GM up on bondholder deal; Allegheny, Terex draw interest; Alliance, Penson, Take-Two quiet

By Kenneth Lim

Boston, May 28 - General Motors Corp. gained further on Thursday on another active session after the company said a bondholder panel accepted a sweetened deal.

Market sources said buyers were hopeful that a quick bankruptcy could improve the company's chances for a recovery and boost its new stock, which is what debt holders would receive.

Allegheny Technologies Inc. was the bright spot among the new convertibles, trading more than 4 points above par on its secondary market debt as investors said the deal looked cheap.

Alliance Data Systems Corp.'s deal was quieter, with trading seen to be confined to the bookrunners after the deal arrived cheaper than price talk.

Terex Corp.'s planned $150 million offering had a strong showing in the gray market, with observers noting that the deal's cheapness and the use of proceeds were also some of the same reasons that helped the Allegheny deal.

Penson Worldwide, Inc.'s planned $50 million deal and Take-Two Interactive Software Inc.'s planned $100 million offering were quiet in the gray market with the small deal sizes drawing only limited interest, but analysts saw price talk as cheap.

GM firms up

General Motors' convertibles were higher Thursday after the company said a committee of bondholders had accepted a sweetened exchange offer.

The General Motors 5.25% convertible due 2032 was 0.25 point higher at 2.40, while the 6.25% convertible due 2032 also gained 0.25 to trade at 2.4. The 1.5% convertible due June 1, 2009 was lower at 2.625, down by 0.75 point.

General Motors common stock closed at $1.12, down by 2.61% or $0.03.

"It's just some people trying to gamble on the bankruptcy," a sellside convertible trader said.

Detroit-based General Motors on Thursday said a committee of bondholders had accepted a sweetened exchange offer for its unsecured bonds. The auto maker will give holders of $27 billion of its debt warrants for a 15% equity stake in a reorganized General Motors in addition to the 10% equity stake originally offered.

A deal suggests that the company will soon file for bankruptcy protection, but it also improves the chances of a speedy move out of bankruptcy, the trader said.

"The debt right now is trading based on what people think they can get, so if they're offering more the prices of the converts will go up," the trader said. "Bondholders are getting equity, and if the company can get out of bankruptcy sooner and the business recovers earlier, that equity's going to be more attractive. I think this is a good solution for both sides out of a bad situation."

Allegheny shines on debut

Allegheny's new 4.25% convertible senior notes due 2014 traded at 104.5 against a stock price of $33.25 on Thursday to put up a strong start in the secondary market.

The common stock rose 4.07%, or $1.31, to close at $33.46.

"The stock's up," a sellside analyst said.

The $350 million deal priced at the midpoint of talk with an initial conversion premium of 30% after the market closed Wednesday. There is an over-allotment option for an additional $52.5 million.

There convertibles were sold at par.

J.P. Morgan Securities Inc. and Citigroup Global Markets Inc. were the bookrunners of the registered shelf offering.

Allegheny concurrently priced an upsized $350 million offering of 10-year senior notes at a coupon of 9.375% to yield 9.5%, a spread of 578.5 bps over Treasuries. The company initially planned to issue $300 million of straight debt.

Proceeds of the convertibles are earmarked to manage liabilities and other obligations, such as by making voluntary contributions to the company's defined benefit pension trust and contributions to trusts established to fund retiree medical benefits. Proceeds from the straight notes will be used to buy all of its $300 million principal amount of 8.375% notes due 2011 under a tender offer. Allegheny is offering $1.06 on the dollar for the 2011 notes.

Pittsburgh-based Allegheny is a diversified specialty metals producer.

An outright analyst said "the convertible was just priced cheaply, and then on top of that we thought the raise itself was a positive" for the company's fundamentals.

The outright analyst noted that investors and bookrunners are now more focused on going beyond that initial pop in new deals after the first ones this year were priced extremely cheap.

"If you look at the way the new issues were trading, the first new issues were just gangbusters," the analyst said. "They were priced cheap, they traded very well, but it seemed like everybody was getting in on it and everybody's getting in to flip. Recently the dealers are tightening up their books, putting them in firmer hands, putting them with buyers who are more likely to hold."

"They're trying to consolidate the distribution a little bit more," the analyst added. "They're looking for real owners, trying to weed out the ridiculous oversubscribing by [an investor] that asks for 2 million and they want only 500,000.'

