New MetLife moves up in line with stock; Old Republic hugs par on debut; NorthStar on tap

By Rebecca Melvin

New York, March 3 - MetLife Inc.'s newly priced $3.3 billion issue of 5% mandatories traded up Thursday along with its underlying shares on a dollar-neutral basis, settling at 85.25 bid, 85.35 offered versus the stock close of $45.25, according to a syndicate source.

The new MetLife equity units initially priced at 82.88 and were a central focus of trade on Thursday.

"I think they were trading at fair value and moved up dollar neutral," a New York-based sellside trader said of the MetLife mandatories.

Also new to the market Thursday was Old Republic International Corp.'s 3.75% convertibles, which were straddling the par line most of the session and settled there as well.

The new Old Republic senior notes were doubled in size to $500 million from initial talk; while a twin $250 million straight debt offering launched concurrently with the convertibles was canceled.

Sources said that might bode well for the convertible market given that the economics of the convertible were favorable and investor appetite was there.

Old Republic's existing 8% convertibles traded some, in the 114.5 bid 115.5 offered range, a syndicate source said.

NorthStar Realty Finance Corp.'s planned convertible, being sold via joint bookrunners JMP Securities and Citigroup, with FBR as co-manager, wasn't seen in the gray market ahead of pricing seen after the close, and sources said not much attention was being paid to it due to its relatively small size of $100 million.

MetLife up in line with stock

MetLife's new 5% mandatory due 2014 settled at 85.25 bid, 85.35 offered versus a $45.25 stock price, according to a syndicate source. The paper initially priced at 82.88.

The mandatory convertible sale was made up of 40 million units with a stated amount of $75.00 each for a total of $3 billion. The units priced at $82.88 for gross proceeds of $3.32 billion.

There were two concurrent common stock offerings for $6.35 billion, including one primary and one secondary offering.

"Outright guys will like it ... as they are 'starved for yield,'" a New York-based buyside source said. "The traditional mandatory guys will not be crazy about the structure - at least not to hold. Given that the market likes any kind of new issuance, I think they will at least want to play a $3 billion issue."

The short-dated paper with mandatory conversion means that the yield might be illusory, a New York-based sellside trader said.

"The yield is an offset to the premium and in this case, very short lifespan. If you buy it at 75 on the issue and it mandatorily converts into the stock in October 2012 with parity below 75, say at 69, then you have roughly zero return on your investment. The coupon in a mandatory is an offset and not true yield unless the stock goes higher."

MetLife around fair value

As for pricing, "it went right to fair value," a New York-based sellside trader said, adding that he thought some outrights were holding it and waiting for the stock to move up.

MetLife shares have already been on a tear. The stock and mandatory deal resulted from American International Group selling its shares in the insurance rival as part of a deal between the two companies.

AIG will use proceeds to cut the U.S. Treasury Department's ownership stake in the insurer. And its stock sale, called a re-IPO, is likely to come in May, according to a report in the New York Times.

Players in the MetLife mandatory, attracted to its large size, came from the equity side and also included outright convert players as well as traditional convert players, a sellsider said.

"They went to fair value based on the common," the sellsider said, referring to the initial 83ish price. "And they moved from there in line with the common."

The sale price was 82.88 versus a share price of $43.50.

"They came in slightly, but then they were hovering around fair value," the trader said.

Fair value doesn't mean it will discourage people, he said. "They'll put it on directionally, based on where they want to play it."

Goldman Sachs & Co. and Citigroup Global Markets Inc. were the bookrunners for the equity units while Goldman Sachs, Citigroup and Credit Suisse handled the stock sale.

Based in New York, MetLife is a life insurance company.

New Old Republic at par

Old Republic's 3.75% convertible senior notes were marked at 99.75 bid, 100.25 offered at the close versus a share price of $11.99.

The initial pricing looked a bit rich, as sellsider said; and it came at the midpoint of talk.

Old Republic's 8% convertible senior notes due 2012 were at 114.5 bid 115.5 offered at the close.

"They traded a little, not much," a New York-based sellside trader said of the older issue.

One trader said that the two bonds are comparable in terms of valuation. But a second sellsider said the two bonds don't necessarily compete.

The new ones have a much longer duration and a lower coupon and the older ones are shorter-duration with a higher coupon and are attractive given that they are still around par, he said.

Plus the new issue with $500 million outstanding is a very liquid deal, he said.

Convertibles upsized

When Old Republic launched the deal on Wednesday it planned to price both a $250 million convertible and a $250 million straight bond issue, but it opted to cancel the straight debt.

"It goes counter to the way they have been going, and it's encouraging for the convert business," a New York-based sellsider said. "Maybe some issuers are going to start looking at that decision to go with the convert rather than the high yield."

A syndicate source said that the planned 10-year straight deal was talked at a spread in the mid to high 200s, so it was likely that the company didn't like the terms and felt that the convertible was a cheaper alternative.

"They were not loving the terms on a 10-year straight deal is my guess," the syndicate source said of the straight bond issue.

Meanwhile, convertible investors starved of new paper due to competition from the straight bond market, in particular the high-yield market, absorbed the new deal pretty easily.

One sellsider said that the hedge community didn't like it, however.

"It looked rich. On a valuation basis, it modeled 98.75 at issue, so it was about 1.5% to 1.25% rich, using a credit spread of about 200 basis points and 20% vol., which is what the underwriter used," he said.

The new seven-year convertibles have a $50 million greenshoe, which was upsized from $37.5 million.

The registered convertibles will be non-callable for life, with cash dividend protection of $0.175 per quarter.

Some of the proceeds will be used to repay debt that was assumed in connection with the acquisition of PMA Capital Corp. Remaining proceeds will be used for general corporate purposes, including making additional capital contributions to insurance company subsidiaries that may be necessary.

Morgan Stanley and UBS were the joint bookrunners.

Old Republic is a Chicago-based insurance holding company.

Mentioned in this article:

MetLife Inc. NYSE: MET

NorthStar Realty Finance Corp. NYSE: NRF

Old Republic International Corp. NYSE: ORI

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