Newell gains in gray; newly priced issues extend gains; ArcelorMittal revives Europe's primary market

By Rebecca Melvin

New York, March 24 - Energized by another new issue in the primary market, convertibles players pushed up the proposed $250 million of five-year convertible senior notes from Newell Rubbermaid Inc. to plus 10 in the gray market ahead of pricing after the close of markets.

The convertible market - which has been starved of all but the slightest trickle of new issuance for the last six months - has been very receptive to new paper, sending recently priced issues up well over par, into the 110s and 120s in only a matter of days after initial pricing.

Secondary market activity in general has been a little tired, but trading of new issues has sparkled, sources said.

For example, Alcoa Inc.'s upsized 5.25% convertibles, which priced on March 18, traded at 132.5 versus a share price of $7.375 on Tuesday.

Johnson Controls Inc.'s new convertible bonds and mandatories, which priced on March 10, were also much higher, with the 6.5% bonds trading at 128 versus $12.60 on Tuesday, while the 11.5% mandatory preferreds, with a par of 50, traded at 66 versus $12.50.

The dual issues of Newmont Mining Corp., which priced on Jan. 28, also remained strong, with Newmont Mining's series A 1.25% convertible senior notes due 2014 seen trading at 117 versus a share price of $43.75, while Newmont Mining's series B 1.625% convertible senior notes due 2017 traded at 111.5, versus the same share price.

"If I was an issuer, I would want to be in on some of that tape," a New York-based sellsider said, regarding the levels on recently priced issues.

Meanwhile, Luxembourg-based steelmaker ArcelorMittal revived the European market by pricing the first benchmark convertible bond issue in Europe in almost a year, according to Barclays Capital Research.

ArcelorMittal priced an upsized €1.1 billion of five-year convertible bonds that was four times oversubscribed, a market source said.

Newell jumps to 110

In the gray market ahead of final pricing, the Newell Rubbermaid deal traded as high at 110, according to one sellsider. Another put the level at the end of the session at 108 bid, 110 offered.

The Atlanta-based consumer and commercial products company priced an upsized $300 million of five-year convertible senior notes to yield 5.5% with an initial conversion premium of 30%.

This was beyond the rich end of revised pricing for the coupon, and at the rich end of revised talk for the initial conversion premium.

Talk, which emerged early Tuesday, was initially 6.5% to 7%, and later revised to 5.75% to 6.25%; and for the initial conversion premium talk was revised to 25% to 30%, after being tweaked upward from 20% to 25%.

In the morning the new deal was seen at "plus five" in the gray market, and it only gained later in the day.

Newell has an older 5.25% convertible preferred due 2027 of which only $8.4 million is outstanding. That paper, with a par of 50, was seen at 17.

The older Newell has a conversion price of $50.68, compared to Newell's current stock price of about $6.60. The current yield on that paper, at 17 versus $6.61, is 15.4%, a sellsider said.

At the 5.5% and 30% premium, the new Newell paper was seen 7.5% cheap using a credit spread of Libor plus 750 basis points and a vol. of 40%, according to a New York-based sellside analyst.

Merrill Lynch & Co. and J.P. Morgan Securities Inc. were joint book-running managers of the registered offering, and Friedman, Billings, Ramsey & Co. Inc. was co-manager.

The bonds are hard-call protected for five years, with no puts. They have net share settlement, and dividend and takeover protection.

Proceeds are expected to be used for general corporate purposes, including repayment of 2009 debt maturities. In addition, proceeds will be used to offset the cost of warrant transactions.

Aiming to stay investment grade

Also on Tuesday, Newell announced that it was cutting its quarterly common stock dividend to $0.05 per share from $0.105 per share, in a move aimed at maintaining its current investment-grade rating.

The company also lowered its sales guidance, saying that it now expects first-quarter sales will show a year-over-year percentage decline in the mid to high teens, compared with the company's previous guidance of a decline in the low to mid teens.

However, it reaffirmed guidance for normalized earnings of $0.07-$0.12 per share for the first quarter.

The company reported cash on hand of $275 million as of Dec.31, anticipates operating cash flow of more than $400 million in 2009 and has additional funds available under its $690 million revolver agreement.

Newell common stock ended the day down 69 cents, or 9.5%, at $6.56.

ArcelorMittal upsized

ArcelorMittal priced an upsized €1.1 billion of five-year convertible bonds to yield 7.25%, with an initial conversion premium of 32%, according to a market source.

Strong demand caused the private placement of "Oceane" bonds to be upsized from an originally talked €750 million.

Like Newell Rubbermaid, the deal priced at the rich end of talk, which was for a coupon of 7.25% to 7.75% and an initial conversion premium of 27% to 32%.

Calyon and Société Générale Corporate & Investment Banking were joint bookrunners and lead managers, with Natixis and Rabobank acting as co-lead managers.

Proceeds are expected to be used for refinancing and to lengthen maturity profiles.

"We value the convertible bond at percent equivalents of 106.8 on the best end of the terms indicated for investors, and 103.3 on worst. Hence we find the valuation attractive," according to a note from U.K.-based Barclays Capital Research.

"The large issue size, the issuer's investment-grade rating, the paucity of similar new issues in recent months, probable index inclusion, and the high coupon versus the stock dividend should all be supporting factors. We expect the issue to price at or close to the worst end of the range for investors. Given its current trading level of around 105.4, we find it fully valued at that level," the note, published prior to pricing, stated.

"They've had little new paper; less than here," a New York-based sellside analyst commented.

Mentioned in this article:

Alcoa Inc. NYSE: AA

ArcelorMittal NYSE: MT

Johnson Controls Inc. NYSE: JCI

Newell Rubbermaid Inc. NYSE: NWL

Newmont Mining Corp. NYSE: NEM

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