Fannie Mae sneezes, germs spread to Countrywide; Beazer Homes down; Wright opens lower; Medtronic surges

By Evan Weinberger

New York, Nov. 20 - Fannie Mae and Countrywide Financial Corp. continued their downward trajectories Tuesday, pulled farther down by Freddie Mac's dismal third-quarter report.

Beazer Homes USA, Inc. fell after an October rise in housing construction that hid a further slackening for builders of single-family homes.

The news wasn't all bad Tuesday, as Medtronic Inc. and Newmont Mining Corp. both posted solid gains on the day.

Wright Medical Group Inc. priced its upsized $175 million in 2.625% convertible senior notes due Dec. 1, 2014 with an initial conversion premium of 25% Monday after the market close. The convertibles were originally announced at a principal amount of $150 million. The coupon came in at the cheap end of talk, which had been 2.25% to 2.75%, and the initial conversion premium came in at the middle of talk, which was 22.5% to 27.5%.

The registered transaction carries an upsized $25 million over-allotment option. The greenshoe was originally announced at $22.5 million. Settlement is expected on Nov. 26.

The conversion price is $32.65, and the conversion ratio is 30.6279.

The convertibles have a contingent conversion subject to a 140% hurdle beginning Dec. 6, 2011. They also have fundamental change protection.

Wright Medical is an Arlington, Tenn.-based orthopedic and medical products producer that focuses on reconstructive joint devices. The company plans to use the proceeds for general corporate purposes.

Meanwhile, one potential deal bit the dust Tuesday. Quebecor World Inc. withdrew its planned refinancing announced Nov. 13 due to "adverse current financial market conditions," the company announced Tuesday.

The planned refinancing included $100 million in senior unsecured convertible debentures, $400 million in senior unsecured notes and C$250 million in equity shares, divided between public equity shares and multiple voting shares and subordinated voting shares for existing shareholders.

Quebecor said it will continue to evaluate refinancing options, including possible debt and equity offerings when conditions are more favorable, asset sales and sale leaseback transactions.

Quebecor World is a Montreal-based marketing firm.

Equity markets were caught up in a microcosm of recent turmoil Tuesday. They opened strong, with the Dow Jones Industrial Average opening up to a swift 130-point gain. They then steadily fell to an over 100-point loss before rallying again to finish above the waterline on the day.

In the end, the Dow closed up 51.70 points, or 0.40%, for a 13,010.14 close.

The Nasdaq gained 3.43, or 0.13%, to close at 2,596.81.

The Standard & Poor's 500 closed at 1,439.70, a gain of 6.43, or 0.45%, Tuesday.

Washington-based government-supported mortgage backer Freddie Mac's $2 billion third-quarter loss overshadowed Hewlett-Packard Co.'s strong gains early. The release of the minutes from the Federal Reserve's last meeting in November that showed a close call for the recent quarter-point rate cut then coincided with the rally.

The Fed also forecast falling gross domestic product in 2008 with rising unemployment - although joblessness would remain low by historical standards according to the estimates. All of this comes out with the crisis in housing. "There are spurts of panic selling every day, particularly in financials," one analyst said. "Now people are looking past financials and seeing what's going to get crushed next."

The analyst pointed to cars, real estate investment trusts and, when asked, said the tech sector was also vulnerable.

Wright Medical upsizes, opens lower

Wright Medical upsized its original offering of convertible senior notes to $175 million from $150 million Tuesday. The coupon came in at the cheap end, at 2.625%, and the initial conversion premium at the mids at 25%.

While the terms came in at right around where market watchers expected - the mids was the general consensus Monday - the deal failed to excite.

The convertibles were quoted by one trader at a close of 98.875 versus a closing stock price of $25.54 Tuesday. The trader said that the issues weren't particularly active, not trading much past noon, he said.

Wright Medical stock (Nasdaq: WMGI) lost 58 cents, or 2.22%, in trading Tuesday.

