Market weighs new bank deals; NetApp gains on debut; American Oriental cancels offering

By Rebecca Melvin

New York, June 5 - It was raining bank deals in the convertible bond market on Thursday as offerings emerged from three different banks in addition to UCBH Holdings Inc., which announced a deal after Wednesday's close.

Among the new deals was an offering from Webster Financial Corp. via Merrill Lynch with J.P. Morgan Securities Inc. and Sandler O'Neill & Partners acting as co-managers. The issuer planned to price $225 million of perpetual convertible preferred stock talked with a dividend of 8% to 8.5% and an initial conversion premium of 22.5% to 27.5%.

"Like is a strong word. But I think it's worth looking at" a Connecticut-based buysider said. Another buyside financial analyst didn't like the company, however.

Webster Financial was offered in the gray market at 101.5 for 1,000 convertibles, but no left side for the deal materialized.

Among other issuers to announce offerings was Citizens Republic Bancorp Inc., which planned to price $200 million of common stock and contingent convertible perpetual preferred stock in concurrent offerings. Also, PFF Bancorp Inc. said it intends to offer convertible senior secured notes due 2009 and shares of common stock, with proceeds earmarked to strengthen the bank's capital levels and for retirement of a secured commercial bank loan.

PFF's offering was sort of a phantom in the market as no one saw any talk or timing, and the deal appeared not to be imminent.

Another new deal was aborted Thursday. American Oriental Bioengineering Inc. said it was canceling its proposed $125 million convertible preferred stock offering announced June 2 due to market conditions that resulted in terms that weren't acceptable to the company.

Market players said the offering wasn't well-received for a combination of reasons, including its structure, which included a contingent put that wasn't well-understood, and also because the financials and business of the issuer were unclear.

American Oriental is a China-based drug company that markets both western oriented and traditional Chinese medicine.

The new NetApp Inc. 1.75% convertibles released for secondary market trading on Thursday gained on their initial day of trade, closing at 102.25 versus a share price of $24.25, making a point for hedged investors, according to a syndicate source.

Otherwise the tone of the convertibles market was described as "strong pretty much across the board" as stocks gained solidly, and trading activity continued past the noon hour and perhaps intensified in the second half of the session, which was unusual.

The positive tone precipitated action even in names that are not heard from much, including FiberTower Corp., which saw its 9% convertibles add, although maybe not as vigorously as its underlying shares, which jumped 11.45%.

A sellside trader active in the name Thursday called the convertibles unchanged in terms of valuation.

Four bank deals

Financials remained a focus not only of secondary trading but also became central to the primary market Thursday. The firm tone may have encouraged issuers as well as the fact that June marks the quarter end, according to market sources.

"If you want to raise capital this would be a good time to do it before the end of the quarter to raise your Tier one. It's probably as simple as that," a Connecticut-based buysider said.

Two of the deals were described as having bad borrow. The borrow on UCBH was described as bad or good depending on who you talked to.

One source said Webster was worth looking at but said his firm wasn't getting involved in any of the new deals announced Thursday.

Webster's registered deal is for $225 million of perpetual convertible preferred stock, talked with a dividend of 8% to 8.5% with an initial conversion premium of 22.5% to 27.5%.

There is an option to purchase up to $25 million of additional shares to cover possible over-allotments.

The preferred stock will be non-callable for five years, and holders will have the right at any time to convert into common shares, plus cash in lieu of fractional shares.

Proceeds from the offering will be used for general corporate purposes, including increasing liquidity and providing additional capital.

Shares of the Waterbury, Conn.-based Webster Financial (NYSE: WBS), the holding company for Webster Bank, NA, dropped $3.44, or $13.43, to $22.18 on Thursday.

Shares of UCBH Holdings (Nasdaq: UCBH) were down only 12 cents, or 3%, at $3.85 ahead of pricing of $135 million of non-cumulative perpetual convertible preferred stock expected after the market close.

The preferred stock was talked to yield 7.5% to 8% with an initial conversion premium of 20% to 25%, according to a syndicate source.

