USEC hot, Standard Pacific not; GM, Ford bonds feel strike effect; REITs hurt by housing slump

By Evan Weinberger

New York, Sept. 25 - General Motors Corp. convertibles traded lower Tuesday as a nationwide strike entered its second day and convertibles issued by Ford Motor Co. took a tumble. With more bad news emanating from the housing sector, two real estate investment trusts, Boston Properties Inc. and Vornado Realty Trust, both saw their convertibles take a whack.

Advanced Micro Devices Inc. convertibles were mixed, while convertibles issued by the big boy in semiconductors, Intel Corp., were down.

On the plus side of the ledger, Molson Coors Brewing Co. convertibles closed up on the day after the company took a major sponsorship from the Anheuser-Busch Cos. Inc.

Two new deals priced, and one new deal was active Tuesday.

USEC Inc. priced an upsized $500 million of 3% convertible senior notes due Oct. 1, 2014 on Monday night. The convertibles came in at the rich end of talk, with an initial conversion premium of 22.5%. Talk had been set at 17.5% to 22.5%. There is a $75 million greenshoe.

The deal was originally announced at $450 million with a $67.5 million greenshoe. There is a contingent conversion subject to a 120% hurdle. The convertibles priced at the same time as an offering of 20 million shares of USEC common stock at $9.76 per share.

Analysts reported that the USEC convertibles shot up early and kept going.

Standard Pacific Corp.'s convertibles did not fare as well. The company priced its $100 million in convertible senior subordinated notes due Oct. 1, 2012 at a 6% coupon and a 24.11% initial conversion premium. Talk had been for a 6% to 6.5% coupon and a 20% to 25% initial conversion premium.

Standard Pacific, a California-based homebuilder, also announced an approximately 7.84 million share lending agreement with an affiliate of Credit Suisse concurrently with the announcement of the convertibles offering. There is a contingent conversion beginning Jan. 1, 2008 subject to a 130% hurdle. The convertibles carry fundamental change protections and a net-share settlement agreement.

As if Standard Pacific needed anything else going against it on the launch date for its new convertibles, Miami-based Lennar Corp., one of America's largest homebuilders, announced disastrous earnings for the third quarter and a significant backlog of homes that are built and waiting for owners. Lennar stock tumbled.

One more new deal crossed the wire, as General Cable Corp. announced that it will bring $400 million in senior convertible notes due 2012 in a Rule 144A transaction. The convertibles will have a $60 million over-allotment option. They are talked at a coupon of 1% to 1.5% and an initial conversion premium of 22.5% to 27.5%. They are scheduled to price Thursday night.

The deal was originally announced Sept. 12 at $450 million.

General Cable is a Highland Heights, Ky.-based aluminum and fiber optic wire and cable producer and distributor. The company plans to use the proceeds for the purchase of the wire and cable unit of Freeport-McMoRan Copper & Gold Inc. General Cable announced its acquisition of the unit for $750 million Sept. 12.

Equity markets hovered around the break-even mark even as bad news outweighed good news on the day. Consumer confidence was down markedly, and the housing sector continued its tumble. The National Association of Realtors announced that sales of existing homes fell for the sixth straight month in August and reached their lowest point in five years.

Oil prices were down, though, which investors like.

The Dow Jones Industrial Average picked up 19.59, or 0.14%, on the day for a close of 13,778.65. The Nasdaq closed at 2,683.45, a gain of 15.50 points, or 0.58%. The Standard & Poor's 500 was the downer Tuesday, slipping a negligible 0.52 points, or 0.03%, for a close at 1,517.21.

A tale of two deals

When two new deals come out on the same day, it's interesting to hear what happens. On Tuesday, USEC's $500 million in 3% convertible senior notes due Oct. 1, 2014 has yet to hit the ground. Standard Pacific's 6% convertible senior subordinated notes due Oct. 1, 2012 landed with a thud.

USEC's deal came in with an initial conversion premium of 22.5%, the highest end of talk, and was upsized from $450 million. USEC (NYSE: USU) also upsized its greenshoe to $75 million from an originally announced $67.5 million.

"USU priced very cheap," one analyst said. Stock is moving up. "This was a great deal for outrights and a very good deal for hedged guys."

USEC is a Bethesda, Md.-based supplier of low-enriched uranium for commercial nuclear energy plants. The company plans to use the proceeds for the development and deployment of the American Centrifuge project, which is developing new ways to produce energy in nuclear power plants, and general corporate purposes.

According to several sources, the USEC deal was burning up the screens from the opening minutes of trading. "USU turned out to be a pretty hot deal," another analyst said.

USEC's convertibles closed Tuesday at 108.25 versus a closing stock price of $10.34.

USEC stock beat the markets Tuesday, gaining 58 cents, or 5.94%.

And then there's that other one...

Standard Pacific also released a new deal Tuesday, $100 million in 6% convertible senior subordinated notes due Oct. 1, 2012. The convertibles carry an initial conversion premium of 24.11%. Talk had been for a 6% to 6.5% coupon and a 20% to 25% initial conversion premium.

"The other one, it was a piece of crap," an analyst said comparing the Standard Pacific deal with the USEC deal. One of the aspects that made it especially unattractive to the analyst was the approximately 7.84 million shares of Standard Pacific common stock that the company plans to loan out. That will only go to players who get in on the deal's ground floor, shutting out a large percentage of hedge funds. "The company is facilitating the stock loan, which is a very dangerous situation when you're setting up a hedge," he said. "Any deal that's off limits to hedge funds, it's a problem."

