Walter Investment trades at new low on reorganization news; primary market remains quiet

By Rebecca Melvin

New York, Oct. 23 – Walter Investment Management Corp.’s convertibles traded down to a new low on Monday on news of the mortgage banking company’s reorganization plan.

The Walter 4.5% convertible notes due 2019, which are included in the recovery plan, traded at 11.5 early Monday, according to a New York-based trader. At the market close, the indicated level of the issue was 11 bid, 13 offered, a second trading source said. In August, the bonds were over 40.

Walter’s shares, which have been trading below a dollar since last June, dropped sharply on Monday by 7 cents, or 14%, to $0.4361.

Walter announced that it is seeking restructuring support agreements from lenders and expects to file a pre-packaged plan of reorganization under Chapter 11 bankruptcy in late November.

The company also has straight bonds, and both issues were a big focus for the market on Monday, the trader said. Walter sold $265 million of the convertibles in October 2012.

Overall the convertibles market remained quieted by a lack of new issuance, a trader said. There has been no new U.S. issuance for October so far except for a very small deal priced by Tarrytown, N.Y.-based Immune Pharmaceuticals Inc. for $18 million of units of preferred stock and warrants last week.

The lull in issuance didn’t make a lot of sense, according to one trader, who said that given that rates are expected to go higher next year, it would be a good idea to issue a convertible now.

Convertibles are a hybrid debt instrument with pricing influenced by both credit and the equity that underlies the securities and into which the security is convertible at a certain price.

The convertible bond has the potential to rise when rates are going up whereas fixed income will go down, the trader said.

Meanwhile corporate issuers tend to like to issue convertibles when their stock price is at a high level, which is certainly the case for stock markets currently.

As for what was keeping issuers on the sidelines, the trader suggested that the reason was possibly related to the herd mentality in financial markets.

“No one wants to issue a convertible when no one else is,” the trader said.

Back in secondary market action on Monday, a trio of Priceline Group Inc.’s convertible bonds was active. The Priceline 0.9% convertibles due 2021 were at 119, the Priceline 1% convertibles due 2018 were at 205 and the Priceline 0.35% convertibles due 2020 were at 151.1, which was up 0.4%.

Priceline shares were little changed, closing down $4.89, or 0.25%, at $1,937.22.

The Norwalk, Conn.-based online travel services company reports third-quarter results on Nov. 6. The company was stung last earnings season when it posted bookings, which were higher year over year, but below analysts’ estimates. The company also lowered guidance at that time and shares pulled back by 7%.

The bookings growth was driven by growth in hotel room nights and in rental car days, offsetting a smaller decline in air tickets.

Caesars Entertainment Corp.’s 5% convertibles due 2024 traded up 4 points to 190.2, as shares moved up 10 cents, or 0.8%, to $12.30. Caesars announced a $265 million add-on to an existing term loan early Monday.

BroadSoft Inc.’s convertibles were also trading on Monday. The BroadSoft 1% convertibles due 2022 were at 148.38 and its 1.5% convertibles due 2018 were at 130.75, with the shares closing up 95 cents, or 1.8%, at $54.825.

Mentioned in this article:

BroadSoft Inc. Nasdaq: BSFT

Caesars Entertainment Corp. NYSE: CZR

Priceline Group Inc. Nasdaq: PCLN

Walter Investment Management Corp. NYSE: WAC

Immune Pharmaceuticals Inc. Nasdaq: IMNP

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