Convertibles market eyes new paper; week sees more than $2 billion of issuance; Cemex off

By Rebecca Melvin

New York, March 11 - A number of new issues traded in the convertible bond market on Friday, including one of the market's most recent arrivals: the Cemex SAB de CV dual convertibles, which were weaker on day two of trade after debuting in the secondary Thursday.

Another one of the week's new arrivals, WebMD Corp.'s 2.25% convertibles due 2016, traded at 99 versus a share price of $56.50, which was weaker compared to trades of 99 versus a share price of $55.75 on their debut Wednesday. That paper was initially reoffered at a discount to par of 98.75.

In all, the U.S. primary market saw more than $2 billion of new paper during the week, and Friday brought one more small deal, a $55 million convertible from Kohlberg Capital Corp.

The Kohlberg Capital notes were brought by JMP Securities LLC, with an 8.75% coupon, a five-year maturity and a 10% premium.

Also in trade Friday was a pair of the prior week's new issues. Old Republic International Corp.'s 3.75% convertibles looked weak, changing hands at 99.25 versus a share price of $12.05, compared to 100 versus a share price of $12.10 on their debut a week ago Thursday.

MetLife Inc.'s $3.3 billion proceeds of 5% mandatories, which also debuted a week ago Thursday, traded at 86 versus a share price of $45.60, which was higher compared to the prior week's 84.77 versus a share price of $44.85 and 85.25 bid, 85.35 offered versus a share price of $45.25.

Back in established issues, Allergan Inc.'s 1.5% convertibles traded lower with a 112 handle. The Irvine, Calif.-based multi-specialty health care company surprised the market earlier this week by calling that $650 million bond issue.

Central European Distribution Corp.'s convertibles, which have been a staple of trade this week and last, were up another chunk at 88, extending gains from Thursday and Wednesday. On Monday, the CEDC convertibles traded at 83.5.

Dendreon Corp. was also trading again and higher by 1.5 points outright after the Seattle-based biotechnology company announced that it has gotten regulatory approval to increase significantly its Provenge prostate cancer vaccine production.

Overall, the session was marked by a rather distant attitude as market players kept part of their attention fixed on headlines and images trickling out of stricken Japan after a devastating 8.9 magnitude earthquake and subsequent tsunami hit the nation a day earlier, killing hundreds, damaging at least one nuclear plant and ravaging coastal areas.

Cemex weaker

The new Cemex 3.25% A tranche convertibles due 2016 traded at 99.4 versus a share price of $8.60, compared to 99.625 versus a share price of $8.68 at the end of Thursday.

The Cemex 3.75% B tranche convertibles due 2018 traded at 98.5 versus a share price of $8.60, compared to a late trade Thursday at 99.375 versus a share price of $8.68.

The American Depositary Shares of the Monterrey, Mexico-based cement producer climbed during the session, to end higher by 18 cents, or 2%, on the day at $8.78.

Final terms on the convertible were set late Wednesday at the midpoint of talk, and its valuation was seen as neutral at that time.

"Pricing is definitely getting stretched," a New York-based sellsider said, adding that the deal priced "fair valuish" and it has a borrow problem, meaning that it's costly for investors to borrow the shares to hedge with convertibles.

As for weakness, the sellsider cited the fact that the deal was upsized by $200 million to $1.4 billion, "and investors weren't compensated for that."

Dendreon back at par

Dendreon's 2.875% convertibles due 2016 traded back up at par to 100.5 on Friday after slipping to the 98 vicinity earlier in the week. The paper, which priced initially in mid January, had been up at 103 in February.

On Friday, there was a late Dendreon print of 100.428, which was up 1.45 points on the day, according to Trace data.

Friday's trades ranged from a high of 100.875 to a low of 99.7. The company's stock gained 2% to end at $33.70.

On Monday, the Dendreon 2.875% convertibles traded at 98 versus a share price of $31.50, and on Thursday the paper traded at 99 versus a share price of $32.60, according to a New York-based sellside desk analyst.

Dendreon announced Thursday afternoon that it got approval from the Food and Drug Administration to boost capacity at its New Jersey Provenge production facility to 48 workstations from 12 workstations.

Dendreon will bring these new workstations online in a staged approach. By the end of the second quarter, Dendreon expects to have about 225 infusion centers prepared to treat its first patient. It plans to have 500 infusions by the end of the year.

Kohlberg prices $55 million

Kohlberg, a New York-based business development company, priced $55 million of 8.75% five-year convertibles Friday with an initial conversion premium of 10%.

The Rule 144A offering has a greenshoe of $8.25 million and was sold via JMP Securities LLC.

The five-year bullets have dividend and takeover protection and will be settled March 16.

Proceeds will be used for general corporate purposes, including investing in portfolio companies in line with its investment objective and strategies, current market conditions and the prudent maintenance of balance sheet liquidity.

Mentioned in this article:

Allergan Inc. NYSE: AGN

Cemex SAB de CV NYSE: ADS: CX

Central European Distribution Corp. Nasdaq: ADS: CEDC

Dendreon Corp. Nasdaq: DNDN

Kohlberg Capital Corp. Nasdaq: KCAP

MetLife Inc. NYSE: MET, MLU

Old Republic International Corp. NYSE: ORI

WebMD Corp. Nasdaq: WBMD

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