New issues from Starwood, Molina firm up; AMR convertibles gain ahead of merger talks

By Stephanie N. Rotondo

Phoenix, Feb. 12 - A source in the convertibles market said Tuesday's session was "kind of a continuation," as "guys are looking for either short-term cash substitutes or more balanced names, more of the classical converts," things with "limited downside."

"It's good to see some of this new paper trading," he added, as new deals from Starwood Property Trust Inc. and Molina Healthcare Inc. moved higher.

Meanwhile, bankrupt AMR Corp. saw its benchmark convertibles continuing to gain ground. A board meeting between the company and U.S. Airways on a potential merger is scheduled for Wednesday.

Starwood deal sizzles

Starwood Property Trust's new $525 million of 4.55% convertible senior notes due 2018 gained ground during Tuesday trading, which one trader said was "no surprise."

"It's got a 4.55% coupon, with lots of time left," he said. "It's just the kind of stuff outright guys want to have exposure to."

The trader pegged the issue at 102, up from earlier levels of par 1/2.

"It looks like a lot traded," another source said, seeing the issue at 102.5 bid, 103.25 offered.

The common stock underlying the issue closed up 66 cents, or 2.58%, to $26.24.

The notes have an initial conversion premium of 10% over the Feb. 11 closing stock price of $25.58, or $28.138. The initial conversion rate is 35.5391 shares per $1,000 of notes.

Proceeds will be used to originate and purchase additional commercial mortgage loans and other target assets and investments. Depending upon timing, the Greenwich, Conn.-based company might use the funds for its purchase of LNR. The company also could use the proceeds for general corporate purposes, including paying liabilities and working capital.

Molina pushes higher

Molina Healthcare's $450 million of 1.125% convertible notes due 2020 were also doing well on Tuesday.

The deal came upsized on Monday.

The Rule 144A deal was initially talked at $325 million in size, and pricing came at the tight end of revised talk, which was for a coupon of 1.125% to 1.375% and for a premium of 30% to 32.5%.

The talk was revised from a 1.125% to 1.625% yield and a 27.5% to 32.5% premium.

Not long before the market closed, a trader placed the new issue at 101.25 bid, 101.5 offered versus a stock price of $31.25.

"I think that works out to plus-five versus the original reference point," he said.

The stock closed up $1.84, or 5.98%, to $32.61.

Long Beach, Calif.-based Molina Healthcare is a health management organization that works with Medicaid patients and other government assistance programs.

AMR up pre-merger talks

A trader said AMR's benchmark 6.25% convertible notes due 2014 "keep ticking up," seeing the issue trading at par ½ bid, 101 offered.

Another trader placed the notes at par ½ as well.

"People are talking about par plus interest eventual value," the second trader said.

The bankrupt airline's stock ended the day down 19.5 cents, or 13.45%, at $1.255.

Fort Worth-based AMR is scheduled to meet with the board of U.S. Airways on Wednesday to discuss a potential merger. The companies likely want to hammer out details ahead of the Friday expiration of a bondholder confidentiality agreement.

Mentioned in this article:

Starwood Property Trust Inc. NYSE: STWD

Molina Healthcare Inc. NYSE: MOH

AMR Corp. OTC Markets: AAMRQ

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