Alliance starts out quiet

Alliance Data's new 4.75% convertible senior note due 2014 had a quiet start after the deal was priced cheaper than talk.

"They came as a package deal," a sellside convertible trader said. "No stock. Everybody's just trading with the bookrunners."

Alliance priced the $300 million deal after the close on Wednesday with an initial conversion premium of 18%.

Price talk was for a coupon of 3.75% to 4.25% and an initial conversion premium of 20% to 25%.

There is an over-allotment option for an additional $45 million in the Rule 144A deal.

Barclays Capital Inc., J.P. Morgan Securities Inc. and Bank of America-Merrill Lynch are involved in placing the deal.

Proceeds and related warrant transactions will be used to buy back about $74.9 million of Alliance common stock, to pay for about $44.1 million in costs for convertible note hedge transactions and for general corporate purposes, which may include repaying outstanding revolving debt.

Alliance is a Dallas-based marketing services company.

A buysider said the deal may have suffered from a slight dampening of the initial excitement for new convertibles after some of the recent offerings did not trade as well as expected on the secondary markets.

"I feel like there was a lot of jumping on the bandwagon to get the new paper," the buysider said. "With the poor performance of some of the recent new issues, some of the guys on the buyside have had less enthusiasm."

Terex sees early interest

Terex's planned $150 million of six-year convertible senior notes was at 102 bid, 104 offered in the gray market on Thursday ahead of expected pricing after the market closed.

Price talk was for a coupon of 4% to 4.5% and an initial conversion premium of 20% to 25%.

There is an over-allotment option for an additional $22.5 million.

Credit Suisse, Citi and UBS Investment Bank are the bookrunners of the off-the-shelf offering.

The Westport, Conn.-based industrial equipment maker is concurrently offering $300 million of senior notes and about $150 million, or 11 million shares at about $13.64 apiece, of its common stock. The common stock offering has a greenshoe of an additional 1.65 million shares, or about $22.5 million.

Proceeds of the debt and equity offerings will be used to pay down outstanding amounts under a senior credit facility and for general corporate purposes.

A sellside analyst said the Terex deal looked more than 5% cheap, and it was attractive for similar reasons to the Allegheny deal.

"This is a company that's very cyclical just like Allegheny, and it could take a long time to recover from the downturn, but they're redoing their capital structure, getting out of maturing debt," the analyst said.

The offering was more compelling from a hedged perspective because the uncertain outlook for the stock may not be enough for outright buyers, the analyst said.

"If you're an outright, you're going to believe the stock's going to go up," the analyst said.

Penson, Take-Two quiet in gray

The planned offerings by Penson and Take-Two were overlooked in the gray market amid all the other new and bigger deals vying for investors' attentions, observers said.

"The idea of seeing a $100 million deal in the gray market, that's just not going to happen," a convertible trader said.

Penson, a Dallas-based securities clearing firm, planned to price $50 million of five-year convertible senior unsecured notes on Thursday after the market closed with price talk at a coupon of 7.75% to 8.25% and an initial conversion premium of 12.5% to 17.5%, market sources said.

Penson common stock closed at $8.53 on Wednesday, down by 24.85% or $2.82.

There is an over-allotment option for an additional $10 million.

JPMorgan is the bookrunner for the Rule 144A offering.

Proceeds will be used to pay down some of the company's existing $70 million of corporate debt, provide working capital and for other general corporate purposes.

Take-Two, a New York-based software games developer, planned a $100 million offering of five-year convertible senior unsecured notes for Thursday after the market closed, with price talk at a coupon of 4.25% to 4.75% and an initial conversion premium of 20% to 25%.

The notes will be offered at par.

Bookrunners Barclays Capital Inc. and J.P. Morgan Securities Inc. have an over-allotment option for an additional $15 million in the off-the-shelf offering.

Proceeds will be used to pay for a convertible note hedge transaction and for general corporate purposes.

The small deal sizes were a limiting factor in terms of drawing interest, one buysider said. But a sellsider said both deals looked attractive at first glance.

"Both model out optically cheap," the sellsider said. "But they're really small deals."

Mentioned in this article:

Allegheny Technologies Inc. NYSE: ATI

Alliance Data Systems Corp. NYSE: ADS

General Motors Corp. NYSE: GM

Penson Worldwide, Inc. Nasdaq: PNSN

Take-Two Interactive Software Inc. Nasdaq: TTWO

Terex Corp. NYSE: TEX

© 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.