19 cents, or 3.4%, to $5.37 in light volume. Early on the shares had been in positive territory, and most of the loss came in the final hour or two of trade.

Meritor is a Troy, Mich.-based original equipment manufacturer.

"The Meritor 4s were better to buy and the Meritor 4.625s were better to sell," a trader said.

Mentioned in this article:

A. M. Castle & Co. NYSE: CAS

Intel Corp. Nasdaq: INTC

Meritor Inc. Nasdaq: MTOR

MF Global Holdings Ltd. Pink sheets: MFGLQ

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