Morning Commentary: RTI International Metals convertible bonds surge outright on Alcoa takeout

By Rebecca Melvin

New York, March 9 – RTI International Metals Inc. was a primary focus in the convertibles market early Monday as the stock of the Pittsburgh-based producer of titanium mill products surged 40% on news that it is being taken over by Alcoa Inc.

The M&A induced spike caused the two RTI convertible bonds to jump on an outright basis, and they were unhurt on a dollar-neutral, or hedged, basis, one New York-based trader said, “because the premium was big enough.”

RTI’s 1.625% convertibles due 2019 surged about 22 points to 118.6, and the RTI 3% convertibles due December 2015, jumped to 114.25 from about par, according to Trace data.

RTI shares were at up about $11.00, or 40%, at $38.28.

RTI will expand Alcoa’s aerospace portfolio.

Under the terms of the stock-for-stock deal, RTI shareholders will receive 2.8315 Alcoa shares for each RTI share, representing a value of $41.00 per RTI share based on Alcoa’s closing share price on Friday. The deal has an enterprise value of $1.5 billion, including $330 million of RTI cash on hand and up to $517 million in RTI’s convertible notes.

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