Fifth Third mixed on debut; Energy Conversion gains; MF Global deal still uncertain; Leap quiet in gray

By Kenneth Lim

Boston, June 19 - New offerings dominated activity in the convertible market on Thursday, with Fifth Third Bancorp and Energy Conversion Devices, Inc. making their secondary market debuts.

Fifth Third's $1 billion offering had a mixed day, trading lower with its stock in the morning before recovering before the close.

Energy Conversion, meanwhile, saw its offering trade higher mostly on the strength of its stock.

Coming deals by MF Global Ltd. and Leap Wireless International Inc. remained quiet in the gray market.

MF Global's deal was seen as cheap, although investors remained uncertain about whether the deal was still on following a poor stock performance on Wednesday.

Leap Wireless also stayed under the shadows in the gray market with interest for its offering seen to be affected by concerns about the borrow.

After the close, CVR Energy, Inc. announced plans for a $125 million offering of five-year convertible senior notes.

Fifth Third volatile

Fifth Third's new 8.5% perpetual convertible preferreds had a mixed day on their first session in the second market.

The preferreds, which were sold in the form of $100 par depositary shares each worth 1/250th of a preferred share, were seen at 99 early Thursday with the common stock down, but the preferred bounced back with the stock in the afternoon to trade at 103.5 to 104 versus a stock price of $9.78.

Fifth Third common stock (Nasdaq: FITB) closed at $9.75 on Thursday, up by 5.29% or $0.49.

"They had a very volatile day," a sellside trader said. "Had a real volatile ride."

Fifth Third priced its $1 billion offering close to the cheap end of talk with an initial conversion premium of 25%. The offering was talked at a dividend rate of 8% to 8.5% and an initial conversion premium of 22.5% to 27.5%.

There is an over-allotment option for an additional $150 million.

Goldman Sachs, Credit Suisse and Merrill Lynch & Co. were the bookrunners of the registered shelf offering.

Fifth Third, a Cincinnati-based regional bank, said it will use the proceeds for general corporate purposes.

The deal had received positive reviews from investors, but enthusiasm for the notes may have been tempered by the glut of financial paper in the market, the trader said.

"I thought the pricing was OK," the trader said. "But it's the financials. The convertible market's starting to become saturated with financials."

Energy Conversion upsizes

Energy Conversion's new 3% convertible senior note due 2013 had a strong showing, trading at 103 against a stock price of $76.75 on Thursday.

Energy Conversion common stock (Nasdaq: ENER) rose 5.11% or $3.79 to close at $77.98 on Thursday.

The upsized $275 million offering priced after the close on Wednesday with an initial conversion premium of 27.5%.

The size of the deal was initially $225 million with an over-allotment option for an additional $33.75 million. The greenshoe is now for a further $41.25 million.

Price talk guided for a coupon of 3% to 3.5% and an initial conversion premium of 27.5% to 32.5%.

Credit Suisse Securities (USA) LLC and UBS Securities LLC were the bookrunners of the registered off-the-shelf offering, with JPMorgan Chase & Co., Deutsche Bank Securities and Lazard Ltd. serving as co-managers.

There was a concurrent $91.44 million public offering of 1.27 million common shares of Energy Conversion stock at $72 per share.

Energy Conversion, a Rochester Hills, Mich.-based maker of thin-film flexible solar laminate products for buildings, said it will use the proceeds to expand its solar laminate production.

The deal seemed to be trading close to its implied value, a sellside analyst said.

"I had it around where it's trading, at around 103 to 104-ish," the analyst said. "I pretty much had that, so it's traded up to fair value. I guess it was a cheap deal for everyone who got them."

A convertible trader said Energy Conversion's notes may have benefited from the strong stock performance.

"I actually didn't see that one at all," the trader said. "It's doing well, but the stock's up four points, right?"

MF Global still uncertain

MF Global's planned $300 million offering of convertible preferred stock and notes remained quiet in the gray market on Thursday as observers remained uncertain about whether the deal was still on following a poor stock performance on Wednesday.

"The main concern I had was just that the stock was just getting crushed yesterday," a convertible analyst said. "It actually made a decent turnaround today...There were some rumors that the deal may get pulled. I heard there was interest in the name, that was this morning, but there was fear that the deal could get pulled just because the stock went down so much."

MF Global common stock (NYSE: MF) gained 9.2% or $0.72 to close at $8.55 on Thursday. It fell about 41% or $5.43 on Wednesday to $7.83.

Sources close to the deal said the offering had not been called off.

MF Global is offering $150 million of perpetual convertible preferreds talked at a dividend of 4.75% to 5.25% and an initial conversion premium of 10% to 15%. It is also offering $150 million of 30-year convertible senior notes talked at a coupon of 4% to 4.5% and an initial conversion premium of 15% to 20%.

Each offering has an over-allotment option for a further $30 million.

Banc of America, Citigroup, J.P. Morgan Securities Inc. and Morgan Stanley are the bookrunners of the Rule 144A deals.

MF Global is a Bermuda-based futures and options broker.

The convertible analyst said the notes look cheaper than the preferreds, but both looked cheap.

"Their cash is good," the analyst said. "They have some availability on their revolver, debt is less than cash. The problem I had is, based on their market cap, it's tough to look at any comps really. One comp that's possible is Nasdaq, but their market cap is five times what MF's is. So it's tough to look at comps. On the surface it looks really cheap."

A convertible trader said that despite the perceived cheapness of the offering, investors remained cautious.

"They do model really cheap," the trader said. "The question is, is it cheap enough?"

Leap mostly quiet

Leap Wireless's planned $200 million offering of seven-year convertible senior notes was also quiet in the gray market on Thursday amid concerns about the availability of stock borrow.

Leap's deal, which was expected to price after the market closed, was talked at a coupon of 4.5% to 5% and an initial conversion premium of 72.5% to 77.5%.

The deal will also have warrant coverage with each warrant having a strike price at a 72.5% to 77.5% premium of the underlying shares.

Leap common stock (Nasdaq: LEAP) finished at $52.51 on Thursday, lower by 3.92% or $2.14.

There is an over-allotment option for an additional $30 million.

Goldman Sachs and Morgan Stanley are the bookrunners of the offering, with Citigroup and Deutsche Bank as co-managers. The deal will be distributed under Rule 144A.

There is a concurrent offering of $200 million of senior unsecured notes due 2015.

Leap Wireless, a San Diego, Calif.-based provider of digital wireless services in the United States under the Cricket and Jump brands, said the proceeds will be used for working capital and other general corporate purposes.

The conversion premium seems high at first glance, but the deal actual models fine, a sellside analyst said.

"It's a hybrid, so you get the warrants," the analyst said. "I think it models pretty cheap, actually, but it's a growth story. They offer unlimited talk and broadband services to a demographic that's largely young, lower income, ethnic, and they're trying to grow their business by expanding service quality."

The analyst said interest in the offering is likely to come mostly from hedge investors.

"For outrights, it's longer dated, bottom of the cap structure, so there's not much downside protection compared to the stock," the analyst said. "For the stock, I'm not getting a good sense one way or another. It's kind of neutral-ish."

A sellside trader said there were differing accounts about the availability and quality of the stock borrow.

"I've heard different stories about whether the borrow is there or not," the trader said. "It appears very attractive, but a couple of people are saying, 'What am I not seeing?' Someone told me that you have to look before you Leap."

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