American Realty bonds take another leg lower; Omnicare higher; Owens-Illinois sets tender

By Rebecca Melvin

New York, Nov. 3 – American Realty Capital Properties Inc.’s convertibles were hit again and actively traded on Monday after word that the New York-based real estate investment company’s deal to sell Cole Capital to RCS capital Corp. fell through.

Last week, American Realty’s convertibles and other securities were torpedoed by the company’s announcement of accounting errors, which made financial statements appear better than they actually were.

According to news reports, citing unnamed sources, the Federal Bureau of Investigation has opened a criminal investigation into the matter, which the Securities and Exchange Commission was also reported to be investigating.

Many convertibles market players were focused Monday on the American Realty 3% and 3.75% convertibles and on little else, a New York-based trader said.

But Omnicare, Inc.’s new and older 3.25% convertibles traded higher after the Cincinnati-based pharmaceutical services provider swapped out $241.5 million of the older 3.25% issue for new debentures that were essentially the same except for updated put and call options.

Owens-Illinois Inc.’s 3% exchangeables traded over par after news that a cash tender offer has begun for the Owens-Brockway Glass Container Inc. $628.7 million outstanding issue of senior notes due 2015.

Laboratory Corp. of America Holdings’ 0% convertibles due 2021 were seen lower at 135.5 from 146.8, according to a market source, after news that the health care diagnostics company has agreed to buy Covance Inc. in a deal worth about $6 billion. LabCorp shares fell 7%.

Overall, however, the session was described as “dead,” except for trading in American Realty Capital.

Herbalife Ltd.’s 2% convertibles were not seen to have traded at one firm queried, ahead of the company’s earnings expected to be released after the market close. Shares of the Cayman Islands-based nutrition supplements company gained $3.44, or 7%, to $55.90 during the regular session, and the convertibles were indicated to have closed at about 88, which was up compared to 85 previously. In after-hours trade, Herbalife shares dropped 12%.

American Realty drops again

American Realty’s 3% convertibles due 2018 tumbled another few points to 88 bid, 89 offered with the stock at $8.25. But the bonds traded as low as 81 with the stock at $7.40, a New York-based trader said.

Last week, the 3% bonds fell to the lower 90s from the upper 90s.

American Realty’s 3.75% convertibles due 2020 dropped by an even greater magnitude on less volume to 84.

American Realty shares fell $1.02, or 11.5%, to $7.85.

American Realty owns and acquires single-tenant freestanding commercial real estate.

“ARCP has been our most active name,” a New York-based trader said.

Last Wednesday, American Realty Capital said that it would have to restate earnings after it discovered “intentionally made” accounting mistakes that caused it to understate net losses early this year.

Its chief financial officer, Brian Block, and chief accounting officer Lisa McAlister resigned because the accounting mistakes were not corrected.

The company also said initially that it didn’t expect the accounting errors to affect the sale of its Cole Capital unit to RCS Capital.

Analysts at Capital One Securities Inc. wrote in note to clients last week that the fact that the company issued $1.6 billion in equity in a period under review further complicates the investigation and increases the stakes for the parties involved.

Omnicare trades higher

Omnicare’s old 3.25% convertibles due 2035 traded at 106.5 bid, 107 offered, which was higher, a New York-based trader said.

Omnicare’s exchanged 3.25% convertibles due 2035 traded at 109.75 bid, 110.25 offered.

The provider of pharmaceutical services planned to issue about $241.5 million principal amount of new 3.25% senior convertible exchange debentures due 2035 with updated put and call options in exchange for its existing 3.25% senior convertible debentures due 2035.

The company will retire its existing $241.5 million 3.25% convertibles due 2035.

The new convertibles are non-callable until Jan. 15, 2018. The older issue is non-callable until December 2015.

The new convertibles are putable at par plus interest on Jan. 15, 2021. The old issue is putable in December 2015 like the call.

The initial conversion rate on the new notes will be 12.8395 shares per $1,000 principal amount, for a conversion price of about $77.88 per share.

The notes are convertible at any time after Dec. 15, 2033 or before then if the company’s common stock closes above 130% of the conversion price for at least 20 trading days in the 30 consecutive trading day period ending on the last trading day of the previous fiscal quarter.

Owens-Illinois active

Owens-Illinois’ 3% exchangeables traded at 101.5 bid, 101.75 offered on Monday, a New York-based trader said, after the Perrysburg, Ohio-based glass container maker said it will purchase the issue for $1,015 for each $1,000 principal amount plus accrued interest.

Tendered notes may be withdrawn by the end of the offer. Funding for the offer will come from the proceeds of a proposed private offering of senior notes, cash on hand and/or borrowings under the company’s revolving credit facility.

The tender offer is not conditioned upon obtaining financing or upon the tender of a minimum amount of notes.

The tender offer will end at 5 p.m. ET on Dec. 3.

Mentioned in this article:

American Realty Capital Properties Inc. Nasdaq: ARCP

Herbalife Ltd. NYSE: HLF

Laboratory Corp. of America Holdings NYSE: LH

Omnicare Inc. NYSE: OCR

Owens-Illinois Inc. NYSE: OI

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