Clearwire jumps again to near par; Stillwater Mining busy, higher; Citi, Cemex active

By Rebecca Melvin

New York, Oct. 15 - Clearwire Corp.'s convertibles steamed higher again on Monday, pushing all the way up to near par from 74 at the market close Wednesday, amid speculation that a Softbank Corp. purchase of Sprint Nextel Corp. could make these money good. Clearwire shares jumped again as well on Monday.

Softbank confirmed it has arranged bank financing for an agreed purchase of 70% of Sprint for $20.1 billion. This includes $8 billion of new capital injection into Sprint, $3.1 billion of which is via a convertible bond that will be converted once the deal is approved.

The Clearwire convertibles surged to 99.5, but toward the end of the session slipped back to 98, up from the low 90s on Friday, a Connecticut-based trader.

Stillwater Mining Co.'s 1.75% convertible senior notes, which debuted in the secondary market on Friday, extended gains in active trade on Monday, closing the day at about 102.25 versus the underlying share price of $10.35., which was up 13 cents.

The Montana-based precious metals miner priced an upsized $345 million of the 20-year paper late Thursday.

Cemex SAB de CV and Citigroup Inc. both reported earnings on Monday.

The Cemex convertibles were not very active, but were unchanged to about 0.25 point better on a dollar-neutral, or hedged, basis with shares drifting lower through the session after the Monterrey, Mexico-based cement producer reported a narrower third-quarter loss that was no real surprise to the market, a Connecticut trader said.

Citigroup's 7.5% convertible mandatory traded actively, but little changed for that very short-dated paper, after the New York bank surprised to the upside on its third-quarter results, a New York-based trader said.

Otherwise trading was described as quiet as equities rose.

But after the market close, Walter Investment Management Corp. launched an offering of $265 million of convertible senior subordinated notes due 2019 in a registered deal expected to price after the market close Wednesday, and talked to yield 4.5% to 5% with an initial conversion premium of 35% to 40%, according to a syndicate source.

Clearwire powers up

Clearwire's 8.25% convertibles due 2040 jumped to as high as 99.5 before settling back to 98, and that was up from 90 bid, 91 offered Thursday and a 74 close on Wednesday.

"That's what you call a homerun," a New York-based trader said.

The bonds trade outright, but the underlying shares of the Bellevue, Wash.-based company have also surged, ending up at $2.69 from $1.30 at the close Wednesday.

Monday's news is that Softbank has procured the funding it needs to acquire Sprint. Sprint owns 49% of Clearwire, which owns U.S. spectrum and is planning a next-generation network using technology called TDD LTE.

The planned $20 billion deal that gives Softbank a 70% stake in Sprint doesn't directly involve Clearwire, but there is speculation that the Softbank chief executive Masayoshi Son "might try to take them both down," a trader said.

"It will be interesting to see what happens," he said.

Stillwater active, adds

Stillwater's new 1.75% convertibles traded around 101.6875 versus an underlying share price of $10.22 on swap late in the day Monday.

A second source said they traded to 102.25 versus an underlying share price of $10.34.

Shares were up 13 cents.

The new paper is trading on a very high delta of between 100% and 103%., and at the higher price of 102.25 versus $10.34, it looked as though the paper had expanded by 4 or 5 points since issue, or even as much as 6.5 points.

The high delta is related to his hyper structure, which includes its incremental share feature, under which holders receive extra shares on conversion if the stock reaches certain benchmarks.

But some players are wary as bonds like these can become "value traps."

The bond can model 5 points cheap, but the warrants attached are long dated and the stock price really has to go up for the feature to make a difference.

The Billings, Mont.-based producer of palladium and platinum allocated a good chunk of the bond to hedged players.

But proceeds will be used to repay amounts that may come due under the company's outstanding 1.875% convertible debentures in March 2013, with any additional proceeds earmarked for general corporate purposes.

Cemex flat to slightly up

Cemex's 4.875% convertibles due 2015 traded at 102.40 versus an underlying share price of $8.87 late in the session Monday.

Cemex's 3.75% convertibles due 2018 weren't seen in trade on Monday and were last at 104.75 versus an underlying share price of $8.82 last Thursday.

Cemex shares slipped into the red by the close, down 3 cents, or 0.3%, at $8.80 in average to light trade.

Cemex lost $203 million for its third quarter, which was better compared to a $730 million loss in the same period of 2011, but lower than some analysts were expecting.

Sales were $3.9 billion for the third quarter, which was up 2% from the same quarter a year earlier. But the demand picture was mixed with weaker sales in northern Europe and the Mediterranean offset by improvements in Mexico, Central America and the United States.

The company noted that it has no significant maturities until February 2014 after the 2009 refinancing agreement hammered out during the summer and a notes offering earlier this month, which will be used to satisfy a $1 billion prepayment milestone in March.

Walter to price

In addition to $265 million of convertible bonds, Walter also plans to price 4.5 million shares of common stock, including a greenshoe of up to an additional 675,000 shares.

The convertible bond offering has a $25 million greenshoe.

Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, Bank of America Merrill Lynch and Barclays are serving as joint bookrunners for the common stock offering and the convertible senior subordinated notes offering.

The offerings are not contingent on each other.

The bonds are not convertible prior to May 1, 2019 except for certain circumstances.

About $95 million of proceeds from the common stock offering will be used to fund partially an acquisition of the outstanding capital stock of Reverse Mortgage Solutions Inc. Remaining proceeds will be used to enhance liquidity and growth and working capital and fund general corporate purposes.

Walter is a Tampa, Fla.-based asset manager and mortgage services and portfolio owner.

Mentioned in this article:

Cemex SAB de CV NYSE: CX

Citigroup Inc. NYSE: C

Clearwire Corp. Nasdaq: CLWR

Stillwater Mining Co. NYSE: SWC

Walter Investment Management Corp. NYSE: WAC

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