Kindred convertibles trade up; week’s other new deals improve; market ‘better to buy’

By Rebecca Melvin

New York, Nov. 20 – Kindred Healthcare Inc.’s newly priced mandatory convertibles traded up smartly Thursday and added on a dollar-neutral, or hedged, basis after the Louisville, Ky.-based diversified health care provider priced $150 million of the $1,000 par units at the cheap end of talked terms.

Out of the chute, the new Kindred mandatories traded up to 101, and then they were bid there. Kindred shares, which were up in the early going, continued higher, ending the session up 5%. The bonds were last marked at 104.625 bid, 105.125 offered.

Other deals this week, which garnered lackluster or negative response initially, improved on Wednesday, a New York-based trader said.

“The market was generally ‘better to buy’ – more so than in the past week,” the trader said.

Issues that improved included Redwood Trust Inc.’s 5.625% convertibles. That paper traded up to the high 99 level from the low 99 level on Wednesday after the Mill Valley, Calif.-based real estate investment trust priced $200 million of the five-year exchangeable senior notes at a discount to par of 99.5.

The $100 million William Lyon Homes 6.5% tangible equity units, which debuted Tuesday, traded up at 106 bid, 106.5 offered on Thursday after “a few days of not doing much,” the trader said.

“The stock is up, so that helped. But they did well today,” the trader said of the Newport Beach, Calif.-based homebuilder’s mandatory convertibles.

Market players decided to step in and take another look at things that had been left behind.

“After a few days of indecision; the market seemed to come back to life today,” the trader said.

Part of the reason behind low demand for new issues may have been that it’s getting close to year-end and returns have been mixed or not particularly strong, so investors have been more risk averse.

“Clients get a little more discriminating,” he said, under those circumstances.

Besides the week’s deals, Intel Corp.’s two convertible bonds dominated Thursday’s trading volume after the Santa Clara, Calif.-based chipmaker raised its revenue outlook for 2015, citing a stabilizing personal computer market, and boosted its dividend.

The Intel 2.95% convertibles due 2035 were seen up nearly 3 points at 130 near the market close, and the Intel 3.25% convertibles due 2039 were seen up 6 to 6.5 points at 174.25 bid, 174.625 offered. Shares rose 4.7% to $35.95.

Market players were also interested to learn that Cloud Peak Energy Inc. canceled its planned $100 million of mandatory convertible preferred stock late Wednesday, citing market conditions.

Questions about why the deal was scuttled included if it was related to the fact that the coal sector, of which Cloud is a part, is weak. Because if that, the deal “needed to come cheaper,” a New York-based trader said.

In addition, the current attitude of investors to be a little more risk averse probably played a role, sources said.

Also in the market Thursday was a small deal from The Woodlands, Texas-based Lexicon Pharmaceuticals Inc. The $75 million offering of seven-year convertibles was going to be challenging, one trader said, because stock borrow in the name is limited.

New Kindred expands

Kindred’s newly priced 7.5% tangible equity units traded up to 102 in early action, and against shares that were up about 2%, the deal was seen to have expanded by a point on a dollar-neutral, or hedged, basis.

Out of the gate, the convertibles were 101 and then 101 bid.

Shares rose sharply, and at the end of the session they were up $1.04, or 5.3%, at $20.80.

The bonds were marked at 104.625 bid, 105.125 offered against that closing share price.

“It expanded a point on the day based on the levels from this morning, a syndicate source said.

“It went well; there was a lot of interest in that,” the syndicate source said.

Kindred priced $150 million of the mandatory convertibles, or 150,000 tangible equity units at $1,000 each, after the market close on Wednesday, with a 7.5% dividend and 17.5% initial conversion premium represented the cheap end of talk.

The mandatories have an initial conversion price of $23.21.

Concurrently with the registered offering, Kindred priced 5 million shares of common stock at $19.75 each.

Proceeds are expected to be used to pay the cash portion for the previously announced Gentiva Health Services merger, to repay Gentiva’s existing debt and to pay related fees and expenses.

Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Guggenheim Securities, LLC and Morgan Stanley & Co. LLC are the joint bookrunning managers for the concurrent offerings.

Louisville, Ky.-based Kindred is a diversified post-acute health care provider.

Redwood recovers

Redwood’s 5.625% convertibles traded up nearly a point to the high 99 level, and shares added 1.8% to $19.09.

“For a name like this, that’s impressive. It’s not ever going to move around a lot,” a New York-based trader said.

The Redwood mandatories traded weakly on their debut in the secondary market on Wednesday after the Mill Valley, Calif.-based real estate investment trust priced $200 million of the five-year exchangeable senior notes at a discount to par of 99.5.

Several of the week’s deals, all of which were on the small side, “barely got out the door,” a trader said.

But on Thursday most of that new paper improved.

Mentioned in this article:

Cloud Peak Energy Inc. NYSE: CLD

Kindred Healthcare Inc. NYSE: KND

Intel Corp. Nasdaq: INTC

Lexicon Pharmaceuticals Inc. Nasdaq: LXRX

Redwood Trust Inc. NYSE: RWT

William Lyon Homes NYSE: WLH

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