Wesco gains, Kemet quiet on debut; FiberTower keeps rising; Red Hat higher on buyback; Invitrogen slips

By Kenneth Lim

Boston, Oct. 27 - The convertible bond market had another quiet session on Friday, with the new deal by Wesco International Inc. gaining on its debut after arriving within talk.

Kemet Corp.'s offering, however, was not actively traded after it priced at the rich end of talk.

FiberTower Corp. continued to trade well above par, climbing even higher despite concerns about the paper's lack of downside protection.

Red Hat Inc. bounced back outright after the company announced plans to buy back up to $75 million of the convertible series and $250 million of its common stock, one day after the shares took a hit from news of new competition from Oracle Corp.

Invitrogen Corp. fell on an outright basis but improved dollar-neutral after the company reported a third-quarter loss and missed expectations on its fourth-quarter forecast.

Wesco rises on debut

Wesco's new 1.75% convertible senior debenture due 2026 gained on its first day of trading after the deal priced within price talk.

The convertible traded at 101.75 against a stock price of $65.30. Wesco stock (NYSE: WCC) gained 0.21% or 14 cents to close at $65.44.

"We had about 12 markets today for Wesco, it's doing pretty well," a sellside convertible bond trader said.

Wesco on Thursday priced its $250 million offering within talk, at a coupon of 1.75% and an initial conversion premium of 35%. The convertibles were offered at par, and were talked at a coupon of 1.625% to 2.125% and an initial conversion premium of 32.5% to 37.5%.

The debentures are guaranteed on a senior subordinated basis by Wesco Distribution, the listed company's operating arm.

There is an over-allotment option for a further $50 million.

Lehman Brothers was the bookrunner of the Rule 144A offering.

Wesco, a Pittsburgh-based distributor of electrical construction products and supplies, said the proceeds of the deal will be used to help finance its previously announced acquisition of Communications Supply Holdings Inc.

"It was a decent deal," a sellside convertible bond analyst said. "It was just over 1% cheap at the midpoint, and the credit is pretty good."

The analyst said the deal could have been interesting for both outright and hedge investors.

"Wesco is a pretty good credit, so there's no concern there," the analyst said. "The volatility isn't like a biotech or a chip company, but you could set it up if you were hedged."

Kemet starts out quiet

Kemet's new 2.25% convertible senior note due 2026 did not see as much action on its first day of trading after the deal priced at the rich end of talk.

The $160 million deal was offered at par, and talked at a coupon of 2.25% to 2.75% and an initial conversion premium of 25% to 30%. The initial conversion premium was set at 30%. Kemet stock (NYSE: KEM) closed at $7.37, down by 1.21% or 9 cents.

There is an over-allotment option for a further $15 million.

Credit Suisse and Deutsche Bank are the bookrunners of the Rule 144A offering.

"I haven't seen any Kemets trade in the Street at all," a sellside convertible bond trader said. "It's really quiet."

Kemet, a Simpsonville, S.C.-based maker of capacitors, said the proceeds of the deal will be used to buy back up to $25 million of its common stock, to fund any future acquisitions and for general purposes.

FiberTower keeps climbing

FiberTower's new 9% convertible due 2012 continued to improve on Friday, jumping another 6 points outright as investors continued to buy into the paper's high yield and low premium, despite concerns about the risk.

The convertible was bid at 116.75 against a stock price of $7.45. FiberTower stock (Nasdaq: FTWR) gained 5.95% or 42 cents to close at $7.48 on Friday.

A sellsider called the offering, which priced at talk on Wednesday after the market closed, "an extremely risky proposition.

"There's an impossible borrow, and the further that they get from par, the further they're going to collapse premium wise," the sellsider said. "They're going to come in pretty sharply at some point...at 105 it's a totally different piece of paper than when it's at 118."

Considering the risk involved, the sellsider did not think the deal was mispriced, as some investors had speculated on Thursday. Iselin, N.J.-based FiberTower provides backhaul and access services to communications companies, and is currently loss-making with negative cashflow and very few assets.

"It's not mispriced, because that common could easily have gone to $6," the sellsider said. "You don't know if this company's going to make it or not...it's a difficult area to invest in for people."

"Converts used to get priced like this all the time," the sellsider said. "The difference being, deals used to be smaller, so that the borrow didn't become a problem."

The sellsider quipped that more of such deals should be issued.

"I think the convert universe could use 100 more deals like this," the sellsider said. "Because guys could pick and choose...that's how you get a home run."

Red Hat climbs on buyback

Red Hat's 0.5% convertible due 2024 improved almost 3 points outright on Friday on news of a buyback, making back most of losses incurred a day earlier.

The convertible traded at 96.75 versus a stock price of $14.875. Red Hat stock (Nasdaq: RHAT) gained 5.39% or 80 cents to close at $15.63.

"Red Hat was pretty active, came up on the buyback," a convertible bond trader said.

Red Hat on Friday announced plans to repurchase up to $250 million of its common stock and up to $75 million of its convertibles by Oct. 31, 2007. The company said it will purchase the securities from time to time on the open market or in private transactions, and the buyback program may be discontinued at any time.

The buyback will be funded with the company's working capital. Raleigh, N.C.-based Red Hat, a developer of open-source software, said it had cash and investments in debt securities of about $1 billion.

The announcement came a day after Red Hat stock was pummeled by news that rival Oracle was introducing a competing set of services at half the price Red Hat was charging.

"The buyback is coming at a time when the stock's near a low, so shareholders are probably going to be happy about this," a sellside convertible analyst said. "I guess there's a chance the buyback could be stopped before $75 million was actually bought back. It might also keep away takeover offers, if the stock recovers because of this."

Invitrogen slips outright on loss

Invitrogen's 3.25% convertible due 2011 retreated about 3 points outright on Friday, but improved on a dollar-neutral basis as the stock fell on the company's third-quarter loss and fourth-quarter outlook.

The convertible traded at 93.75 against a stock price of $56.375 on Friday. Invitrogen stock (Nasdaq: IVGN) fell 12.16% or $8.03 to close at $58.01.

"The stock really took a beating today," a buyside convertible bond trader said. "If you were hedged you probably did OK, but I would think the outright guys, outrights won't be too thrilled."

Carlsbad, Calif.-bsaed Invitrogen said late Thursday that it lost $129.8 million, or $2.53 per share, in the third quarter, from a $23.9 million, or 42 cents per share, profit a year ago. Excluding a one-time goodwill impairment charge, Invitrogen would have reported earnings per share of 87 cents.

Invitrogen, which provides biotech research products and services, also guided for fourth-quarter revenue around $310 million with earnings per share around the mid-80s in cents, lower than Street expectations of $338 million in revenue and 92 cents per share in profit.

Citigroup equity analyst Elise Wang on Friday cut her recommendation on Invitrogen stock to hold from buy, saying the company's margins were lower than expected. Wang also noted that management did not provide clarity on the company's outlook despite a strategic review.

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