Ford convertible drives on; CVRD moves up on merger news; Coors brews up interest

By Evan Weinberger

New York, July 3 - With only a minuscule offering from First National Bancshares, Inc. and, from Europe, price talk on a new issue from Portugal Telecom SGPS, SA, the new issues sector of the convertibles market got an early start to the Fourth of July holiday.

And while Ford Motor Co.'s convertible trust preferreds shot up on news that the company plans a conversion offer, much of the rest of the secondary market appeared to have joined the new issues at the beach.

One long-time convertibles analyst remarked that Monday was the slowest day of the year in the convertibles market according to the Trace system, an event that usually happens on the day before or after a holiday. When asked if Tuesday could take the title, the analyst replied: "It just might."

Movers in the secondary market included Molson Coors Brewing Co.'s 2.5% convertible senior notes due 2013, which closed at 103.625 versus $93.02. The convertibles finished Monday at 103.27 versus $92.80. Molson Coors stock (NYSE: TAP) finished Tuesday up $0.22, or 0.24%, at $93.02.

Vornado Realty Trust's 3.625% convertibles due Nov. 15, 2026, finished at 95.25 versus a stock price (NYSE: VNO) of $113.90. The trust's bonds finished at $97.06 versus $114.76. The stock price was down $0.86, or 0.75%.

Overall, the stock markets finished Tuesday higher but with low volume. The Dow Jones Industrial Average finished up 41.87 points, or 0.31%, at 13,577.30. The Nasdaq finished at 2,644.95, a gain of 12.65 points, or 0.48%.

CVRD firms on Aur news

In the secondary market, Companhia Vale do Rio Doce's common stock and 5.5% mandatories both moved Tuesday. The mandatories closed at 50.30 versus a stock price of $39 after finishing Monday at 49.95 versus $37.70. The preferred stock tranche (NYSE: RIO-P) finished at 39.10, up 0.15, or 0.39%, from Monday's close of 38.95. The common (NYSE: RIO) traded at 50.25 versus $46.30 after finishing at 49.85 versus $46.45.

Analysts said the announcement that Teck Cominco would take over Aur Resources in a $3.9 billion (C$4.1 billion) transaction may have steered investors towards CVRD. Teck, a Vancouver, B.C.-based mining company announced its takeover of Aur, a copper mining company based in Toronto, Tuesday.

Action in CVRD, the Rio de Janeiro-based metals and mining company, convertibles mirrored interest in other mining and metal concerns.

"It's been a hot area," one analyst said.

A second analyst pointed to rumors of a takeover and overall consolidation of the sector as another possible reason why CVRD convertibles received a good look Tuesday, and for the past few days.

"There could also be some M&A speculation in there, I guess," he said in an e-mail.

Shares of CVRD stock (NYSE: RIO) closed up $0.11, or 0.24%, at $46.40.

First National

In new issues, First National Bancshares, Inc. priced $18 million in series A noncumulative convertible perpetual preferred stocks with a 7.25% dividend rate and a conversion premium of 18.7% after market close Monday.

First National Bancshares is the holding company for First National Bank of the South, a Spartanburg, S.C.-based commercial bank. The bank plans to use the proceeds to repay approximately $5 million under its revolving line of credit and use the rest for corporate purposes, including expansion of its branch network.

Portugal Telecom launches

Portugal Telecom launched €750 million in exchangeable bonds due 2014. The bonds are talked to have a coupon of 3.875% to 4.375% with an initial conversion premium of 35% to 40%.

The offering was set to price Tuesday after market close.

The Lisbon-based telecommunications and multimedia services company provides services in Portugal and Brazil. It intends to use the proceeds for general corporate purposes.

Ford redemption

A day after Ford announced that it would launch a conversion offer for the 6.5% cumulative convertible trust preferred securities of its wholly owned subsidiary trust, Ford Motor Capital Trust, the issue jumped sharply Tuesday, especially for a slow day before a holiday.

The convertible (NYSE: F-PS) moved up $1.69, or 4.34%, to $40.60.

Holders who elect to convert into common stock will receive 2.8249 shares (the conversion ratio) plus a premium - shares of Ford common stock valued at $14.25 per security, with the number of shares to be determined by the average market price of Ford common stock on July 25, 26 and 27, assuming the offer is not extended.

Ford (NYSE: F) stock closed Tuesday down $0.22, or 2.28%, at 9.42.

When the Dearborn, Mich.-based automaker issued the convertibles in 2002, the $5 billion issue held the record for amount of a convertible offering.

The conversion offer is set to expire at 5 p.m. ET on July 31, and the settlement date is expected to be Aug. 3.

Investors who bought the securities in 2002 will be disappointed because they won't come out a head, according to one analyst.

But that's not the way to look at the value, he added. For each, $50 par value of the trust preferreds, the total payment is estimated at around $40.86.

"If they bought this thing a year ago, it was trading in the $20s," he said. "Depending when you bought it, you're either making money or losing money."

The trusts preferred were trading as low as $26.40 in the last year as Ford weathered slumping sales and heavy pension and health care costs and flirted with bankruptcy. But the trust preferreds' value rose even as the automaker saw sales continue to drop. The analyst said that short-term investors may be trying to cash in on the coming conversion.

For others who are prepared to hold out for the $50 par value in the future, he added: "If you believe it's up here now where it's trading only because of the offer, you can always sell it today and buy it back."

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