New China Medical adds; existing China Medical bonds active; Omnicare, Ixia paper on tap

By Rebecca Melvin

New York, Dec. 1 - The convertible bond market firmed up Wednesday in tandem with a rally in the broader markets, which were spurred by economic data that pointed to continuing growth. Meanwhile, action in the convertible primary market helped boost focus and volume.

Among primary market issues, a new China Medical Technologies Inc. convertible gained 1.5 points to 2 points upon release for secondary dealings Wednesday, while the company's existing issues traded actively, gaining about 2 to 3 points each since the new deal launched Monday, market sources said.

China Medical's new 6.25% convertibles traded up to about 102 while the American Depositary Shares of the Beijing-based medical device maker recouped 1.5% of a 16% slide Tuesday.

Omnicare Inc.'s existing 3.25% convertibles, which are being tendered, were flat in trade at 93.5 bid, 94 offered, ahead of pricing in the new deal that was anticipated after the market close.

The Covington, Ky.-based pharmaceutical-services company was pricing a new $500 million offering of 15-year convertible senior subordinated notes. Market players complained about the new deal's structure and the long maturity. The new paper is non-callable for eight years.

Also during the session, Ixia Inc. launched a $125 million offering of convertibles that were seen 5 points to 6 points cheap based on price talk of 3% to 3.5% for the coupon and 25% to 30% for the initial conversion premium.

Secondary sees demand

Meanwhile, the secondary market was "to buy," a West Coast-based sellsider said. Among notable gainers was Hutchinson Technology Inc., a high-yield name that traded up a couple of points on the heels of recent weakness that was said to have been caused by pressure from a big seller in that name.

"Those were weak over the last couple of weeks, but they were traded up to 70.25 bid, 70.50 offered after having worked through a big seller," the sellsider said.

The Hutchinson convertibles had traded as low as 68 a few weeks ago.

Elsewhere, Lennar Corp.'s two convertible issues were in trade, with the new 2.75% bonds, which priced in early November, changing hands at 98 versus a share price of $15.75, and the older Lennar 2% convertibles due 2020 trading at 94.5 versus the same $15.75 share price.

RightNow Technologies Inc., which priced an issue of 2.5% convertibles in late November, moved lower, however, in tandem with lower underlying shares.

The RightNow convertibles were seen ending the session down at 101.5 bid, 102.25 offered, from 104 bid, 105 offered previously, a sellside source said.

"It was notable given that the stock was down 2.5% on a broad market rally. The convertibles were down in line dollar neutral," the sellsider said.

Hologic Inc. saw its 2% convertibles due 2037 in trade at 93.5.

China Medical adds 2 points

China Medical's newly priced 6.25% convertibles were 101.5 bid early in the session and got to as high as 102 before ending around 101.5 bid, 102 offered, market sources said.

The new paper didn't trade as actively as the older issues, however, they said. Both older issues, the China Medical 3.5% paper, which is being repurchased with proceeds of the new issue, and China Medical's 4% convertibles due 2013, were equally active.

The China Medical 4s traded at 99 with a lot trading at par, which is what the company paid initial players in the deal.

Before the deal was announced, the China Medical 4% convertibles were 97ish, a Connecticut-based sellside trader said.

China Medical priced an upsized $125 million of new six-year convertible senior notes late Tuesday at par to yield 6.25%, with an initial conversion premium of 27.5%.

The Rule 144A deal priced at the cheap end of coupon talk, which was 5.75% to 6.25%, and at the midpoint of 25% to 30% premium talk.

The China Medical 3.5% convertibles traded up to 85 bid, 85.5 offered, which was up from the low 80s to about 82 previously.

"They acted as expected," the sellsider said, adding that the new paper was bid up about 2 points.

The China Medical paper trades primarily outright. There was no gray market seen in the China Medical deal ahead of final terms, but it had been 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.

There is a $25 million greenshoe for the deal.

Bank of America Merrill Lynch was the bookrunner.

The notes will be non-callable until Dec. 15, 2013 and then provisionally callable in years four through six at a 130% price hurdle over conversion.

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 entered into a capped call transaction relating to $100 million in principal, which lifts the effective initial conversion premium from the issuer's perspective to $17.15, or 50% above the stock reference price.

Existing Omnicare trades flat

Omnicare's existing 3.25% convertibles due 2035, which are being tendered, were trading flat to the tender price at 93.5 bid, 94 offered.

The planned $500 million new issue of Omnicare was seen having a "funky structure" that was too long-dated.

The registered, off-the-shelf offering will be non-callable for eight years and then provisionally callable subject to a 120% price hurdle. The paper matures in 15 years. There are no puts.

"It will still get done. The equity income funds will buy it and it will get done by outrights," a sellsider said.

The new issue was seen about 3 points cheap at the midpoint of talk using a credit spread of 500 bps over Libor and a 15% vol.

The paper was talked to yield 3.5% to 4% with an initial conversion premium of 20% to 25%.

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 Inc., Goldman Sachs & Co. and J.P. Morgan Securities LLC are the joint bookrunners for the convertibles.

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

Ixia seen 5 to 6 points cheap

The Ixia convertibles, which were being sold via Deutsche Bank and Stifel Nicolaus Weisel as joint bookrunners, with JMP Securities and Lazard as co-managers, were seen 5 or 6 points cheap at the midpoint of talk.

A syndicate source said they were fair value using a credit spread of 700 bps over Libor and a 35% vol. plus 50 bps of borrow.

The Rule 144A offering was talked to yield a coupon of 3% to 3.5%, and an initial conversion premium of 25% to 30%.

The notes will be non-callable for their five-year life, with no puts.

Proceeds are earmarked for general corporate purposes, potential future acquisitions and strategic transactions.

Based in Calabasas, Calif., Ixia provides test systems for IP-based infrastructure and services. The common shares fell 89 cents, or 5.6%, to $14.97 after the deal was launched.

"I see these 5 or 6 points cheap, if not more," a sellside trader said, adding that he hadn't seen anything in the gray market.

Mentioned in this article:

China Medical Technologies Inc. Nasdaq: CMED

Hologic Inc. Nasdaq: HOLX

Hutchinson Technology Inc. Nasdaq: HTCH

Ixia Inc. Nasdaq: XXIA

Lennar Corp. NYSE: LEN

Omnicare Inc. NYSE: OCR

RightNow Technologies Inc. Nasdaq: RNOW

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