Merrill Lynch & Co. is serving as the bookrunner.

The offering will be made under UCBH's automatic shelf registration statement filed with the Securities and Exchange Commission on Wednesday.

The preferreds have five-year hard call protection and are provisionally callable thereafter subject to a 130% price hurdle.

San Francisco-based UCBH Holdings is the holding company for United Commercial Bank, a state-chartered commercial bank serving Chinese communities and American companies doing business in China.

Separately, Fitch Ratings said it expects to rate Citizens Republic Bancorp's perpetual convertible preferred stock BB+. The Flint, Mich.-based regional bank planned to issue $200 million of convertible non-cumulative perpetual preferred stock and common stock.

Proceeds will be used to build liquidity at the parent company.

Fitch said the common and preferred stock will materially strengthen the issuer's capital base but that the outlook is negative because of asset quality problems and tough economic conditions.

Shares of Citizens Republic (Nasdaq: CRBC) plunged 80 cents, or 15%, to $4.39 on Thursday.

The final deal was PFF Bancorp Inc.'s $460 million private placement offering of units, consisting of convertible senior secured notes due 2009 and shares of common stock.

Under the terms of the proposed placement, the company will be required to seek stockholder approval to amend the company's certificate of incorporation to increase the number of shares of common stock the company is authorized to issue.

American Oriental had a lot of hair

American Oriental had planned to sell about $125 million of principal income perpetual equity redemption securities, or Pipers, talked with a dividend of 1.5% to 2% with an initial conversion premium of 12.5% to 17.5%.

Piper Jaffray was the bookrunner of the offering, with Oppenheimer and CRT Capital acting as co-managers.

The preferreds were non-callable for five years and provisionally callable thereafter at 130%. There was a contingent put in years five, seven, 10 and 15 and annually thereafter.

The put was contingent on the Pipers trading at 105% of liquidation preference of $1,000.

"It had a lot of hair on it. People had a tough time getting their arms around it," a Connecticut-based sellside analyst said.

The contingent put meant that the company wouldn't have had to account for it in the new bifurcated accounting [rules] as it was putable only contingently. It didn't seem that the economics were changed. But people on the hedge might have been worried about unwinding it," the sellsider said.

"They were giving stock at a 10% discount to the VWAP, so that even if things moved against you, it should have made up for it. But that didn't convince enough people," he said.

Net proceeds had been earmarked for repurchases of outstanding stock, funding a prepaid forward contract; and for working capital, general corporate purposes, and possible acquisitions and investments.

Shenzhen, China-based American Oriental makes and distributes pharmaceuticals and nutraceuticals.

Shares of the company (NYSE: AOB) closed up 34 cents, or 3%, at $11.42.

Financials again

Traders said that "it was pretty interesting" and "pretty active."

Financials, which were higher early in the session but ended mostly unchanged, were again a focus in the convertibles market. Bank of America Corp.'s 7.25% series L perpetual convertible preferred stock was seen closing at 998.2 versus a share price of $31.99 on Thursday, compared with 986 versus the same closing share price on Wednesday.

Shares of the Charlotte, N.C.-based bank (NYSE: BAC) were unchanged, and didn't move much in after-hours even though the company announced that the Federal Reserve had approved its purchase of Countrywide Financial Corp.

The transaction remains subject to the approval of Countrywide shareholders and other closing conditions. Closing is expected to occur in the third quarter.

Other banks, including regional banks, were also little changed. Huntington Bancshares Inc.'s 8.5% perpetual convertible preferred shares were 939.895 versus a share price of $8.39, virtually unchanged from 939.9 versus a share price of $8.41 on Wednesday.

Coal names jumped again, including Patriot Coal Corp. and Peabody Energy Corp.

In telecom, FiberTown's 9% convertible senior notes due 2012 traded in the mid to high 70s, at about the same level they had been in the middle of May, when they last traded.

Shares of the San Francisco-based telecom (Nasdaq: FTWR) gained 19 cents, or 11.45%, to $1.85.

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