Transocean dips; Cameron in line; Omnicom active on put extension; Mobimo prices in Europe

By Rebecca Melvin

New York, June 16 - The convertible bond market saw pretty light trading on Wednesday, with little follow-through from Tuesday when pricing improved with stronger equities.

Transocean Ltd. was once again a focus of trade, with those bonds steady to weaker late in the day and accounting for about one-third of total volume reported by Trace data, or about $220 million of bonds, according to a market source.

Cameron International Corp.'s bonds were also trading and looked to be in line with their underlying shares.

"It didn't appear that the rally continued today. It had been a strong day for credit and equities yesterday, with the BP oil risk getting more concentrated because of the letter from congressional leaders Monday," a New York-based trader said.

"The letter took Transocean and Cameron off the hot seat," he said.

Omnicom Group Inc. was also active on news of a sweetener to extend the put that added about 5 points of value to the bonds.

Also trading were Amgen Inc., Medtronic Inc. and Micron Technology Inc.

"One day isn't going to do it," the trader said, regarding whether convertibles would build on indicated gains on Tuesday.

Investors remain apprehensive about the direction that the markets are going, he said, and there wasn't even a lot of stock trading among accounts on Wednesday, the trader said.

Economic data coming out Wednesday was mixed, which did little to help investors determine which way markets are headed.

The Producer Price Index for May came in line with expectations, and industrial production for May came in ahead, but housing starts and building permits for May made a surprisingly sharp retreat.

New home and apartment construction fell 10% in May to a seasonally adjusted annual rate of 593,000, the Commerce Department said.

April's figure was revised downward to 659,000. Applications for new building permits sank 5.9% to an annual rate of 574,000, which was the lowest level since last year.

"The housing number was weak....there is no consistency," a trader said.

International new issues emerge

Mobimo Holding AG priced an upsized CHF 155 million of four-year convertible bonds at par to yield 2.125% with an initial conversion premium of 13%.

The Regulation S deal priced toward the rich end of talk for the coupon and toward the cheap end of talk for the premium.

The new convertible was seen slightly rich at the midpoint of talk, using a credit spread of 250 basis points over Libor, volatility of 16% and a 1.5% stock borrow cost, according to Barclays Capital convertibles analysts in London.

"In our view, the valuation is only fair at around issue price on best. The bond's small size and competition from other real-estate convertibles further detract," the analysts Luke Olsen, Angus Allison and Heather Beattie wrote.

"Positives in our view include the potential for a pick-up in realized volatility as well as the convertible's fairly defensive profile given its four-year tenor and its bond floor in the mid 90s. Also, this sector has proved relatively resilient in periods of market risk aversion in the past few years."

In Canada, Armtec Infrastructure Income Fund priced C$40 million of seven-year convertible debentures on a bought-deal basis to yield 6.5% with an initial conversion premium of 35%.

There was no activity in the U.S. new issue market.

Transocean stalls

Transocean's 1.5% series C convertibles due 2037 traded at 83 early Wednesday, about flat compared to Tuesday.

Transocean's 1.625% series A convertibles due 2037 traded at 97 on Wednesday, also little changed from Tuesday, with weakness later in the day.

Shares of the Vernier, Switzerland-based company hugged the flat line much of the session and then dropped $1.49, or 3%, to $47.02.

President Barack Obama and administration officials met with BP plc officials face to face on Wednesday, and following those meetings, BP said it will suspend its dividend for the rest of the year and set up a $20 billion fund for liabilities related to the spill.

Omnicom better on sweetener

Omnicom's 0% convertibles due 2038 traded slightly above par, or at 100.125, which was flat to higher compared to the most recent trades in the name, but up a point or two from early June, when the put extension plan was first announced.

"There was a lot of that paper trading on the event of restructuring the put," a trader said.

Omnicom is paying cash to extend the put this month, and the amount of payout was increased to 50 bps from 40 bps initially offered.

"Its cheap money for the company, and there is no real incentive to call or redeem it before maturity," a trader said of the company. "Basically they want to keep out there until 2013, which is the next put date, and they were willing to pay 5 points. It's a nice sweetener."

New York-based Omnicom is a marketing and communications company. Its shares ended up 30 cents, or 0.78%, at $38.90 on Wednesday.

Mobimo prices

Mobimo's Regulation S deal priced toward the rich end of talk for the coupon, which was 2% to 2.5%, and toward the cheap end of talk for the premium, which was 12% to 17%.

UBS Investment Bank is the bookrunner and lead manager of the offering, with Bank Vontobel AG, Zurcher Kantonalbank and Reichmuth & Co. acting as the co-managers.

Barclays Capital analysts suggested that investors seeking exposure to the Swiss real estate may consider Swiss Prime Site's convertible due 2015, which is larger than the Mobimo deal and offers a 1.8% coupon yield, 1.3% yield to maturity and 12% premium. However, Mobimo's new convertible yields more than Swiss Prime's convertible.

Swiss real estate and convertible market peer Swiss Prime Site has a four times larger market cap than Mobimo, but neither Swiss Prime nor Mobimo have credit-default swaps or existing straight bonds, and neither is rated.

"We assume 200 bps for Swiss Prime, given its scale, financial profile and focus on prime Swiss city centre developments. Mobimo has broadly similar debt ratios to Swiss Prime, but we employ a wider credit spread owing to its much smaller size," the Barclays Capital analysts wrote in a note published Wednesday.

For reference, larger peer Unibail-Rodamco's five-year CDS was indicated early Wednesday at 122 bps (mid), almost 50 bps wider over the past six months.

Mobimo's deal has a greenshoe of CHF 20 million.

Proceeds will be used to finance further real estate development projects, to expand the real estate portfolio and for general corporate purposes.

Lucerne, Switzerland-based Mobimo is a real estate company targeting primarily business center investments in Switzerland.

Mentioned in this article:

Cameron International Corp. NYSE: CAM

Mobimo Holding AG SIX Swiss Exchange: MOBN

Omnicom Group Inc. NYSE: OMC

Transocean Ltd. NYSE: RIG

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.