Abgenix bid at 102.5 in gray market; NRG goes to 105; Gateway, DOV, BearingPoint rush market

By Ronda Fears

Nashville, Dec. 15 - Three new deals rushed to launch Wednesday, which many market sources figured would be the last deals pitched to the convertible market this year. In addition, the European convert market was seeing a year-end rush of new deals, with at least four on the table for Wednesday or Thursday.

"There might be something pop up," said an origination official, "but I wouldn't be telling an issuer to do anything after today."

Certainly, business is expected to be slowing across the board from the middle of next week through the New Year.

Secondary action took a backseat to primary dealings on Wednesday, but the big news was that the rumored $35 billion merger of Nextel Communications and Sprint Corp. became official. On that, risk arbitrageurs continued to set up positions, and some were preparing for a possible rival bid from wireless giant Verizon Communications Inc. Not a lot happened with the Nextel convertibles, which were hovering at 102.5 bid, as a result of the focus on the stock.

Nextel Partners Inc. was crushed by the news, as its fate was yet uncertain. The old 1.5% due 2008 converts dropped 7 points and the new 1.5% due 2008 lost 4.25 points.

At bat after the close Wednesday was Abgenix Inc. The three deals launched Wednesday are for Thursday's business.

BearingPoint credit cut

McLean, Va.-based consulting firm for computer and data services BearingPoint Inc. launched $350 million of 20-year convertible notes after the close Wednesday in a two part deal - a tranche non-callable for seven years talked to yield 2.25% to 2.75% with a 30% to 35% initial conversion premium and a tranche non-callable for 10 years talked to yield 2.375% to 2.875% with a 30% to 35% initial conversion premium.

In connection with the offering, BearingPoint said it expects to replace its current credit facility with a new $400 million senior revolving credit facility, and proceeds from both transactions are earmarked to repay its $220 million of senior notes and to repay $135 million of borrowings on and terminate its existing revolving credit facility. Along with retiring the senior notes, BearingPoint said it would pay a make-whole premium, plus other expenses, totaling $27 million, which will be charged to earnings in fourth quarter.

Also Wednesday, Standard & Poor's assigned a BB- rating to the convert but also lowered BearingPoint's senior unsecured ratings to BB+ from BBB-, with a negative outlook, citing currently weak profitability and cash flow measures in a very competitive operating environment.

Gateway to repay AOL

Irvine, Calif. personal computer maker Gateway Inc. was marketing $250 million of convertible notes in five-year and seven-year tranches with both talked to yield 1.25% to 1.75% with a 42.5% to 47.5% initial conversion premium, planning to use proceeds to retire convertible debt owed to Time Warner Inc.'s America Online.

On the debt retirement, Gateway also said its earnings per share will improve significantly.

Gateway said that by retiring the series A and series C preferred stock, plus buying back 2.7 million shares from AOL it would see a 24 cent gain in earnings per share. Gateway boosted its fourth-quarter earnings guidance after the market close Wednesday, saying on a revenue range to $1.0 billion to $1.025 billion, it now sees GAAP EPS in a range 22 to 24 cents, better than previous outlook for break-even to 1 cent. Fourth quarter non-GAAP EPS before restructuring, transformation and integration costs were also boosted to a range of 3 to 4 cents from a range of 1 to 2 cents.

The company expects to end 2004 with approximately $550 million to $575 million in cash.

For 2005, Gateway said it is projecting a revenue range of $4 billion to $4.25 billion and GAAP EPS of 15 to 17 cents. Non-GAAP EPS before restructuring, transformation and integration costs are expected to be 17 to 19 cents.

Gateway shares closed Wednesday off 4 cents, or 0.62%, at $6.44, but in after-hours trading the stock was seen down 18 cents, or 2.8%

DOV launches small deal

DOV Pharmaceutical Inc., the Hackensack, N.J.-based biotech concern, pitched out a $65 million offering of 20-year convertible notes after the close Wednesday, with guidance for a 2.5% to 3.05% coupon and 25% to 30% initial conversion premium.

The company said proceeds would be used for general corporate purposes, including working capital, research and development, capital expenditures and potential acquisitions.

Abgenix deal seen 2% cheap

Abgenix's new $150 million convert - talked to yield 1.75% to 2.25% and at a 25% to 30% initial conversion premium - was last seen in the gray market Wednesday with a bid of 2.5 points over issue price.

A sellside convertible analyst said that, at the middle of price talk, he modeled the new Abgenix convert about 2% cheap, using a credit spread of 700 basis points over Treasuries and a 55% stock volatility.

Proceeds are earmarked in part to take out its 3.5% convert due 2007, which was seen at par Wednesday with Abgenix shares at $10.

Abgenix stock closed off 90 cents, or 8.36%, at $9.86.

NRG upsized, goes to 105

With heavy books and buyers "frothing at the bit," as one salesman put it, NRG Energy Inc. upsized its private placement convertible to $420 million from $400 million and still printed the perpetual convertible preferreds with aggressive terms relative to pre-market guidance, which had even been tightened once before pricing.

