New Micron on tap, existing bonds active, mostly flat; Rudolph quiet on debut; WebMD rebounds

By Rebecca Melvin

New York, July 20 - Micron Technology Inc.'s existing convertibles were active in Wednesday's trade, but pricing was mostly unchanged - although the 1.875% convertibles of 2014 contracted about 0.25 point - after the Boise, Idaho-based semiconductor memory maker launched $600 million of 20-year convertible senior notes in two tranches.

The new Micron notes, which were set to price after the market close Wednesday, didn't move up in the gray market ahead of final terms, but there was a late bid at plus 0.5 point on the Micron A tranche.

Market participants said that investors expressed some dissatisfaction with the structure of the new deal; namely the mismatch between the call protection of two years on the A tranche and three years on the B tranche and put dates on after seven years and after nine years, respectively.

"The comments I have heard have been overwhelmingly negative," a New York-based trader said about the new deal which was nevertheless expected to get done handily because of the strong demand for new paper in the convertible bond market.

Also in primary action, Rudolph Technologies Inc. priced $50 million of five-year convertible senior notes at par after the market close Tuesday to yield 3.75% with an initial conversion premium of about 35%. Those were quiet in the secondary, however, sources said.

"I heard the pricing wasn't quite right. The company is small, the deal was small; so there's no liquidity and you weren't getting paid for that. It's a buy and put away [deal]," a Chicago-based trader said.

And Horsehead Holding Corp. launched a deal late Wednesday for $80 million of six-year convertible senior notes in a Rule 144A offering to raise funds for construction of a new zinc facility and general corporate purposes. Further details weren't immediately available.

Horsehead is a Pittsburgh-based producer of specialty zinc and zinc products.

Elsewhere, WebMD Health Corp.'s two convertible bond issues were said to have richened by about 0.375 point in a bit of a comeback following a plunge Monday after the New York-based health information provider lowered 2011 financial guidance.

Overall, the convertible bond market was described as busier than in recent weeks, but essentially unchanged on a hedged basis on Wednesday.

"Most names were unchanged on hedge," a New York-based trader said.

What was sparking trading action was not perfectly clear. It seemed to be a combination of some new issues - trade in existing Micron was definitely a feature on Wednesday - and volatility in stocks.

Stocks slumped on Monday and then had their best session of the year on Tuesday, sending the Dow Jones Industrial Average up 202 points to 12,587.42. On Wednesday, stocks edged lower.

But after the market close Wednesday, Intel Corp. posted strong quarterly earnings and raised guidance for its third quarter. That might spur upward momentum on Thursday.

"I'm hoping for violent stock action," a Chicago-based trader said, attributing the recent uptick in trading volume to that volatility.

"All week we've been honing in on $700 million bonds in Trace volume, which is a number that feels good," the trader said.

Micron sparked activity

The new Micron issue sparked a little bit of movement as portfolio managers positioned themselves for the new paper.

Micron's 1.875% convertibles due 2014 traded around 97 and were said to have come in 0.25 point. Micron's 1.875% convertibles due 2027 were also seen at 97. The Micron 4.25% convertibles due 2013 weren't seen in trade.

Shares of the Boise, Idaho-based company dropped initially on the news of the launch, but regained their footing to settle up 8 cents, or 1%, at $7.60.

The shorter dated, older paper is said to be yielding 3% with a premium of 80%. There is a soft call in effect, but not triggered until the stock price goes much higher.

"Micron stock is on its back," a New York-based sellside trader said.

New Micron near par in gray

If the gray market is an accurate indication, the new Micron deal won't do much in the secondary market when released for trading. But then again, it might be surprising. The name is well known in the convert space, and market players understand and are comfortable with its credit. But they are not comfortable with the structure of the new paper, with its short call protection and longer puts.

"As far as the new Microns go, people wish they were shorter dated, or effectively shorter dated," a New York-based trader said.

"It's going to trade like a bond. There's not much delta ... it's a yield vehicle," the trader said.

The Micron As are call protected for just two years, then provisionally callable for two years subject to a 130% price hurdle, and freely callable after that, in contrast to a seven-year put.

The Micron B paper are non-callable for three years, then provisionally callable for two years subject to a 130% price hurdle and then freely callable. There is a holder put after nine years.

Tranche A was talked to yield 1.5% to 2%, while tranche B was talked to yield 1.875% to 2.375%. Both tranches were seen with a 20% to 25% initial conversion premium.

There is a $45 million greenshoe for each tranche.

"It's insultingly aggressive," a New York-based sellside trader said.

Although a Chicago-based trader said that those comments "might be a little harsh," and added that the paper might not do that well immediately out of the chute, but he thought it would probably perform well over the longer term.

The bonds have net share settlement, standard takeover protection via a make-whole grid, and dividend protection.

Proceeds are earmarked for repurchasing common stock pursuant to a $150 million stock repurchase program and for general corporate purposes, including working capital, capital expenditures, and potential acquisitions and strategic transactions, and to cover the expense of a capped-call spread.

In connection with the convertibles, Micron plans to enter into capped call transactions.

Rudolph quiet on debut

Rudolph's newly priced 3.75% convertibles priced at the cheap end of 3.25% to 3.75% coupon talk, and at the midpoint of initial conversion premium talk of 32.5% to 37.5%.

The deal has a $10 million greenshoe and was sold via bookrunner Credit Suisse Securities (USA) LLC.

Shares of the Flanders, N.J.-based maker of process control inspection equipment and software slipped 29 cents, or 3%, to $9.30.

WebMD edges back up

WebMD's 2.25% convertibles due 2016 traded last at 90.625 versus a share price of $35 on Wednesday, which was up about 0.375 point on a hedged basis. On Monday, the 2.25% convertibles dropped about 7.5 points outright.

WebMD's 2.5% convertibles due 2018 traded last at 88.375 versus the $35 pricetag on the shares.

Shares of the New York-based medical information services company dropped from $47 to $32 on Monday. They came back to $38 on Tuesday and closed at $35 on Wednesday.

"That's a big move in the stock. The 2.5% bonds have been active all week. Last week they had a delta in the 60s, and now the delta is 45% to 50%. It's a great opportunity for this to move from outright to hedge hands," a trader said.

Mentioned in this article

Horsehead Holding Corp. Nasdaq: ZINC

Micron Technology Inc. NYSE: MU

Rudolph Technologies Inc. Nasdaq: RTECMD

WebMD Health Corp. Nasdaq: WBMD

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