Radian jumps in gray market despite revised talk; CommScope up on possible competing bid

By Rebecca Melvin

New York, Nov. 8 - Radian Group Inc.'s $350 million offering of seven-year convertibles was bid up in the gray market Monday ahead of final pricing expected after the close. Enthusiasm didn't wane even though pricing was revised during the session toward the tight end of talk for the coupon and beyond the rich end of initial talk for the premium.

There were widely divergent views on valuation inputs of the planned Radian deal, although those queried agreed the offering was more attractive than some of the other new deals that have come to market in the last month.

The discrepancy is "because [credit default swaps] trade near 420 basis points, but the cash curve trades closer to 600 [bps] for five-year paper," a New York-based sellside analyst said.

"So if you extend out those curves, you get 450 bps for seven-year CDS and 700 bps for seven-year cash bonds. You can argue either one really," the analyst said, adding that he thought 650 bps to 700 bps over Libor was probably the right credit spread, with 35% probably around the right vol.

CommScope Inc. traded higher on speculation that there may be a possible competing bid to the Carlyle Group's takeout bid for the company that had represented a 35% premium over the CommScope share price when the deal was unveiled at the end of October, a New York-based sellside desk analyst said.

Massey Energy Co. convertibles were higher as well after takeover chatter related to the Richmond, Va.-based coal producer flared up over the weekend, another New York-based sellsider said.

Hologic Inc. was another name in focus ahead of the Bedford, Mass.-based medical imaging and diagnostic company's earnings announced after the market close. Those shares were up 3% in after-hours trade.

Overall activity in the convertibles secondary market was average, with about $650 million of bonds changing hands during the session, according to Trace data, and which was pretty normal for a Monday, one sellsider said.

Radian trades actively

Radian's new deal, which launched ahead of the market open Wednesday, was seen at 103.25 bid, 104 offered in the gray market after price talk was revised in the early afternoon.

Talk was tightened for the coupon to 3% to 3.25% from 3.25% to 3.75% and it was richened to 30% to 32.5% for the initial conversion premium from 25% to 30% originally talked.

The registered offering has a $52.5 million greenshoe and was being sold via bookrunner Morgan Stanley & Co. Inc.

"It's definitely more attractive than the issue that came last month," a New York-based sellside analyst said.

The analyst said the deal modeled almost 5% cheap at the midpoint of talk, using a credit spread of 450 bps to 500 bps over Libor and with a 30% vol.

He believed that even with the tightening up of talk, the deal's final terms would come at the tight end of revised talk, or at a 3% coupon and 32.5% premium.

Another sellsider disagreed with those terms.

"That would be through the cds," he said of the credit spread value being less than the company's credit default swaps.

His inputs would be more like 700 bps over Libor and a 45% vol.

"The vol. has to have some bearing on reality and historicals and what the options imply," the New York-based sellside trader said.

"If someone told me there was a triple C company with a stock price in the single digits, and by the way it was distressed a year ago, I think I would be substantially wider than 450 to 500 and 30% vol," the sellsider said.

Nevertheless, convertibles players are still going after yield and are hungry for new issuance that hasn't been as abundant as hoped this fall.

Radian's sector wanting

Radian is a mortgage insurer, and while that sector is recovering, it still is subject to volatility. Based in Philadelphia, Radian is one of the better names in a not-so-great bunch, a sellsider said.

The whole industry is recovering and most have recapitalized, but this is an ongoing process, and at this point, the credits are stable and maybe improving, but there could be hiccups, the trader said.

CommScope higher

CommScope's 3.25% convertible notes due 2015 traded at 133 versus a share price of $32.00, according to a New York-based sellside desk analyst. The paper was up a point at 132, according to Trace data.

Shares of the company added 72 cents, or 2.3%, to $32.17 in fairly active trade.

The possibility of a competing bid drove the paper higher, a sellsider said.

Private equity firm TPG Capital is considering a bid for CommScope, which already has a $3.36 billion agreement to be acquired by the Carlyle Group, the Wall Street Journal reported Friday.

People familiar with the deal said that TPG would probably need a strategic partner to justify making a higher bid, and one such partner named is Corning Inc., based in Corning, N.Y.

Corning has optical fiber and cable businesses and has said it is looking for acquisition in the telecommunications sector.

The Wall Street Journal said that it's uncertain whether TPG will submit a bid, and other parties have also expressed interest in the North Carolina-based CommScope.

CommScope announced its deal with Carlyle on Oct. 27, at which time Carlyle's $31.50-per-share price represented a 36% premium over the company's closing share price on Oct. 22.

Massey moves on takeover talk

Massey's 3.25% senior unsecured convertible bonds due 2015 traded Monday at 98.25 versus a share price of $36.80.

Shares of the Richmond, Va.-based coal producer were down 11 cents at $46.83.

There was chatter over the weekend about a possible takeout by Alpha Natural Resources Inc. The Wall Street Journal said that Massey is weighing a takeover offer from the rival coal producer.

Mentioned in this article:

CommScope Inc. NYSE: CTV

Hologic Inc. Nasdaq: HOLX

Massey Energy Corp. NYSE: MEE

Radian Group Inc. NYSE: RDN

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