Radian jumps, then fades; LDK, Hologic improve after earnings, Quantum quiet in the gray

By Rebecca Melvin

New York, Nov. 9 - Radian Group Inc.'s newly priced 3% convertibles stumbled on their debut Tuesday, after trading up to as high as 106 out of the chute. The new bonds settled down at about 101, which was lower on a dollar-neutral basis, with underlying shares settling close to their lows of the day, market sources said.

The Radian move was "unusual," a New York-based sellside trader said. And "it doesn't bode well for the future for these bonds." Another source said he was "surprised."

The Radian deal, which was upsized to $400 million from an initially talked $350 million, was the day's focus, traders said.

Elsewhere, positive earnings news was a catalyst for some trading.

LDK Solar Co. traded up along with higher shares on better-than-expected earnings and outlook.

Hologic Inc. traded higher after the Bedford, Mass.-based medical imaging and diagnostic company posted a fourth-quarter loss, which excluding charges matched analysts' estimates.

Priceline.com Inc. was seen in trade after the Norwalk, Conn.-based online travel agency posted better-than-expected third-quarter earnings and forecast fourth-quarter profit that exceeded analysts' estimates.

Priceline's 1.25% convertibles were seen at about 155. Shares traded up above $400 per share, gaining $32.07, or 8.3%, to $420.65.

In the primary market, Quantum Corp. was quiet in the gray market after launching an offering of $125 million of five-year convertible bonds that was expected to price after the market close. The San Jose, Calif., provider of storage, backup, recovery and archive services was selling a Rule 144A deal talked to yield 3.625% to 4.125% with an initial conversion premium of 25% to 30%.

Radian rises, then falls

Radian's newly priced 3% convertibles traded up to 106 versus a share price of $8.82 on Tuesday after the mortgage insurer launched and priced an upsized $400 million deal on Monday.

Later, the new convertibles were seen lower at 104.875 versus the same share price, and then they nearly touched par before settling at 100.5 bid, 101 offered.

Shares of the Philadelphia-based mortgage insurer extended losses on Tuesday, dropping 55 cents, or nearly 6%, in heavy volume, after suffering an 11% fall on Monday after the deal was launched.

It was unusual that the majority of the day's losses came late in the session, sliding into the close. Often on a new deal, the stock hits its low early and then comes back as sellers get out of the way.

One theory for the Radian stumble is that Ambac Financial Group Inc., a guaranteed insurance business, filed for Chapter 11 bankruptcy protection on the same day, which cast a pall over the space.

Ambac filed after the Internal Revenue Service questioned the accounting that allowed the bond insurer to receive more than $700 million in tax refunds.

Ambac sold protection on mortgage securities.

"It was just an idea that somebody had," a sellside trader said.

Seven-year maturity eyed

Otherwise, Radian's structure was not all that appealing either, with a seven-year maturity that is considered long among convertibles players.

"It wouldn't be fair to blame it all on the fact that it's a seven-year deal, although they don't tend to hold up as well. It was probably partly the structure, partly the sector," the sellsider said.

"They hit 106 and then started coming for sale," the sellsider said.

Trading was dominated by flipping, traders said, but the paper probably circulated into the hands of both hedged and outright investors, they agreed.

"I guess guys just got too excited to buy them and overpaid," a trader said.

The deal was upsized to $400 million of seven-year convertibles from $350 million and priced at the tight end of richened price talk.

Talk on the registered, off-the-shelf deal was tightened to a coupon of 3% to 3.25% from 3.25% to 3.75%, and richened to a premium to 30% to 32.5% from 25% to 30%.

There is a $50 million greenshoe, which was lowered from $52.5 million initially talked.

Morgan Stanley & Co. Inc. was the bookrunner of the offering, with Dowling & Partners Securities LLC, Keefe, Bruyette & Woods Inc., Macquarie Capital (USA) Inc. and Northland Capital Markets acting as the co-managers.

The Radian bonds will be non-callable for life with no puts. There is contingent conversion subject to a 130% price trigger, and the bonds have standard dividend and takeover protection.

In connection with the offering, the company entered into a capped call transaction that boosts the effective conversion premium to about 60% from the issuer's perspective.

Proceeds will be used to fund working capital and for general corporate purposes, including repaying Radian's 7.75% senior notes due 2011 and 5.625% senior notes due 2013.

A portion of the proceeds will be used to fund the capped call transaction

LDK adds with earnings

LDK 4.75% convertibles due 2013 traded at 99.25 and 99.5 on Tuesday compared to a level of about 98.5 on Monday.

"Everyone was focused on Radian, so I didn't see a lot of this, but it did trade," a Connecticut-based sellside trader said.

LDK reported better-than-expected third-quarter net income that tripled on strong demand and rising prices for solar-power equipment, and forecast its fourth-quarter and 2011 revenue would also be above expectations.

The Xinyu City, China-based solar company saw its American Depositary Shares gain 41 cents, or 3%, to $13.90 in heavy volume.

Third-quarter net income was $93.4 million, or 72 cents per ADS, compared with $29.4 million, or 27 cents per ADS, a year earlier. Revenue more than doubled to $675.6 million.

Analysts were expecting 43 cents per ADS on revenue of $628.1 million.

Fourth-quarter revenue is expected to be between $710 million and $750 million, compared with analysts' forecast of $593.5 million. For 2011, the company predicted revenue of $2.9 billion to $3.3 billion, above analysts' expectations to $2.16 billion.

Hologic adds with earnings

Hologic's 2% convertibles due 2037 traded up to 99.25 on Tuesday, with underlying shares adding 45 cents, or 3% to $16.73. The previous level on the 2% notes was 94.75 bid, 95.25 offered.

It's not seen as very equity sensitive. The conversion premium is more than 100%, and it's only moving somewhat with the common, a New York-based sellside trader said.

The bonds are yielding 3% and change for three years, and the fact that that "almost sounds attractive" left the trader uneasy.

"I used to really like these bonds, but they look pretty ugly right now," the trader said.

For the three months that ended Sept. 25, Hologic said its net loss was $137 million, or 53 cents per share, which compared to net income was $24.6 million, or 9 cents per share, in the same period last year.

Excluding a $220.2 million charge, Hologic said it earned 30 cents per share, which matched analysts' expectations.

Quantum quiet in gray

Quantum's $125 million offering of five-year convertible bonds, which was expected to price after the close of markets Tuesday, wasn't heard in the gray market ahead of final terms.

The deal was talked to yield 3.625% to 4.125% with a 25% to 30% initial conversion premium. There is an over-allotment option for up to an additional $10 million of notes.

The Rule 144A deal is being sold via UBS and Jefferies as joint bookrunners.

Proceeds will be used to repay the issuer's 12% senior subordinated term loan agreements with EMC, and any remaining proceeds will be used to pay down the company's senior secured credit agreement with Credit Suisse.

Quantum is a San Jose, Calif., provider of storage, backup, recovery and archive services.

Mentioned in this article:

Hologic Inc. Nasdaq: HOLX

LDK Solar Co. NYSE: LDK

Priceline.com Inc. Nasdaq: PCLN

Quantum Corp. NYSE: QTM

Radian Group Inc. NYSE: RDN

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