10/01/12 Wellpoint (WLP)
$1.35B (+150m) sen unsec cb coming tomorrow from CS/MER/UBS. Terms: 30 yr, 2.5-3% up 20-25%, s/c 10 yr @150%, full pctns. UOP = gcp/stk buyback/debt repayment. Happy Meal. After ~950B of str8 IG issuance ytd, we get a shot. Recent A- (S&P) 4.65% ’43 str8 z-spread ~200 (UOP=AGP acq), 7 yr CDS ~155 we’d use L+200 for 30 yr. 01/14 72.5c=26iv bid/same delta=30iv bid. 2 yr 90d 10/50 ile = 20.9/26.3. This is 30 vol, we’d discount to 22 evol. Theo = 103.5. 2013 = big IG roll off, investors need paper eap balanced and around par. Not an obv equity switch (2% up zero vs 2.75% up 22%), not hugely cheap in model ( 3 pts over 30 yrs?) however pure supply/demand technicals will trump all doubts. We’d prefer MIDS but hard to fight IG technical. BUY