Home Inns trades up to 102 on debut; Swift sells downsized mandatory; Clearwire lower

By Rebecca Melvin

New York, Dec. 15 - The convertible bond market was mixed Wednesday, with some names trading higher on a dollar-neutral basis, while others moved lower, market sources said.

Some of the longer-dated issues, which have greater interest rate risk, have been under pressure; but overall it was "not a big day for the market," a New York-based sellside trader said.

Volatility has come in and stocks are see-sawing, while bonds continue to take a hit. But in general, flows were dead even, with equal buyers and sellers, making for a neutral day, net-net, the trader said.

Home Inns & Hotels Management Inc.'s newly priced 2% convertibles traded up over 102 when the underlying shares were higher, and finished around 101.25 with shares settling at $41.58, up 1%.

Also in the primary market, Swift Holdings Corp. priced a downsized $250 million of mandatory convertibles to yield 6% on Wednesday, a day later than expected.

The new paper priced at the tight end of talk together with a concurrent initial public offering, which was larger than initially talked.

Clearwire Corp.'s recently priced 8.25% convertibles were lower outright in trade at around par with the shares down after partner Sprint Nextel Corp. said that it has no plans to buy the company. Premium points widened however.

Newmont Mining Corp.'s 3% convertibles were in trade at 101.9375 versus a share price of $61.75 with the in-the-money bonds toggling pretty much in line with moves in the underlying shares.

"It's not purely in lock step. It can move a little better or a little worse. It's an opportunistic trade," a New York-based sellsider said of Newmont.

Great Atlantic & Pacific Tea Co.'s convertibles were also in active trade again, although less active than on Tuesday, with pricing holding up at around 30 after a small bounce on Monday from Friday's slam downward on bankruptcy expectations.

Home Inns prices $160 million

Home Inns' 2% convertibles due 2016 traded at 102 bid, 102.75 offered in early trading with the stock at around $42.

The deal was definitely not traded by everyone, but there were plenty of players that saw them. They traded predominantly outright.

The Shanghai-based hotel chain operator priced $160 million of five-year convertible senior notes after the market close on Tuesday.

The deal's 2% coupon came at the rich end of talk, but the initial conversion premium of 20% was at the cheap end.

The deal was seen higher in the gray market, but it did "move higher and settled in at a good level, with a lot of interest," a New York-based sellside trader said.

The 101.25 mark at the end of the day implied a credit spread of 625 basis points over Libor with a 35% vol., the trader said.

There wasn't a lot of stock available to be borrowed, and therefore few hedge accounts played it; if they did, they flipped it in the gray, which is maybe why it was seen higher in the gray, the trader said.

Another source said the Home Inns deal traded "pretty well," although in small lots, and he put the market at 102 bid, 102.75 offered with the underlying stock at about $42.

The notes will be non-callable for their five-year life with no puts. There is dividend and takeover protection.

Proceeds are expected to be used for new business development, investments in complementary businesses and assets, strategic acquisitions and general corporate purposes.

The notes and the American Depositary Shares into which the notes are convertible have not been registered. The company will file a shelf registration for resale of the notes and the company's ordinary shares represented by the ADSs.

Swift prices downsized deal

Swift priced a downsized $250 million of 6% trust-issued mandatory common exchange securities at par of $11 late Wednesday - a day later than expected. The initial conversion premium is 22.5%, and pricing represented the tight end of talk.

Swift also priced 73.3 million shares of common stock at $11.00 per share in an initial public offering, which was upsized from an initially talked 67.325 million shares of stock.

Despite some back and forth on the pricing and sizing, there was good demand for the common, a syndicate source said.

He cited the time of year for the reason that it came a day later than expected.

Pricing on the common was initially raised to $13 to $15 and then lowered to $11 to $12.

"It's funny that they raised it and had to take it down again. It didn't even overlap; so I wonder what was going on there. They sold more shares, but resized the mandatories down," a second syndicate source said.

Another source referred to the high leverage that the Phoenix-based transportation services company and truckload carrier will bear even coming out of a bankruptcy situation.

"It looks like a horror show. It's a lot of debt and a thin layer of equity and if you're involved in the mandatory, you're at the very bottom level of the capital structure without much protection," the New York-based sellside trader said. "It's speculative."

Clearwire premium wider

Clearwire's 8.25% convertibles due 2040 traded at 100.5 versus a share price of $5.40 on Wednesday.

Shares of the Kirkland, Wash.-based wireless broadband services provider fell 36 cents, or 6.3%, to $5.34.

"The [premium points] were wider today with the shares down and with the converts hanging around par," a New York-based sellside desk analyst said.

The issue was at 16.7 points of premium at issue and at around 22 points on Wednesday.

"That makes sense that premium has opened up as the stock went down. It means that if you're delta hedged properly, you're making money," a New York-based sellside trader said.

Mentioned in this article:

Clearwire Corp. Nasdaq: CLWR

Great Atlantic & Pacific Tea Co. NYSE: GAP

Home Inns & Hotels Management Inc. Nasdaq: HMIN

Newmont Mining Corp. NYSE: NEM

Swift Holdings Corp. Nasdaq: SEFT

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