China Medical quiet in the gray; Swift plans $300 million mandatory; Omnicare launches

By Rebecca Melvin

New York, Nov. 30 - The convertible bond market was a little softer on Tuesday as convertibles players looked to mark their books for month-end and as the forward calendar began to grow.

There were many names contracting by 0.25 point or more as convert players looked to book profits, sources said, and possibly to reduce holdings of iffy names - although the second premise was debatable.

"I don't think it has anything to do with credit quality. I'm guessing there is just general nervousness of some kind of contagion from Europe, and perhaps more importantly, guys are now only a month way from booking a pretty good year and do not want to be heroic," a New York-based sellside trader said.

A second trader also cited the European debt crisis, referring to a similar downturn in May related to Europe's sovereign debt problems.

The broader markets were also responding to Europe's debt concerns Tuesday. The Nasdaq Stock Market was the worst performer of the major indices, ending down 26.99 points, or 1.1%. End-of-the-month trade caused an increase in trading volume, however, with more than 1.5 billion shares changing hands on the New York Stock Exchange, representing the biggest one-day total in two months.

Primary picks up

In the primary market, China Medical Technologies Inc. prepared to price a $100 million offering of convertible senior notes after the market close on Tuesday. But there was no gray market seen in the China Medical deal, which was viewed as up to 3% cheap.

Market players cited borrow problems and credit questions as deterrents for the China Medical offering, which was valued with a credit spread of 1,000 basis points or more over Libor.

Launching during the session was Swift Holdings Corp., which planned to price $300 million of trust-issued mandatory common exchange securities on Dec. 14 in a Rule 144A offering.

After the market close, Omnicare Inc. launched an offering of $500 million of 15-year convertible senior subordinated notes plus a $75 million greenshoe that was seen pricing after the market close Wednesday.

Proceeds of the new Omnicare convertible are earmarked to take out the pharmaceutical services company's existing 3.25% convertible due 2035.

The other deals on the forward calendar - which hasn't existed in the convertible market in recent weeks - was UBS AG's exchangeables into shares of Stillwater Mining Co.

Back in established issues, Fort Worth-based electronics retailer RadioShack Corp. saw its 2.5% convertibles due 2013 in trade at 106, which was off by a point from a print the week prior, with shares lower by 70 cents for the comparable prints. But on Tuesday, RadioShack shares were up by 27 cents, or 1.5%, at $18.45.

Rite Aid Corp.'s 8.5% convertibles due 2015 traded at 94, which was lower by about 0.5 point from a print the week prior. Shares were off by a penny from the prior week's print. But shares of the Camp Hill, Pa.-based drugstore chain ended the Tuesday session up 2.5% at nearly $0.94.

China Medical to price

China Medical's $100 million offering of convertibles was looking cheap using a credit spread of 1,000 bps over Libor and 40% volatility, according to one New York-based sellside trader.

The Rule 144A offering was talked to yield 5.75% to 6.25% with an initial conversion premium of 25% to 30%.

"It looks cheap, but the borrow issue on the deal is a problem," a New York-based sellside trader said. "I fear it will stay cheap though because I expect the stock borrow to be an issue."

Stock borrow was iffy at best, and the situation was only seen to have worsened with shares of the Beijing-based medical device maker tanking during the session in heavier-than-average trade to end down $2.13, or 16%, at $11.43.

"I guess it makes it worse," a Connecticut-based sellside analyst said.

Several sellsiders said the company's credit was a concern.

"This company has a credit of 1,000 or 1,500 [bps] over [Libor]. Aren't these the same guys that saw its converts move up when there was a straight deal that was going to get done - I never saw the straight deal," a New York-based sellside trader said.

The trader was referring to a $175 million offering of five-year senior notes that was being marketed at the end of September.

"It's a quiet day: today we had month-end; yesterday was the day after Thanksgiving; people just aren't going to be putting on risk here," he said.

"The question is whether the new deal calendar will cheapen the market enough. Is the new deal calendar going to be enough to cheapen the market," the sellsider said.

This sellsider didn't agree that the market had softened Tuesday. He said that people just moved stuff lower and it got lifted.

The China Medical offering was being sold via bookrunner Bank of America Merrill Lynch.

There is a $25 million greenshoe.

Proceeds are earmarked to repurchase the company's outstanding 4% convertible notes due 2013, to pay for expenses associated with a capped call transaction and for general corporate purposes.

In connection with the offering, the company expects to enter into a capped call transaction with an affiliate of the initial purchaser.

The notes will be non-callable for three years and then provisionally callable in years four through six at a 130% price hurdle over the conversion price.

Swift to price $300 million

Swift Holdings planned to price three-year mandatories concurrently with an initial public offering of 67.325 million shares of common stock.

Pricing was expected on Dec. 14 via bookrunners Morgan Stanley & Co. Inc., Bank of America Merrill Lynch and Wells Fargo Securities.

Proceeds will be used to purchase a portfolio of stripped U.S. Treasury securities and to pay the purchase price to the sellers under the stock purchase contracts.

The deal was likened to that of General Motors Co. in that the GM mandatories also came with an IPO, but beyond that there were no similarities to draw.

"They both have four wheels," one sellsider quipped.

Swift is a Phoenix-based transportation services company and truckload carrier.

Omnicare to tap market

Omnicare, a well-known name in the convertibles space, launched after the market close a $500 million offering of 15-year convertible senior subordinated notes that was talked to yield 3.5% to 4% with an initial conversion premium of 20% to 25%.

The registered, off-the-shelf offering has an option for up to an additional $75 million of convertible notes to cover over-allotments.

The notes will be non-callable for eight years and then will be provisionally callable subject to a 120% price hurdle over the conversion price. There are no puts.

Net proceeds will be used to repurchase up to $525 million of Omnicare's 3.25% convertible debentures due 2035 under a tender offer launched Nov. 17. The tender is contingent on the convertibles offering, but the convertibles offering is not contingent on the tender.

All or a portion of any excess proceeds will be used to repurchase or repay outstanding debt, with any remaining for general corporate purposes.

Barclays Capital, Goldman Sachs & Co. and J.P. Morgan Securities LLC are joint bookrunners for the convertible senior subordinated notes.

Omnicare is a Covington, Ky.-based pharmaceutical services company.

Mentioned in this article:

China Medical Technologies Inc. Nasdaq: CMED

Omnicare Inc. NYSE: OCR

RadioShack Corp. NYSE: RSH

Rite Aid Corp. NYSE: RAD

Stillwater Mining Co. NYSE: SWC

Swift Holdings Corp. Formerly Nasdaq: SWFT

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