Community Health $250 mln cvts seen launching Tue or Wed; most deals pushed into October

By Ronda Fears

Nashville, Tenn., Sept. 24 - New convertible deals totaling roughly $1.67 billion, which were delayed because of the terrorist attacks on the World Trade Center and Pentagon two weeks ago, are now widely expected to be postponed until October due to the huge drop in stocks in the aftermath of the catastrophe. The turmoil in the credit markets has aggravated the pricing process for the convertibles, as well, sources said. All that aside, market sources said Community Health Systems Inc. is expected to launch a road show for its deal this week.

"My sense is these will probably not get done this week," said a convertible syndicate source at one of the major investment banks based in New York.

A convertible hedge fund trader in New Jersey said, "These are not coming anytime soon, like maybe not for two weeks."

Brinker International Corp., a Dallas-based restaurant chain, Finisar Corp., a Sunnyvale, Calif.-based fiber optic components provider, and the Plano, Texas-based retailer J.C. Penney Co. Inc. had been scheduled to sell convertibles during the week of the disasters at the World Trade Center and Pentagon. In late September - this week - the market had anticipated deals from Cablevision Systems Corp. and Community Health Systems Inc.

All have postponed their deals, but none have been cancelled.

However, price talk revision is now being considered, sources said, and that is challenging in itself due to volatility in the underlying stocks as well as fluctuating credit spreads.

Community Health Systems, however, is buzzed as being the first to break the ice since the disaster. On Sept. 7 the Brentwood, Tenn.-based general acute care hospital operator filed a registration statement with the Securities and Exchange Commission to sell $250 million of convertible subordinated notes and 11 million shares of common stock. The company planes to use proceeds to repay a portion of its $500 million of 7.5% subordinated debt and a portion of its outstanding acquisition loan with Chase Manhattan Bank and other lenders.

Goldman Sachs is the book-running lead manager of the registered deal. Joint lead managers are Merrill Lynch and Credit Suisse First Boston. Banc of America Securities, J.P. Morgan Chase and UBS Warburg are co-managers.

Community Health common shares closed Monday up 43c to $28.53.

Market sources said price talk is not yet available on the Community Health Systems proposed deal, but anticipated late Tuesday or early Wednesday.

Although sources said price talk is likely to be revised from before the tragedy struck, here is the recap of where the new deals had been expecting to price.

Brinker's $225 million of 20-year convertible senior debentures had been talked to price to yield 2.75% to 3.25% with a 32% to 37% initial conversion premium. Joint lead managers of the Rule 144A deal are Banc of America Securities and Salomon Smith Barney. Brinker common shares closed at $25.50 on the eve of the terrorist attacks, and closed up 89c Monday at $23.35.

J.C. Penney's $500 million of seven-year convertible senior notes were seen pricing to yield 5.0% to 5.5% with a 23% to 27% initial conversion premium. Lead manager of the Rule 144A deal is Credit Suisse First Boston. J.C. Penney stock ended Sept. 10 at $23 and closed Monday up $2.84 to $21.70.

Finisar's $200 million of seven-year convertible subordinated notes were talked to price to yield 5.0% to 5.5% with a 30% to 35% initial conversion premium. The Rule 144A deal is being brought to market via lead manager Merrill Lynch. Finisar stock ended Sept. 10 at $8.25 and closed Monday up 52c to $6.67.

Cablevision Systems' proposed convertible deal, which has been on the calendar horizon for several weeks, had not moved ahead enough to have price talk before the tragedy, but there had been enough buying interest that market sources anticipated the deal to be upsized from $500 million to $1 billion or more. The Cablevision deal is a registered offering for mandatory convertible preferreds and there is a concurrent common stock offering, which also was expected to be boosted from plans of $500 million to $1 billion or more.

Cablevision common shares closed Monday up 2c to $39.5. End

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