National Retail gains on debut; Cell Genesys takes comfort in stock sale; AirTran dives on lowered outlook

By Kenneth Lim

Boston, Sept. 8 - The convertible bond market had a livelier than expected session on Friday with better buyers across the board.

National Retail Properties Inc.'s new issue rose slightly on its debut, making modest gains after the deal was priced at the cheap end of talk.

Cell Genesys Inc.'s convertibles improved slightly after the company sold a public offering of common stock as bond holders took comfort in the company's ability to raise funds.

AirTran Holdings Inc. fell with the stock after the company said it was cutting its growth forecast without providing details.

The convertible bond market in general ended the day on a positive note.

"Things are definitely better to buy across the board today," a buyside convertible bond trader said. "There's some new money coming to the market. People are either putting the money to work or preparing to receive money from investors."

National Retail gains off the block

National Retail's newly priced 3.95% convertible due 2026 rose about half a point above par on its first day of trading after the deal arrived at the cheap end of price talk.

The convertible traded at 100.5 against the opening stock price of $21.25, and was seen as high as 100.75 versus a $21.40 stock price. National Retail stock (NYSE: NNN) improved 0.71% or 15 cents to close at $21.41 on Friday.

"It is doing OK," a sellsider said. "And the deal was upsized, too."

National Retail on Thursday priced the upsized $150 million deal at a coupon of 3.95% and an initial conversion premium of 15%. The notes were offered at par, and were talked at a coupon of 3.75% to 4% and an initial conversion premium of 15% to 17.5%.

The size of the deal was originally $125 million. The earlier over-allotment option for a further $18.75 million was also increased to $22.5 million.

Citigroup and Merrill Lynch were the bookrunners of the registered off-the-shelf deal.

National Retail, an Orlando, Fla.-based developer of retail properties in the United States, said it plans to use the proceeds of the deal to repay about $202.6 million of revolving debt due 2009 that current carries an interest of Libor plus 80 basis points.

A buysider said the deal "did fine" largely because of the pricing.

"They priced it on the cheap end of price talk," the buysider said.

But the buysider, who generally takes hedged positions in convertibles, did not get involved in the deal.

"No, I did not get involved," the buysider said. "I got enough REITs on the pad."

Cell Genesys improves

Cell Genesys' 3.125% convertible due 2011 was up about half a point outright on Friday after the company announced a common stock shelf offering worth $25.3 million.

The convertible traded at about 82 against a stock price of $4.75, while Cell Genesys stock (Nasdaq: CEGE) closed at $4.78, a drop of 4.97% or 25 cents.

"The bonds were up probably about 3 points...on a hedged basis," a convertible bond trader said.

Cell Genesys said late Thursday that it was selling 5.75 million shares at $4.40 apiece in a public offering. Deal underwriter Credit Suisse has an over-allotment option for a further 862,500 shares, or $3.8 million.

Foster City, Calif.-based Cell Genesys, a biotech company that is developing cancer treatments, said it will use the proceeds of the deal to develop products and for general corporate purposes.

A sellside convertible bond analyst said the stock sale was important for the company.

"Well, they need it," the analyst said. "This is a company that burns a lot of cash."

The analyst speculated that the convertibles may have improved because the market was comforted by the company's ability to raise cash, which it needs to do because its key cancer vaccine treatments are still under development.

"People are giving them money, so they probably looked at the drug, the cancer vaccine, and they must like what the see," the analyst said.

But the analyst noted that even with the improvement in the convertible's spread, Cell Genesys is still a highly risky name.

AirTran slides on outlook

AirTran's 7% convertible due 2023 fell on Friday in sympathy with the stock after the company said it was cutting its growth forecast.

The convertible was seen trading at 117.375 against a stock price of $9.25. The lightly traded convertible previously changed hands in August at about 135, when the stock was hovering at $11.66. AirTran stock (NYSE: AAI) closed at $9.48 on Friday, a drop of 11.15% or $1.19.

"The stock really took a hit," a sellside trader said.

AirTran said Thursday that it expects that third-quarter revenue per available seat mile to grow only in the "low single digits," slower than the earlier forecast of "high single digits." Non-fuel costs per available seat mile, however, will be reduced by 3% to 5% in the quarter, the Orlando, Fla.-based low-cost airline said.

The company said it was experiencing lower demand in the aftermath of recent terrorism-related events, tropical storm Ernesto and increased seat capacity introduced by rivals Delta and U.S. Air.

AirTran also said it plans to cut the number of airplanes it plans to buy over 2007 and 2008 to below the 19 previously planned.

A sellside convertible bond analyst said it was not clear how much lower the growth forecast had moved because of the scant details provided by the company. But the analyst was not surprised that AirTran was cutting back on its capacity expansion plans.

"They're the only ones I knew out there who were saying they were going to grow capacity when everyone else was cutting capacity," the analyst said.

Cutting capacity could be a positive development for the company's credit profile, but the improvement may not be significant for AirTran, which already has a wide credit spread, the analyst said.

"I could work at it all day and bring the credit spread down...but that improvement's not going to be a lot [compared to the current spread]," the analyst said.

Standard and Poor's equity research cut AirTran stock to hold from buy on Thursday after the growth forecast cut, halving its target price on the stock to $10. S&P analysts Jim Corridore and Stewart Scharf also reduced their 2006 earnings per share estimate for the airline by a fifth, to 60 cents, and their 2007 estimate by 40%, to 75 cents.

© 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.