Freddie under the weather, Fannie sneezes

Tuesday began with Freddie Mac announcing a $2 billion loss in the third quarter and that the mortgage backer had hired Goldman Sachs and Lehman Brothers to help raise capital. One option, Freddie Mac chief financial officer Buddy Piszel told the Wall Street Journal Tuesday, may be an issue of billions of dollars in preferred stock in the "very near term."

That sent Freddie's stock freefalling nearly 29% Tuesday.

And with Freddie Mac under the weather, Fannie Mae sneezed.

The larger of the two government-sponsored enterprises saw its 5.375% series 2004-1 convertible perpetual preferred stock (NYSE: FNM-PI) lose $4.23, or 10.87%, to close at $34.67 on Tuesday.

Fannie Mae stock (NYSE: FNM) plunged $9.33, or 24.83%, to close at $28.25.

Fannie sneezes, financials catch a cold

Fannie Mae and Freddie Mac's problems spell more big worries for the rest of the mortgage sector.

Because the two GSEs handle such large volumes of mortgages, even small drops in the two can have a large multiplier effect. "That scares everyone," an analyst specializing in financials said Tuesday.

The next name on an investor's mortgage lender checklist would be Calabasas, Calif.-based Countrywide, he added. "That's the next bellwether," he said. "If they're going to be selling Fannie or Freddie, they're going to sell Countrywide as well."

Countrywide spent Tuesday fending off another round of bankruptcy talk, as an analyst at Fox-Pitt, Kelton raised the prospect based on Countrywide's reliance upon Fannie Mae and Freddie Mac for access to the secondary mortgage market.

Countrywide repeated its stance that it had enough liquidity to stay afloat. "They keep saying they're not going bankrupt, and others keep saying that they're going bankrupt," another analyst said. "I don't know what else they're supposed to do."

Countrywide's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Tuesday at 80.04 versus a closing stock price of $10.28. They closed Monday at 81.3 versus a stock price of $10.57.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 15, 2037 closed Tuesday at 73.69 versus a stock price of $10.28 after finishing Monday at 74.37 versus a stock price of $10.57.

Countrywide stock (NYSE: CFC) recovered from earlier depths to lose only 29 cents, or 2.74%, on the day.

Beazer Homes down with sector

Atlanta-based homebuilder Beazer Homes joined the rest of the housing sector in falling Tuesday after the Commerce Department announced a 3% rise in new construction for October. Most of those gains were in apartments, not single-family homes, where construction slowed a further 7.3%.

Beazer's 4.625% convertible senior notes due June 15, 2024 closed Tuesday at 68.45 versus a closing stock price of $8.46. They closed Monday at 70.67 versus a stock price of $9.22.

Beazer stock (NYSE: BZH) fell 76 cents, or 8.24%, on Tuesday.

Recall doesn't hurt Medtronic badly

Minneapolis-based medical device maker Medtronic was not hurt as badly feared by the recall of its Sprint Fidelis defibrillator in its fiscal second quarter, the company announced Tuesday. Profits were only off 2%, mostly due to the October recall, Medtronic said.

That was music to investors' ears.

Medtronic's 1.5% convertible senior notes due April 15, 2011 closed at 105.524 versus a closing stock price of $48.42. They finished Monday at 102.052 versus a stock price of $45.25.

Medtronic's 1.625% convertible senior notes due April 15, 2013 closed Tuesday at 105.502 versus a closing stock price of $48.42. They closed Monday at 101.196 versus a stock price of $45.25.

Medtronic stock (NYSE: MDT) gained $3.17, or 7.01%, on Tuesday.

Newmont surges

Denver-based gold mining concern Newmont Mining watched its 1.25% convertible senior notes due July 15, 2014 surge to 128.927 versus a closing stock price of $51.05 Tuesday. The convertibles closed Monday at 124.91 versus a stock price of $48.57.

Newmont's 1.625% convertible senior notes due July 15, 2017 closed Tuesday at 128.497 versus a stock price of $51.05 after closing Monday at 124.58 versus a stock price of $48.57.

Newmont stock (NYSE: NEM) picked up $2.48, or 5.11%, on Tuesday.

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