Jaguar Mining gains; Hovnanian slips below par; Clearwire up on spectrum-purchase chatter

By Rebecca Melvin

New York, Feb. 4 - Jaguar Mining Inc.'s newly priced 5.5% convertibles jumped about 5 points on their debut in secondary dealings Friday but weren't actively traded due to the smallish $90 million issue size, market players said.

Also trading Friday was Hovnanian Enterprises Inc., which priced a $75 million deal of tangible equity units to yield 7.25% with a 22% initial conversion premium. The new Hovnanian equity units were trading flat to a little higher early on, but then they fell below par, dragged lower by the common shares, a New York-based sellside trader said.

Both new deals priced at the rich end of talk.

Back in established issues, Clearwire Corp.'s convertibles jumped on reports that Deutsche Telekom AG's T-Mobile USA unit may be close to a deal to buy wireless spectrum from Clearwire.

Ciena Corp. was also in trade amid a big jump in the underlying shares. The optical networking gear maker seemed to be moving in sympathy with rival JDS Uniphase, which reported stellar second-quarter earnings late Thursday, citing growth in video and mobile data services. Ciena doesn't report earnings until March, but it has predicted continued growth in bandwidth until at least 2015.

Theravance Inc. convertibles were quiet amid a continued run up in their underlying shares.

EMC Corp., which has been one of the most actively traded names - if not the most actively traded name - this week, saw its 1.75% series A convertibles strengthen about half a point on a dollar-neutral basis, as trades ranged higher on a steady underlying share price.

Overall, trading action quieted Friday, with few sellers willing to take potential buyers up on even generous bids.

It could be that people were reluctant to change positions going into the weekend, but more likely it's because there is no new supply and the forward calendar hasn't heated up yet, a New York-based sellside trader said. He thought though that new issuance would soon improve.

Slightly more than $600 million of convertible bonds had traded by the last hour of trade, according to Trace data, with names like EMC accounting for a majority of the action.

"There's just not a huge breadth of issues," a sellsider said.

Arb players outperform

In general, convertible outright investors and hedge funds outperformed other asset classes in January, with outright convert funds returning 1.9% for the month, while convert arb funds, according to HFR, were positive by about 1.4%, Citigroup's U.S. convertibles sales and trading team wrote in a report published Friday.

"It looked like a decent month," a New York-based sellside trader said, considering that S&P equities were up about 2.3% in price for the month, and that means that convert players captured about 80% of the broader market, he said.

"It should lag equities," he said, referring to convertibles performance. "They did pretty good, capturing a lot of the equities' return."

A Connecticut-based sellside analyst, who concurred that that seemed about right on returns, said "There doesn't seem to be a lot juice left in the market beyond clipping coupons after a stellar 2010."

He cited "dying" volatility and the fact that credits are much tighter than they previously were as factors behind the slow down.

New issuance 'weak'

Meanwhile, January was a weak month in terms of new supply, the Citigroup convertibles team said.

The $2.1 billion in six new deals tallied by Citigroup didn't match the $2.6 billion that came out of the market in January redemptions, amounting to a market contraction of about $500 million.

Among the month's calls were Teva Pharmaceutical Industries Ltd.'s 1.75% convertibles, Level 3 Communications Inc.'s 5.25% convertibles, and GMX Resources Inc.'s partial tender for its 5% convertibles, the Citigroup report noted.

A pair of big issues maturing in February, including Amgen's 0.125% convertibles and PNC's 4% bonds, will put gross market outflows at more than $4 billion in the month, the Citi convertibles team noted.

Jaguar leaps swiftly

Jaguar Mining's newly priced 5.5% convertibles due 2016 were seen at 104.75 bid, 105.75 offered and were also said to have traded at 106. The powerful move higher echoed a similar move earlier in the week by Savient Pharmaceuticals Inc.'s 4.75% convertibles, and to a lesser extent Avatar Holdings Inc.'s 7.5% convertible, both of which priced late Monday.

The gold mining concern's deal may have gotten play simply given the fact that it's a gold company and the demand for exposure in that sector is high, a New York-based sellside trader said of the new issue.

Jaguar priced $90 million of five-year convertible notes in a Rule 144A offering after the market close Thursday to yield 5.5% with an initial conversion premium of 37.5%.

Bank of America Merrill Lynch was the bookrunner of the deal, with RBC Capital Markets acting as the co-manager.

The company, based in Concord, N.H., was called "fairly speculative," given its small size and concentration in Brazil.

"It's a little bit of a risk because they don't have very widespread operations, but it's all right as a credit," the sellsider said. "You have to discount it for that."

But other gold plays in the convert space "have been taken up to stupid valuations, because people want that exposure," he said.

On Friday, other gold names in trade were Goldcorp and Newmont Mining, he noted.

The Jaguar paper is non-callable with no puts. Upon conversion, Jaguar can deliver cash or a combination of cash and common shares. There is no contingent conversion.

Proceeds will be used to develop Jaguar's Gurupi Project in northern Brazil and for working capital and general corporate purposes.

Jaguar's market capitalization is about $465 million.

Hovnanian drops below par

Hovnanian's newly priced 7.25% convertible tangible equity units were seen early at 25.25, which was slightly above the 25 par price, but later slipped back to par and then to 24.80, which was just under par.

Shares of the Red Bank, N.J.-based homebuilder closed down 23 cents, or 5%, to $4.26 on Friday.

Given that the common share price was dropping, amid a lot of dilution caused by a concurrent stock offering, the deal didn't do that bad, a sellsider said.

"They've done all right," the New York-based trader said.

"They are down on the day, not a lot, and moved down with the common," said the trader, who was not involved in the deal.

Hovnanian priced $75 million of convertible tangible equity units late Thursday at par of $25.00 to yield 7.25% with a 22% initial conversion premium.

The three-year tangible equity units, or T-DEC product, consists of an 80% prepaid stock purchase contract issued by Hovnanian and an amortizing note due 2014.

The registered, off-the-shelf convertible was priced concurrently with $50.5 million of common stock at $4.30 per share and about $150 million of straight notes due 2015.

Credit Suisse Securities, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC were the joint bookrunners for the tangible equity units, with Bank of America Merrill Lynch, Deutsche Bank Securities Inc. and Wells Fargo Securities serving as the co-managers.

Proceeds of the offerings are earmarked to repurchase K. Hovnanian's 8% senior notes due 2012, 8.875% senior subordinated notes due 2012 and 7.75% senior subordinated notes due 2013 via tender offers for those securities. Remaining proceeds will be used for general corporate purposes.

Hovnanian will apply to list the tangible equity units on the New York Stock Exchange.

Clearwire climbs

Clearwire's 8.25% exchangeable notes due 2040 traded at 113.5 versus an underlying share price of $5.65, compared to 107 versus a share price of $5.20 on Thursday.

On Tuesday, the Clearwire exchangeables traded at 106.75 versus a share price of $5.15.

Shares of the Kirkland, Wash.-based mobile broadband services provider surged 56 cents, or 11%, to $5.84 on Friday.

Reports that T-Mobile USA, the fourth-largest U.S. mobile phone operator after Verizon, AT&T and Sprint Nextel, is the only potential bidder in the purchase of spectrum from cash-strapped Clearwire heartened investors. A purchase could happen by the end of March, according to reports.

Mentioned in this article:

Ciena Corp. Nasdaq: CIEN

Clearwire Corp. Nasdaq: CLWR

EMC Corp. NYSE: EMC

Hovnanian Enterprises Inc. NYSE: HOV

Jaguar Mining Inc. NYSE: JAG

Theravance Inc. Nasdaq: THRX

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