New Alcoa mandatories slip below par; new TiVo convertibles trade up; secondary drags

By Rebecca Melvin

New York, Sept. 17 – Alcoa Inc.’s newly priced 5.375% mandatory convertible preferreds slipped below par on their debut in the secondary market Wednesday after the New York-based aluminum producer priced $1.25 billion of the three-year securities toward the cheap end of talk, according to market sources.

Intraday the Alcoa mandatories perked up some, but they ended lower at 49.75 bid, 50 offered despite shares closing up 0.7% at $16.28.

“I’m surprised how poorly Alcoa traded; I thought it modeled OK, and then it came at the cheaper end of terms,” a New York-based trader said.

Also in the primary market, TiVo Inc.’s newly priced 2% convertibles traded up after the Alviso, Calif.-based digital video recorder company priced $200 million of the seven-year senior notes at the midpoint and cheap end of talk.

The new TiVo convertibles changed hands at 101.6 toward the end of the session, according to Trace data; while shares slipped 23 cents, or 1.7%, to $13.48.

Back in secondary action, traders were watching United States Steel Corp.’s stock, which jumped 10% on the company’s positive outlook release.

The U.S. Steel bonds were trading at 5.125 points over parity versus an underlying share price of $46.00, using a delta of 86%, a New York-based trader said. “It looks very attractive,” he said.

Overall though, the tone of the market was weaker again, as has been the case for the last several sessions.

“It felt anywhere from 0.125 point to 0.25 point weaker across the board,” with longer dated names and higher premium names more affected than most, a second New York-based trader said.

The weak tone in convertibles was particularly notable in that it has disconnected from equities, which climbed following the latest policy announcement from the Federal Open Market Committee.

The FOMC meeting was “a non-event,” a trader said, as the central bankers essentially stood pat on current policy, with rates expected to remain near zero “for a considerable time” after the asset purchase program ends.

New Alcoa mandatories weak

Alcoa’s new 5.375% convertible mandatory preferreds were seen ending the session at about 49.75 bid, 50 offered with the underlying shares up 0.7% at $16.28.

Earlier the new Alcoa mandatories were quoted at 49.4, with the Alcoa shares up fractionally.

“They opened at or below issue, with a 49.25 bid in the Street,” one trader said.

“They opened closer to issue, and were wrapped around issue with stock 15 cents higher at midday. But I thought there was 0.5 point cheapness still there,” the trader continued.

He surmised that the weak pricing was a function of how the deal was placed and the fact that supply and demand were out of sync.

Mentioned in this article:

Alcoa Inc. NYSE: AA

TiVo Inc. Nasdaq: TIVO

United States Steel Corp. NYSE: X

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