U.S. Bancorp, NII, Conseco issues trade flat to higher after re-offerings; Maxtor edges up

By Rebecca Melvin

Princeton, N.J., Aug. 10 - Three of four new convertible issues to hit the market in the last day and a half were re-offered below par, including one deal that was the largest this year and notable as being among the largest ever convertible offerings.

The spate of re-offerings marked a change from new deal activity in July, and could suggest a subtle shift in market conditions or simply a desire by investment banks to boost their league table ratings, sources said.

Of Wednesday's new issues, U.S. Bancorp's $2.5 billion floating coupon convertible was reoffered at 98.75, and traded "pretty actively" in a narrow range before closing at the same level.

Conseco Inc.'s new 3.5% convertible, which priced after markets closed Tuesday, was re-offered by bookrunners Goldman Sachs, Morgan Stanley and JP Morgan Securities at 99. It closed Wednesday up nearly 2 points at 100.50 bid, 101 offered, according to a syndicate source.

NII Holdings Inc.'s 2.75% convertible was re-offered by Goldman Sachs at 98.5 and closed up by a little less than two points at 100 bid, 100.50 offered.

Meanwhile, the new 2.375% Maxtor Corp. seven-year convertible became the only new issue that wasn't re-offered below par. Those notes closed up 0.25 point at 100.25, according to a syndicate source.

"With the calendar getting active, the good old league table competition c*** is back," a Connecticut buyside source said. "Yes, terms are getting more aggressive, but at the same time investors are very leery of overpaying and getting back into a hole."

Another source suggested that competition is stiffening.

"It's a determination that the banks are making. They decided to forego some of their fees to placate the issuer. If they really want the fees for a $2.5 billion deal, then they'll sell the deal with x coupon and x premium," a sellside desk analyst said.

Still another source suggested that there's been some misjudging of the market and/or summer vacation schedules are interfering with business.

In the secondary market, Fannie Mae's perpetual preferred convertibles traded up despite a drop in its underlying stock after the mortgage lending company said it would miss a second-quarter filing deadline. The convertibles of Cypress Semiconductor Corp. gained amid rumors of a potential buyout, and airline paper, including that of Delta Air Lines Inc. and Northwest Airlines Corp., halted a slide and perhaps improved a "smidge" on Wednesday, traders said.

U.S. Bancorp is year's new biggest issuer

U.S. Bancorp priced $2.5 billion of 30-year convertible floaters at par to yield three-month Libor minus 168 basis points, with a 20% initial conversion premium. Bookrunner Lehman Brothers chose to re-offer the convertible debentures at 98.75.

The new floater saw some asset swapping at 98.25, but closed unchanged on the re-offer level, a syndicate source said.

"The bond floor is 98.2," one source said.

The $2.5 billion Rule 144A deal has a greenshoe of $375 million. The debentures have no takeover protection, but are callable and putable on Aug. 21, 2006. They are also putable on Aug. 21, 2007, 2010, 2015, 2020, 2025 and 2030.

Syndicate sources said the one year call/put of the bond means it's being considered as a "one-year bullet," or basically a short-term security with limited downside.

"I don't see the point in owning these things for a hedge fund," one source said. He explained that as the convertibles are callable and putable in a year, you're almost guaranteed the yield and the returns are capped.

In addition, the Minneapolis-based company, the sixth largest financial holding company in the United States, has a low volatility and a AAA rating, "so it's not going to go up that much," he said.

A buyside source said: "The USB deal sure looks good for USB!"

The size of the deal was notable as the largest since December 2004 when Fannie Mae sold $2.5 billion of perpetual preferred convertibles. Before that, the largest deal came from American Express Inc. in 2003 when $2 billion convertibles were brought to market.

Recently only financial companies have been issuing super-sized convertible deals, and they outrank other companies as large issuers, but they are by no means the only ones.

"Both large and small cap companies have done large-sized deals," a Merrill Lynch analyst said, and among the top 10 issues by market value only six are financials. Others include issues from Ford Motor Co., Tyco International Inc., Wells Fargo & Co., General Motors Corp., Fannie Mae, MetLife Inc., and American Express Inc., the analyst said.

U.S. Bancorp will use proceeds to buy back shares and for general corporate purposes.

Steady trades mark Maxtor

Maxtor Corp. priced $300 million of 7-year convertibles to yield 2.375% for the coupon and 23% for the initial conversion premium.

The new 2.375s traded out of the gate at 100.5 while the older Maxtor 6.8% convertibles traded early at 99.5. A good chunk of the older issue will be taken out by the company, but a syndicate source didn't know the timing of the redemption.

Bookrunner for the Rule 144A deal was Citigroup. Merrill Lynch was a joint lead manager and Goldman Sachs was a co-manager.

The issue priced at the cheap end of talk, which was for a coupon of 1.875% to 2.375% and an initial conversion premium of 23% to 27%.

A sellside source pointed out that the Milpitas, Calif.-based supplier of hard disk drives doesn't yet have mobile disk drives for the high growth laptop disk drive market.

"They're a little late to the party," with no offering in the laptop sector. He said the fact that they're trying to enter the 1 inch and below disk drive space, but that that isn't expected to happen until the middle of next year.

"It will be interesting to see what they do with the buyback [of convertibles]; whether they keep cash on the balance sheet or add to capex plans."

For his part, he liked NII Holdings for its good track record on debt and in other areas and said another interesting question is what NII Holdings will do with its debt including repurchases or refinancings.

NII's convertibles gain as stock slips

NII Holdings priced $300 million of 20-year convertible notes with a 2.75% coupon, and 30% for the initial conversion premium. The notes were re-offered via bookrunner Goldman Sachs at 98.5.

The notes priced at the cheap end of talk, which was for a coupon of 2.25% to 2.75%, and an initial conversion premium of 30% to 35%.

The notes are non-callable for five years, and are putable in years 5, 7, 10, and 15.

Based in Reston, Va., NII provides Nextel brand digital wireless communication services in Latin America.

The company plans to use proceeds for general corporate purposes, which may include expansion of its existing network.

NII's two older bonds are well in the money. The 2.875% convertible due 2034 traded Wednesday at 152 and the 3.50% convertible due 2033 traded at 290.

Delta, Northwest converts stem slide

The convertibles of Delta Air Lines and Northwest Airlines were mostly flat to slightly better, stemming a steep slide that has hit the debt and equity of both companies as investors look for a potential bankruptcy from Delta.

"Delta felt fine today, maybe even a smidge better," a Connecticut-based sellside trader said.

An early trade of Delta's 8% convertible due 2023 was reported at 17.50 versus a stock price of $1.95. But later it was seen at 18 bid, 18.50 offered. Delta shares closed down three cents, or 1.54%, at $1.92.

Northwest's 6.625% convertible traded early at 38 versus a stock price of $4.03. Its 7.625% issue was seen at about 35. Northwest shares closed up 18 cents, or 4.47%, at $4.21.

© 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.