The deal might be OK for outright investors, but the analyst estimated that 70% of convertibles are held by hedge funds, and hedge funds perform around 90% of convertible transactions.

Of course, there is also the little problem of what Standard Pacific does. The Irvine, Calif.-based company is a homebuilder that does a lot of business in California and Florida, two states smashed by the subprime mortgage carnage. Standard Pacific (NYSE: SPF) plans to use the proceeds to repay a portion of its outstanding debt under its revolving credit facility and to fund convertible hedge transactions.

On a day with more bad news from the housing sector, it's unclear if anyone would go near a homebuilder's convertibles. "SPF priced cheap, but not as cheap as USU," another analyst said. "It is still cheap just because no one is demanding a builder in this environment."

Standard Pacific's 6% convertible senior subordinated notes due Oct. 1, 2012 closed at 94.75 versus a stock price of $6.27.

Standard Pacific stock slipped, along with the rest of the homebuilding sector, a stinging 78 cents, or 11.06%, on Tuesday.

REITs have a tough day

It's been said that the only sure things in life are death, taxes and rising prices for Manhattan real estate. If Kenneth Heebner, the manager of CGM Realty Fund, is right, that last bit might be wrong. According to Bloomberg, Heebner and his $1.7 billion fund have been divesting from New York office real estate since the end of June because of fears that investment banks, hedge funds and other financial firms will be letting workers go and cutting back costs due to credit woes.

With that as a backdrop to go along with the tough housing report, Boston-based office REIT Boston Properties saw its 2.875% exchangeable senior notes due Feb. 15, 2037 fall to 111 7/8 versus a closing stock price of $102.29 Tuesday. They finished trading Monday at 114.125 versus a stock price of $105.94.

Boston Properties stock (NYSE: BXP) also fared poorly on the day, falling $3.65, or 3.45%.

New York-based Vornado Realty Trust didn't do much better Tuesday. Vornado's 2.85% convertible senior debentures due April 1, 2027 closed Tuesday at 92 7/8 versus a closing stock price of $106.45. They finished trading Monday at 93.25 versus a stock price of $108.70.

Vornado's 3.875% exchangeable senior debentures due April 15, 2026 slipped to 97 3/8 versus a stock price of $106.45 Tuesday after closing Monday at 97.75 versus a stock price of $108.70.

Vornado stock (NYSE: VNO) took a $2.25, or 2.07%, dive Tuesday.

GM, Ford down with strike

Although most observers expect the United Auto Workers strike against GM to be short, investors appeared to be taking no chances. All four of GM's convertibles slipped Tuesday. The strike entered its second day Tuesday, although negotiations also continued.

GM's 4.5% series A convertible notes due March 11, 2032 (NYSE: GXM) fell 27 cents, or 1.32%, Tuesday to $20.20.

The Detroit-based auto giant's 5.25% series B convertible notes due March 11, 2032 (NYSE: GBM) slipped 6 cents, or 0.29%, to $20.43.

GM's 6.25% convertible senior debentures due July 15, 2033 (NYSE: GPM) gave back 13 cents, or 0.55%, to close at $23.40.

And GM's 1.5% convertible senior debentures due May 31, 2009 (NYSE: GRM) slipped 9 cents, or 0.33%, to $27.01.

GM stock (NYSE: GM) closed at $34.42, a slip of 32 cents, or 0.92%, on Tuesday.

Dearborn, Mich.-based Ford, which will begin UAW negotiations once the union reaches a deal with GM, saw its 4.25% convertible senior notes due Dec. 15, 2036 close at 114.25 versus a closing stock price of $8.34. They closed Monday at 116 versus a stock price of $8.48.

Ford stock (NYSE: F) lost 14 cents, or 1.65%, on Tuesday.

Dueling semiconductor convertibles

Advanced Micro Devices' 6% convertible senior notes due May 1, 2015 had a healthy trading day Tuesday, closing at 91.375 versus a closing stock price of $13.81. They finished trading Monday at 90.75 versus a stock price of $13.48.

The Sunnyvale, Calif.-based semiconductor producer's 5.75% convertible senior notes due Aug. 15, 2012 slipped to 92 versus a stock price of $13.81 Tuesday after finishing trading Monday at 92.437 versus a stock price of $13.48.

AMD stock (NYSE: AMD) gained 33 cents, or 2.45%, on Tuesday.

Santa Clara, Calif.-based Intel, the yang to AMD's yin, did not have quite as successful a day. Intel's 2.95% junior subordinated convertible notes due Dec. 15, 2035 closed at 103.5 versus a closing stock price of $25.89 Tuesday. They closed Monday at 104.25 versus a stock price of $25.98.

Intel stock (Nasdaq: INTC) closed down 9 cents, or 0.35%, on Tuesday.

Molson Coors up with Nascar news

Coors Light was chosen to be the official beer sponsor of Nascar, the wildly popular American stock car racing circuit. The deal was announced Tuesday.

Montreal-based Molson Coors Brewing, which brings Nascar drivers Coors Light, was up on the news. The brewer's 2.5% convertible senior notes due July 30, 2013 closed at 110.5 versus a closing stock price of $98.43. They closed Monday at 109.375 versus a stock price of $96.70.

Molson Coors stock (NYSE: TAP) gained $1.73, or 1.79%, on Tuesday.

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