New GM mandatory trades higher; new PDC adds; Omnicare up on tender; Hologic exchanges

By Rebecca Melvin

New York, Nov. 18 - Convertibles desks were hopping Thursday as $4.35 billion of General Motors Co.'s newly priced 4.75% mandatory convertible preferred shares were released for secondary dealings.

The new GM mandatories, with a 50 par, traded up to about 52 with the new common near $35.00, and then slid back to 50.5, with the common at $34.21. The common stock's initial public offering priced at $33.00 per share

Trading of the IPO had been expected to go higher than $35.00, to as much as $36.00 to $37.00, and then the mandatories would have put in a flashier performance, market sources said.

"I knew they had taken a lot of the juice out of GM by moving the pricing up over 10%," a New York-based sellside trader said, referring to pricing of the common stock, which was boosted to $33.00 per share from an initially talked $26.00 to $29.00.

The IPO and the mandatories were also upsized, resulting in a lot more shares in the market, another sellsider observed.

PDC Energy made a debut also in the convertibles market Thursday, after pricing $100 million of 5.5-year convertibles with a 3.25% coupon ahead of the market open. The PDC bonds started out above 102 and finished above 103, a Connecticut-based sellside analyst said of the paper's first session.

The new PDC wasn't active given that it was a small deal, from a small cap company and in competition with the likes of the GM IPO and mandatory. But a syndicate source said that the timing of the bond, which hinged on a common stock offering, worked well for the issuer.

Also jumping on Thursday were the Omnicare Inc. 3.25% convertibles due 2035, which moved up in good volume to 93.75 after the Covington, Ky.-based pharmaceutical services company launched a cash tender offer for up to $525 million of the $977.5 million of those bonds outstanding.

Hologic Inc. was also trading after the Bedford, Mass.-based medical device maker announced it will issue $450 million of new 2% convertible senior notes due 2037 in exchange for its existing 2% convertible senior notes due 2037, a move that pushes out the put date by three years.

GM modestly higher

GM was definitely the market focus, with one New York-based sellsider saying there was "minimal activity outside of GM."

"The market feels pretty firm, and it was focused on the GM preferreds as expected," he said.

And while the common stock price faded pricing wise into the market close, and with it followed the mandatory; nevertheless there was a lot of activity in the new GMs. One source said that for the common stock 95% of the float changed hands on Thursday.

The preferred was seen at about 50.5 later in the session.

"It's all a matter of the stock; some people thought the stock was going higher - not me. But if you think the stock is going higher, that's why the mandatory goes higher," a New York-based sellside trader said.

GM priced the $4.35 billion of 4.75% mandatory convertible junior preferred stock at the tight end of dividend talk and at the talked 20% initial conversion premium.

Concurrently, GM priced $15.77 billion of common stock at $33.00 per share.

In the gray market ahead of final terms, the mandatories were at 53 bid, 53.5 offered, compared to 54 bid, 54.5 offered on Tuesday and up as much as 5 points on Monday.

Morgan Stanley and JPMorgan, Bank of America Merrill Lynch, Citi, Goldman Sachs & Co., Barclays Capital Inc., Credit Suisse, Deutsche Bank Securities Inc. and RBC Capital Markets Corp. were the joint bookrunners for the mandatories.

The mandatories are three-year non-callable paper that have full dividend and takeover protection.

GM is a Detroit-based automaker.

PDC trades slightly higher

PDC's newly priced 3.25% convertibles due 2016 were seen at 102.25 bid, 103 offered at about midsession on their debut Thursday.

Pricing came earlier than expected before the market open instead of after the close.

The timing worked for the customers, a syndicate source said, referring to a concurrent stock offering as a determining factor.

Pricing of the Rule 144A deal, which has a $15 million greenshoe, came at the midpoint of coupon talk, which was 3% to 3.5%, but at the rich end of conversion premium talk of 27.5% to 32.5%.

PDC also priced an upsized offering of 3.6 million shares of common stock at $32.00 per share. There is also a greenshoe for 540,000 shares.

Initially, the company planned to price 3 million shares of common stock with a 450,000-share greenshoe.

The deal looked attractive at the midpoint of talk, sources said. A credit spread for the valuation was Libor plus 750 basis points to 800 bps, according to a New York-based sellsider.

A second source said he was a little tighter on the credit spread and that the new bonds are more attractive on hedge.

The fundamentals for the Denver-based oil and natural gas company look pretty good, one analyst said. "The partnerships that they are rolling up, they wouldn't roll them up if they weren't doing well," the analyst said.

Proceeds will be used to fund the acquisition of additional Wolfberry Trend assets in the Permian Basin of West Texas, previously announced acquisitions of the 2004 and 2005 drilling partnerships and other acquisitions and for general corporate purposes, including capital expenditures.

Pending these uses, PDC intends to use proceeds to repay temporarily its outstanding credit facility in its entirety, with the remaining balance being deposited in an interest bearing account and held as cash and cash equivalents until use.

Wells Fargo Securities and Bank of America Merrill Lynch were the joint bookrunners for both deals.

The bonds are non-callable and have net share settlement.

Omnicare gains on tender

Omnicare's 3.25% convertibles due 2035 traded up to the 93.75 area from 89.75 prior to the tender announcement and "there was good volume for that name," a New York-based sellside trader said.

The company announced late Wednesday that is was tendering for about half of the issue.

Holders who tender will receive $950 for each $1,000 of debentures, plus interest to, but not including, the payment date.

The company will accept the debentures on a pro rata basis among the tendering holders.

The offer, which expires Dec. 15, is conditional upon the company completing a $500 million public offering of new convertible senior subordinated debt securities, among other requirements.

New Hologic lower

Hologic said early Thursday that it will exchange its existing 2% convertibles for a new version of 2% convertibles that will mature the same year, 2037. But the new 2% issue has a later put date of Dec. 12, 2016 compared to the existing paper's call and put set for 2013.

"They traded down," an analyst said. "We saw them at 96.5, and they were active with the stock up a little. The premium is much lower, and if you're a yield player you could sell it to a hedge player," the Connecticut-based sellside analyst said.

The old Hologic convertibles were at 93 and then at 94 with the stock up a little.

The swap was made through privately negotiated exchange agreements on Thursday.

Following the transactions, $1.275 billion of existing 2% convertibles will remain outstanding.

The new convertibles will pay interest in cash for the first six years and then in kind. Beginning Dec. 15, 2016, they will pay additional contingent interest equal to 0.4% of their average trading price during the applicable five-trading-day reference period if this average price is at least 120% of their accreted principal amount.

The conversion ratio is 43.4216 shares of common stock per $1,000 original principal amount of convertibles. This is equivalent to a conversion price of $23.03, which is a 40% premium over Hologic's closing stock price on Nov. 17.

The existing convertibles have a conversion ratio of 12.9555 and a conversion price of $77.1875.

Mentioned in this article:

General Motors Co. NYSE: GM

Hologic Inc. Nasdaq: HOLX

Omnicare Inc. NYSE: OCR

PDC Energy Nasdaq: PETD

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