Charter deal priced to sell, 5.75s climb to 99.5; Six Flags, Overstock.com deals emerge

By Ronda Fears

Nashville, Nov. 15 - The primary market heated up Monday as issuers began to feel the pressure of the rapidly closing window for tapping investors before year-end. Three deals emerged totaling a little more than $1 billion, adding to the $250 million of deals sitting on this week's calendar.

Charter Communications Inc. was the most sensational deal on the table. The St. Louis-based cable company launched $750 million of five-year convertible senior notes with proceeds in part earmarked to take out its 5.75% convertibles due October 2005.

Six Flags Inc. and Overstock.com Inc. also tossed deals into the ring, adding to the Level 3 Communications Inc. deal slated this week. The fate of GenCorp Inc.'s tiny $50 million issue, which met a wave of criticism from a big stockholder in the company last week, has not been determined yet, market sources said.

In any event, the next couple of weeks are expected to be very busy, sources said, as issuers rush to get deals done before Thanksgiving.

"Once Thanksgiving hits, there's so many people out for the holidays, that a lot of people figure if you don't get a deal done between now and then [Thanksgiving], you're not going to get it done this year," a convertible origination source said.

"There is a lot of money sloshing around, for sure, so I think we'll see quite a few deals in the next two weeks or so."

Charter deal "a home run"

Terms on the new Charter convertible are similar to the 5.75s, so at least one big convertible player said it looked to be "priced to sell." A sellside source, who is not working on the new deal, ventured even before a gray market surfaced on the deal that it was "a home run."

The $750 million deal was talked to yield 5.5% to 6.0% with a 10% to 15% initial conversion premium, with pricing scheduled after Tuesday's close. Three years of coupons will be collateralized with proceeds and the remainder earmarked to refinance the 5.75s, which on market chatter about a new deal were bid up about 6.25 points to 99 bid, 100 offered.

"It's priced to sell, but it had to be," said a buyside convertible trader. "They [Charter] are just buying time, and giving [to potential buyers] a lot of delta away to get this deal done" by virtue of the low conversion premium. "That will draw in buyers, big time."

Charter also is entering a stock loan transaction for up to 150 million shares with Citigroup Global Markets Inc., sole bookrunner on the new issue, in order to facilitate arbitrage trading in the convertibles.

Charter shares closed Monday up 3 cents, or 1.12%, to $2.71 and in after-hours trading was down 36 cents, or 13.28%. The Charter 4.75% converts due 2006 were higher along with the 5.75s, gaining similarly to 95 bid, 96 offered.

Six Flags deal "worth riding"

Six Flags was in the overnight market hawking $225 million of 10.5-year convertible senior notes talked to yield 4.0% to 4.5% with an 18% to 22% initial conversion premium. Proceeds are slated to take out some of its 9.5% senior notes due 2009 and 8.875% senior notes due 2010.

Despite turbulence at the Oklahoma City-based theme park operator due to recent financial results, a buyside source recycled a sellside comment on the new Six Flags deal: "a roller coaster worth riding."

Six Flags shares on Monday closed up a penny, or 0.19%, to $5.29 and in after-hours trading dropped 48 cents, or 9%, on news of the new convertible, which did not emerge until after the closing bell.

The Six Flags 7.25% convertible preferred, however, closed Monday off 0.25 points to 20.5.

"There was some nervousness about the credit, because S&P and Moody's both downgraded Six Flags on third quarter earnings, which were disappointing again," a dealer said. "They [Six Flags] have blamed poor performance on weather, but the credit agencies suggest it could be more than that. Anyway, we saw a tiny bit of the converts sell."

The new convertible is expected to be rated CCC/Caa1.

One holder said, though, "The fact that Daniel Snyder and a couple of other high-profile investors own a good chunk of this stock is enough for me to stay with it. When they start jumping ship and dumping their huge shares, I'll start dumping."

In late August, Microsoft Corp. chairman Bill Gates, who owns an 11.5% equity stake in Six Flags, and Washington Redskins owner Daniel Snyder, who bought about a 6% stake, said they planned to tackle the amusement park management in an effort to boost its performance.

Overstock.com a holiday buy

Just ahead of the Christmas shopping season, online retailer Overstock.com Inc. launched a small $75 million offering of seven-year convertible senior notes talked to yield 3.625% to 4.125% with a 30% to 35% initial conversion premium.

A sellside market source away from the shops managing the new deal speculated that the Salt Lake City-based online retailer's success as a closeout merchandiser will make the deal appealing to buyers. He also said that the stock is hot right now in anticipation of a split, so that should boost the appeal of the convertible as well.

Lehman Brothers Inc. is bookrunner with pricing slated after the market close Wednesday or before the market open Thursday. Co-managers include Piper Jaffray and Legg Mason.

Overstock.com said proceeds would be used for general corporate purposes, including possible acquisitions although no acquisition plans are pending. The company also plans a concurrent sale of 1 million shares of common stock.

Overstock.com shares on Monday lost $2.90, or 4.82%, to close at $57.30 on news of the deal, which began circulating at the market open.

Level 3 new deal quiet so far

With Level 3's roadshow just underway and pricing of its new convertible not expected until midweek or later, buyside sources said there was nothing showing up yet on it in the gray market. But one convert trader at a hedge fund in New York said he'd guess it would probably open with a bid at issue.

"The deal is looking fine, probably. The books will be strong, mostly because there is a lot of money to put to work before year-end," the buyside trader said. "But I don't think it will be trading much over par pre-market [when-issued, or gray market]. There's just too much hair on the credit."

Level 3's $200 million deal, talked at 5.0% to 5.5% with a 17.5% to 22.5% initial conversion premium, is not scheduled to price until Wednesday or Thursday. The Broomfield, Colo., internet access provider also on Monday launched a $450 million term loan. Proceeds from both deals are to be used to take out the $200 million of 8% notes the company had tendered for.

The new convert is being pitched mostly to outright investors or capital structure funds, sources said.

Level 3 shares closed Monday off 8 cents, or 2.44%, to $3.20. It's 2.875% convertible was down 1 point to 70 bid, 71 offered, and the two 6% convertibles due 2009 and 2010 were steady.

Tower 5.75s edge up to 68 bid

As the coupon payment due Monday from Tower Automotive Inc. seemed to be coming on schedule on its new 5.75% convertible, the issue edged up a half-point to 68 bid, 70 offered.

The 5.75s, which were just issued six months ago, have rebounded steadily from a precipitous drop to the 40s following midyear results and the company's warning about third quarter results because of skyrocketing steel prices and the production cuts by Ford Motor Co. and General Motors Corp.

Concern about the first coupon on the issue ballooned into a "panic" of sorts, a sellside trader said. Then, as Tower's third quarter performance was better than the company forecast and it began working with lenders to boost its accounts receivables securitization program from $50 million to $200 million, anxieties lessened.

Tower shares closed Monday up 2 cents, or 0.88%, to $2.28. Its 6.75% convertible preferred due 2018 ended unchanged at 12.15 amid heavy volume in over-the-counter trading.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.