New Fidelity slips dollar neutral; Chart, MF Global on tap; existing MF Global in trade

By Rebecca Melvin

New York, July 28 - Fidelity National Financial Inc.'s newly priced 4.25% convertibles closed out the day near par but down maybe 0.25 point on a dollar-neutral basis on their debut in secondary trading Thursday after the Jacksonville, Fla.-based insurance holding company priced $300 million of the seven-year senior notes at the cheap end of talk.

"They were weak, but part of that was a function of a lot of weakness today," a New York-based sellside trader said of the markets in general and of convertibles in particular.

Still the trader said he suspects that the new issuance will face a little more resistance in the convertible market now given more supply and dampened demand due to more uncertainty down the road.

"I expect a shifting at the margins toward more price sensitivity given recent convertibles supply and market uncertainty," the trader said.

The supply boost included two new deal launches on Thursday, improving a one deal-a-day trend that marked most of the week.

The new launches were from MF Global Holdings Ltd., a known convertibles issuer, and Chart Industries Inc., a new face in the convertibles space.

MF Global's existing convertibles were active in trade with the MF Global 1.875% convertibles of 2016 said to be a little weaker while the MF Global 9% convertibles due 2038, some of which is being repurchased with proceeds of the new deal, seen steady.

MF Global, a New York-based financial company, launched $300 million of seven-year convertible senior notes seen pricing after the market close Thursday, and Chart Industries saw its shares drop after the Garfield Heights, Ohio, engineering-procurement-construction company launched a $230 million offering of seven-year convertibles also for pricing after the close.

The new deals weren't seen as particularly cheap, although one sellsider said he preferred the [Chart] deal over the MF deal because MF is a little more levered. He also said, "I expect the Chart will get beat up by convert arbs, creating a good entry point."

Convertibles also saw a couple of casualties, namely Alcatel-Lucent, which saw its shares slump 20% on a disappointing outlook, and Clearwire Corp., after the Sprint-LightSquared deal.

Alacatel's 2.75% convertibles traded down 0.5 point to 97.5, and Alcatel's preferred shares traded down a point to 98, according to a New York-based sellside analyst, who added both are low-delta names.

Fidelity puts in weak debut

Fidelity National's newly priced 3.5% convertibles were seen late in the session at 100 bid, 100.25 offered versus the closing share price of $16.40.

Shares of the insurance holding company ended up slightly, and sources said the weak debut represented something of a slip on a dollar-neutral basis.

"[Shares] opened lower and closed higher," a syndicate source said by way of indicating that the convertibles put in a weak performance.

Out of the chute, the new convertibles were seen at 99.75.

The $300 million of seven-year convertible senior notes came at the cheap end of talk, which was for a coupon of 3.75% to 4.25% with an initial conversion premium of 32.5% to 37.5%.

There is an over-allotment option for up to an additional $60 million, which was upsized from an initially talked $45 million greenshoe.

The deal was sold via joint bookrunners Bank of America Merrill Lynch and J.P. Morgan Securities LLC. Wells Fargo Securities LLC was joint lead manager, and co-managers were U.S. Bancorp, Stephens Inc. and Jefferies & Co.

The notes are non-callable and have no puts. There is takeover protection and net share settlement. There is no contingent conversion.

Proceeds will be used to repay debt, for share repurchases and for general corporate purposes.

A portion of the proceeds and concurrent borrowings under Fidelity's revolving credit facility was used to repurchase $75 million of common stock to acquire shares potentially being sold as part of hedging transactions with certain investors in the notes.

MF Global active

MF Global's 1.875% convertibles due 2016 were seen around 98 and MF Global's 9% convertibles were about 118.5. Both issues were active in trade.

MF Global priced $250 million of the 1.875% five-year convertible senior notes in February.

There was some selling of convertibles in general as fund managers made room in their portfolios for the new supply coming on line.

MF plans to price $300 million of seven-year convertible senior notes after the close of markets Thursday that were talked to yield 2.875% to 3.375% with an initial conversion premium of 32.5% to 37.5%, according to market sources.

The registered, off the shelf deal has a $45 million over-allotment option and is being sold via Goldman Sachs & Co. and Citigroup Global Markets Inc. as joint bookrunners.

Co-managers are Bank of America Merrill Lynch, JPMorgan, Deutsche Bank Securities Inc. and RBS Securities Inc.

The notes are non-callable. There are no puts. There is standard dividend and takeover protection.

Proceeds will be used to repurchase $109.1 million of MF Global's outstanding 9% convertible senior notes due 2038, for general corporate purposes and to fund the cost of convertible note hedge transactions.

New York-based MF Global is a global broker-dealer of commodities and listed derivatives.

Chart seen slightly cheap

Using assumptions provided by the underwriter, Chart's planned $230 million of seven-year convertibles were seen at fair value at about 101. The inputs being used were 500 basis points over Libor and 35% volatility at the midpoint of talk, according to a New York-based sellside trader.

A second source said that at the middle of price talk, using a 0.35% borrow cost assumption and 45% volatility, with 500 bps spread to swaps, the bond modeled $106.14, according to Kynex.

"However, even using a 600 bps spread, the issue models at $103.57 at the middle of price talk," the sellside analyst said.

The convertibles were talked at 1.75% to 2.25% coupon with an initial conversion premium of 27.5% to 32.5%.

The registered deal has an over-allotment option for an additional $34.5 million and is being sold via joint bookrunners JPMorgan and Morgan Stanley & Co. LLC, with co-manager Piper Jaffray & Co.

The bonds are non-callable with no puts. They may be net share or cash settled at Chart's option. There is standard dividend and takeover protection.

Up to $175 million of proceeds will be used to purchase Chart's senior subordinated notes due 2015, with remaining proceeds to fund the cost of convertible note hedge transactions and, if applicable, capped call transactions, and for general corporate purposes.

Chart is a Garfield Heights, Ohio, supplier of products and systems for low-temperature and cryogenic applications.

Mentioned in this article:

Alcatel-Lucent NYSE: ALU

Chart Industries Inc. Nasdaq: GTLS

Clearwire Corp. Nasdaq: CLWR

Fidelity National Financial Inc. NYSE: FNF

MF Global Holdings Ltd. NYSE: MF

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