Still, after breaking to trade, the paper went north of 103.5, where it was last seen in the gray market before pricing. Citigroup Global Markets Inc., an equal placement agent on the deal with Deutsche Bank Securities, took the new issue out Wednesday at 105.

The issue was sold at par of $1,000 with a 4.0% dividend and 24.5% initial conversion premium - at the tighter end of revised guidance for 4.0% to 4.25%, up 23.5% to 25%, which had been squeezed from original price talk for 4.0% to 4.5%, up 22% to 25%.

Analysts from sellside and buyside were pegging the new NRG private placement anywhere from 1.7% expensive to 2.5% cheap, roughly at the middle of the original price talk.

"It was not a bad set-up, relative to what's out there - low vol, decent cash flow return, but I did it small,' said one hedge fund trader.

NRG terms attracted buyers

NRG's history aside, players said the convert's popularity was dictated mostly by the terms. Even though it priced aggressively in relation to indicative terms -both original and amended - they were more generous than most buyers have seen on recent new issues, even amid a rising interest rate environment.

"First of all, it's a pretty healthy company coming out of bankruptcy, seems to be fiscally sound," said a hedge fund convertible portfolio manager. His fund's convert trader said they bought the NRG preferred and "legged into" the common stock and then sold some "expensive" $35 calls "to cement the hedge."

NRG stock soared on the heels of the convert placement, gaining $2.19 on the day, or 6.82%, to close Wednesday at $34.31.

There were lots of players getting involved in the NRG convertible on an outright basis, though.

"We like it outright, too. The stock has had a tremendous run," said another hedge fund manager. "It has a nice yield with a modest premium. I mean when have we seen a 24.5% premium? It's kind of like back to the future."

NRG story looking up

Sources who got involved in the new NRG convert liked its plans to buy back stock and the debt retirement as well - both moves that will help its outlook.

"Yes, we were involved," one buyer said, adding, "Almost any story that is a retirement of 8% debt does well."

Minneapolis-based NRG, a power generation firm, has earmarked proceeds to redeem a portion of its 8% senior secured second lien notes due 2013. That, in turn, will allow the company to use existing cash balances to repurchase 13 million shares of stock held by investment partnerships managed by MatlinPatterson Global Advisors LLC at a discount. After the stock buyback, MatlinPatterson's stake in NRG will be reduced to a point where it will no longer have a position on the NRG board of directors.

On exiting bankruptcy in December 2003, NRG issued the $1.25 billion of 8% senior secured second lien notes due 2013 (B2/B+) and in January 2004 a $503.5 million proceeds add-on was sold.

NRG tightens bank facility too

NRG squeezed the terms on its new credit facility, too - by 25 to 62.5 basis points - amid the enthusiasm for the convert exhibited Wednesday and excitement over the new bank paper, which has already been established going into the convertible marketing period.

The $950 million credit facility (Ba3/BB), via joint lead arrangers Credit Suisse First Boston and Goldman Sachs, was structured as a $450 million seven-year term B, a $350 million seven-year synthetic letter-of-credit facility and a $150 million three-year revolver.

On Wednesday the term loan was talked at Libor plus 187.5 bps, with six months of soft call protection and a call price of 101; it had been talked at Libor plus 250 bps. The revolver was tightened to Libor plus 250 bps, from Libor plus 275 bps.

Proceeds from the new credit facility are earmarked to refinance bank debt.

Sources in the bank loan market had said earlier this week that the new facility was already oversubscribed by Dec. 3, almost a week before the actual commitment deadline, with over $1.6 billion of commitments in the book, so it was expected to be a blow out.

European issuers rush in, too

There were several issuers in Europe rushing into the capital markets with new convertible offerings.

OMV AG, an Austria-based oil and gas concern, launched €550 million of four-year convertible bonds talked to yield 1.25% to 1.75% with a 35% to 40% initial conversion premium. OMV shares closed Wednesday in over-the-counter trading in the United States up $2.00, or 3.51%, to $59.00.

"The OMV new deal looks okay," a convertible fund manager in California said. "It's not a barn burner but the company [OMV] services some interesting markets in central Europe. I also liked the pricing on Karstadt, but did not get in on the deal."

Essen, Germany-based retailer Karstadt Quelle AG priced an upsized €156 million of convertible bonds to yield 4.5% with a 35% initial conversion premium. It was increased from €140 million and priced with a yield at the cheap end of talk of 4% to 4.5% and a conversion premium in the middle of talk of 30% to 40%.

There were a couple of other new deals pending abroad. International Bank of Taipei launched Wednesday $150 million of five-year convertible bonds with a 0% coupon and 15% initial conversion premium, talked with an offering price of 99.375 to 100.

Feringghi Capital Ltd. was offering $375 million of five-year convertible senior unsecured bonds talked to yield 1.55% to 2.05% with a 15% to 22% initial conversion premium. The 0% issue, convertible into shares of Khazanah Nasional Bhd. - guarantor of the bonds, has a put at the end of year two at 103.136 to 104.163. The bonds will be issued at par. Khazanah is the investment arm of the Malaysian government.

Market sources said the issue was believed to have priced with 1.90% yield and 18% premium, but that could not be confirmed.

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