New RTI adds on hedge; existing RTI 'comes in'; Newmont Mining drops as gold prices slide

By Rebecca Melvin

New York, April 12 - RTI International Metals Inc.'s newly minted 1.625% convertibles traded up on an outright and hedged basis on Friday after the upsized $350 million of 6.5-year convertible senior notes priced at the rich end of talk, market sources said.

The new deal - which was initially going to be $250 million in size - expanded by 2.5 points to 2.7 points at a reference price of 102.625 bid, 103.125 offered versus an underlying share price of $29.79, a syndicate source said.

RTI's older 3% convertibles, of which about half are being repurchased with proceeds of the new deal, were lower outright and on hedge at about 112.5 bid, 113.50 offered versus the $29.79 share price. That represented a contraction of about 0.6 point on a 49% to 50% delta, the syndicate source said.

Elsewhere, Newmont Mining Corp.'s convertibles fell as the underlying shares of the Denver-based gold and copper mining company hit a 52-week low amid a further decline in gold prices.

Goldcorp Inc.'s 2% convertibles were quiet, however, and appeared unchanged on the day at 103.375 bid, 103.75 offered versus an underlying share price of $31.56.

Advanced Micro Devices Inc.'s 6% convertibles due 2015 traded at par, which was up a point despite a 2% decline for the underlying shares of the Sunnyvale, Calif.-based semiconductor company.

Equities were lower, snapping a five-day winning streak, after the Commerce Department reported weaker retail sales in March and a report showed consumer confidence waned in April.

Retail sales fell 0.4% in March, which was lower than expectations for a flat reading.

Meanwhile the Thomson Reuters/University of Michigan's preliminary reading on the overall index of consumer sentiment fell to 72.3 in April, its lowest since July 2012 and below forecasts.

Equities pared earlier losses, the Dow Jones industrial average was flat to lower at 14,865.06, down just 0.08 point; the S&P 500 stock index shed 4.52 points, or 0.3%, to 1,588.85; and the Nasdaq stock market lost 5.21 points, or 0.2%, to 3,294.95, which was less than half of its earlier loss.

New RTI expands on hedge

RTI's newly priced 1.625% convertibles jumped early Friday and were seen in trade as high as 103.5 around midday. But a syndicate source quoted the paper at 102.625 bid, 103.125 offered versus an underlying share price of $29.79 in early afternoon trading.

That price represented an expansion on a hedged basis of about 2.5 points to 2.7 points using a delta of 66% to 67%, according to a syndicate source.

The new deal was upsized to $350 million in size from an initially talked $250 million, and the 6.5-year convertible senior notes priced on the rich end of talk.

Meanwhile, the underlying shares of RTI, a Pittsburgh-based producer of titanium mill products, extended losses, falling another 2.9% on Friday after a 4.7% drop on Thursday when the deal was launched. The shares ended at $29.29.

The notes are non-callable with no puts. They have contingent conversion if shares are at least 130% of the conversion price.

Joint bookrunners were Barclays and Citigroup Global Markets Inc., with senior co-managers FBR Capital Markets & Co. and Stifel, Nicolaus & Co. Inc. Co-managers were PNC Capital Markets LLC, Fifth Third Securities Inc., Comerica Securities Inc. and RBS Securities Inc.

The underwriters have an option to purchase additional $52.5 million of the notes, a greenshoe that was upsized from $37.5 million.

In the gray market ahead of pricing, the new deal was seen about 2 points cheap at the midpoint of talked terms, using a credit spread of 450 basis points above Libor and a 30% vol.

A second source got the paper 2% cheap using a 400 bps spread and 30% vol.

Existing RTI slips on hedge

RTI's older 3% convertibles due 2015 were quoted at 112.5 bid, 113.50 offered versus an underlying share price of $29.79 in early afternoon trading.

That was down from an outright basis from 114.45 on Thursday and was considered to have contracted on a delta-neutral basis by 0.6 point.

The older RTI paper traded about 4 points rich when the new deal was launched.

About $132.1 million of proceeds of the new deal will be used to repurchase about $115.6 million of RTI's existing 3% convertibles.

There had been $230 million of the older issue outstanding prior to the repurchases.

Remaining proceeds will be used for working capital and general corporate purposes, including capital expenditures and potential future acquisitions.

Newmont falls with gold

Newmont's 1.25% convertibles due 2014 were seen trading down to 104.2 on Friday, from 108 ish Thursday, or 6.3 points, according to Trace data. The Newmont issue was quoted at 106.875 bid, 107.37 offered versus an underlying share price of $36.60 in early afternoon trading on Friday.

The 2014 issue trades on about a 35% delta.

Newmont's 1.75% convertibles due 2017 were quoted at 116.25 bid, 116.75 offered versus an underlying share price of $36.60. This paper trades on about a 53% delta.

The profile of both issues is more balanced and the deltas have come down as the underlying shares have fallen in recent months.

Newmont shares were down $1.96, or 5%, to $36.70 in Friday afternoon trading, and they ended lower at $36.37, which was down $2.28, or 5.9%.

Lower gold prices were behind the ongoing slump in the Newmont shares and convertibles. Gold futures for June delivery fell 4% to settle at $1,501.40 an ounce at 1:45 p.m. ET on the Comex in New York. That represented bear territory from when gold was 21% higher at a record settlement of $1,891.90 in August 2011.

Earlier this week, Goldman Sachs said that the gold-price cycle is turning down faster after its 12-year rally as a recovery in the U.S. economy gains momentum.

Deutsche Bank AG cut its 2013 gold outlook this week by 12%, citing a strengthening dollar and a lack of safe-haven buying.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Goldcorp Inc. NYSE: GG

Newmont Mining Corp. NYSE: NEM

RTI International Metals Inc. NYSE: RTI

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