Thank you very much;
you're only a step away from
downloading your reports.
Molina Healthcare's Convertible Exchange Is a Win-Win
Now may be the time to hitch a ride on Molina Healthcare's stock.
Bill Feingold    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Convertible bond repeat-offender Molina Healthcare (MOH) has done its third deal, this one through an exchange offer.

The transaction involves just over one-third of Molina's 3.75% convertibles maturing this fall. Instead of delivering par value in cash, Molina will give exchanging bondholders a new piece of paper with the following terms:
  • 1.625% coupon
  • 30% conversion premium based on a 10-day averaging period starting August 19
  • 30-year maturity
  • Four years of call protection
  • A sequence of puts beginning in four years.
The trade seems to make sense for both sides. Bondholders -- presumably hedge funds set up with full or nearly full hedges on the 3.75% bonds -- will get an attractively priced new security that figures to trade higher in the aftermarket. Based on the current price of the existing MOH 1.125% convertibles, the new bonds look to be theoretically worth somewhere in the 104-105 range. Meanwhile, the company restrikes a big chunk of its obligations higher, reducing some dilution.

The press release suggests that current bondholders will be buying back stock during the averaging period to adjust their hedges from those appropriate for the old bond (100%) to the new bond, which looks to have a delta closer to 60%. The difference between a full hedge on the old bond and a 60% hedge on the new one looks to be about 20,000 shares per $1 million face amount, or about 1.38 million shares in aggregate.

This translates to about 138,000 shares daily, or 20-25% of Molina's average daily volume -- seemingly enough to give the stock a boost during a typically slow trading period.

Managed care stocks have struggled of late and Molina is no exception, down about 15% over the past few weeks. Investors looking for an entry point may want to get in before the averaging period begins on August 19.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

 

 

 

 

 

 

 

Molina Healthcare's Convertible Exchange Is a Win-Win
Now may be the time to hitch a ride on Molina Healthcare's stock.
Bill Feingold    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Convertible bond repeat-offender Molina Healthcare (MOH) has done its third deal, this one through an exchange offer.

The transaction involves just over one-third of Molina's 3.75% convertibles maturing this fall. Instead of delivering par value in cash, Molina will give exchanging bondholders a new piece of paper with the following terms:
  • 1.625% coupon
  • 30% conversion premium based on a 10-day averaging period starting August 19
  • 30-year maturity
  • Four years of call protection
  • A sequence of puts beginning in four years.
The trade seems to make sense for both sides. Bondholders -- presumably hedge funds set up with full or nearly full hedges on the 3.75% bonds -- will get an attractively priced new security that figures to trade higher in the aftermarket. Based on the current price of the existing MOH 1.125% convertibles, the new bonds look to be theoretically worth somewhere in the 104-105 range. Meanwhile, the company restrikes a big chunk of its obligations higher, reducing some dilution.

The press release suggests that current bondholders will be buying back stock during the averaging period to adjust their hedges from those appropriate for the old bond (100%) to the new bond, which looks to have a delta closer to 60%. The difference between a full hedge on the old bond and a 60% hedge on the new one looks to be about 20,000 shares per $1 million face amount, or about 1.38 million shares in aggregate.

This translates to about 138,000 shares daily, or 20-25% of Molina's average daily volume -- seemingly enough to give the stock a boost during a typically slow trading period.

Managed care stocks have struggled of late and Molina is no exception, down about 15% over the past few weeks. Investors looking for an entry point may want to get in before the averaging period begins on August 19.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

 

 

 

 

 

 

 

Daily Recap
Molina Healthcare's Convertible Exchange Is a Win-Win
Now may be the time to hitch a ride on Molina Healthcare's stock.
Bill Feingold    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Convertible bond repeat-offender Molina Healthcare (MOH) has done its third deal, this one through an exchange offer.

The transaction involves just over one-third of Molina's 3.75% convertibles maturing this fall. Instead of delivering par value in cash, Molina will give exchanging bondholders a new piece of paper with the following terms:
  • 1.625% coupon
  • 30% conversion premium based on a 10-day averaging period starting August 19
  • 30-year maturity
  • Four years of call protection
  • A sequence of puts beginning in four years.
The trade seems to make sense for both sides. Bondholders -- presumably hedge funds set up with full or nearly full hedges on the 3.75% bonds -- will get an attractively priced new security that figures to trade higher in the aftermarket. Based on the current price of the existing MOH 1.125% convertibles, the new bonds look to be theoretically worth somewhere in the 104-105 range. Meanwhile, the company restrikes a big chunk of its obligations higher, reducing some dilution.

The press release suggests that current bondholders will be buying back stock during the averaging period to adjust their hedges from those appropriate for the old bond (100%) to the new bond, which looks to have a delta closer to 60%. The difference between a full hedge on the old bond and a 60% hedge on the new one looks to be about 20,000 shares per $1 million face amount, or about 1.38 million shares in aggregate.

This translates to about 138,000 shares daily, or 20-25% of Molina's average daily volume -- seemingly enough to give the stock a boost during a typically slow trading period.

Managed care stocks have struggled of late and Molina is no exception, down about 15% over the past few weeks. Investors looking for an entry point may want to get in before the averaging period begins on August 19.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

 

 

 

 

 

 

 

EDITOR'S PICKS
 
WHAT'S POPULAR