ADM, Beckman Coulter active in dealer-to-dealer trade; Newmont Mining slips; WebMD on tap

By Rebecca Melvin

New York, Jan. 5 - Volume picked up in the convertible bond market again on Wednesday and was even uncharacteristically heavy toward the end of the session; but name-specific, investor-driven trading remained thin.

Despite healthier volume, the market still felt pretty inactive, sources said.

"We made markets in a lot of stuff but had little to show for it. It doesn't seem like customers are doing much," a New York-based sellside trader said.

Fully half to two-thirds of the volume in some of the day's most actively traded names was dealer-to-dealer activity, including trades in Archer-Daniels-Midland Co. and Beckman Coulter Inc.

There was speculation that some of the dealer-to-dealer trade was spurred by short covering.

What action there was in Beckman Coulter that was not dealer to dealer was mostly selling on behalf of investors; and indeed, with the prospect of a successful private equity bid in the offing for Beckman, now would be a good time to get out, a trader said.

There's "not much left in upside if you own it outright, and people have a good idea where it gets taken out; and the takeover protection is not great, so you actually lose points if you own it on swap," the trader said.

Meanwhile, Newmont Mining Corp. was active again and lower as the gold play moved in sympathy with gold prices that succumbed to profit-taking on Tuesday and remained suppressed on Wednesday.

But Kinross Gold Corp.'s 1.75% convertibles due 2028 were slightly higher bid, according to a pricing source.

Salesforce.com Inc.'s convertibles were higher in line with underlying shares after Morgan Joseph initiated coverage on the cloud computing company at a "buy."

Whether a new buy rating on Salesforce was enough however to push up the shares and convertibles was questioned. Salesforce shares settled up 4.8%.

WebMD Corp. surprised the market by launching a $350 million offering of seven-year convertible senior notes after the market close that was seen pricing ahead of the open.

New issuance wasn't seen as a real likelihood given the low-rate environment that continues to lure the vast majority of issuers to the straight bond markets.

December terms more attractive

Weighted average terms in December were 5.8%, with an initial conversion premium of 22.3%, compared to 4.2% with an initial conversion premium of 26.1% for the 2010 full year. Clearwire skewed the December data as the $729 million deal had an outsized coupon of 8.25% and a below-average 20% premium, according to a Citigroup Global Markets report on convertibles.

Clearwire's 8.25% convertibles struggled to hold par early on but closed out the month a couple of points above issue, the Citi report noted.

The other large deal of the month was Omnicare Inc.'s 3.75% convertible bonds, which traded up out of the gate and closed about 10% over par by the end of the month.

Convertible repurchases, calls, exchanges and other redemptions continued along at a brisk pace in December, with $3.1 billion of new issuance offset by $1.9 billion of redemptions, Citi said.

ADM paper active

ADM's 0.875% paper due 2014 traded at 103 versus a share price of $30.40 during the session, according to one sellsider, and that was where another pricing source saw the paper being marked at the end of the day. Shares of the Decatur, Ill.-based agricultural products company settled little changed as well at $30.52, which was up 14 cents.

ADM's 6.25% mandatory equity units due April 2011 were seen closing out the day at 39.34 bid, compared to 39.2199 bid previously.

There was no news in the company, a New York-based sellside analyst said.

Of volume traded, two-thirds was dealer-to-dealer volume, another sellsider said, who added that anecdotally, pricing got better again and short covering was a factor in the day's market.

"People are buying to cover shorts going against them," the sellsider said.

There wasn't too much name-specific action, and mostly technical trades in the market place, he said.

WebMD to price

At least one source saw pricing of the new WedMD deal, which was talked to yield 2.5% with a 27% initial conversion premium, as extremely aggressive, and he thought that hedge players wouldn't be interested in purchasing the deal, at least not at par.

The Elmwood Park, N.J.-based provider of health information services is a known convertible issuer but currently has no convertible paper outstanding.

WedMD's Rule 144A offering was expected to price ahead of the market open on Thursday. The $350 million offering of seven-year convertible senior notes was talked with a 2.5% yield and a 27% initial conversion premium.

The notes are non-callable for life with no puts. They also have stock-only conversion settlement as well as dividend and takeover protection.

Up to $100 million of the proceeds will be used to repurchase shares of common stock with the remainder earmarked for general corporate purposes, including acquisitions and repurchases of its common stock, and for working capital.

Mentioned in this article:

Archer-Daniels-Midland Co. NYSE: ADM

Beckman Coulter Inc. NYSE: BEC

Clearwire Corp. Nasdaq: CLWR

Kinross Gold Corp. NYSE: KGC

Newmont Mining Corp. NYSE: NEM

Omnicare, Inc. NYSE: OCR

Salesforce.com Inc. NYSE: CRM

WebMD Corp. Nasdaq: WBMD

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