AmeriCredit prices at wide end, Chesapeake at aggressive end; Casual Male bid up in gray

By Ronda Fears

Nashville, Nov. 12 - Another tiny new deal emerged Wednesday as Radisys Corp. returned to tap convertible investors for $75 million. Another small deal, Casual Male Retail Group Inc.'s $75 million issue, was finding buyers eager to put it on, as it was bid 0.5 point over par in the gray market.

Pricing terms were mixed, however, albeit generally running cheap of fair value. Final terms were at opposite ends of guidance on AmeriCredit Corp., which priced at the wide end of talk, and Chesapeake Energy Corp., which priced at the aggressive end.

"It's an interesting dynamic taking place in the market right now [with regard to] new deal terms," said a convertible banker involved in some of the new deals.

"Investors are screaming for more yield, so you see the higher credits ending up at the wide end [of price talk] because they are pushing.

"But a junk-rated deal can get priced aggressively because, first, they start with a little more on the table, and then, too, those spreads are coming in so buying it today at par will look like a bargain next week or next month.

"The implied spreads already look good on these [high-yield] issues. There's several factors at work on that end of the credit spectrum."

Traders said the week's trickle of deals - $500 million so far - was spurring some secondary market action but Ford Motor Co. was the driving force behind a jolt of adrenaline that revved up the market, as the automaker rallied in the face of a downgrade from Standard & Poor's, lifted by news that the rating agency swung the credit outlook to stable from negative.

"It was a very busy day, very hectic," one dealer said.

"The volume on Ford alone was head-spinning. But there was a lot going on in our corner of the market."

Ford firmed against pressure from a downgrade to BBB-, just one notch away from junk, by Standard & Poor's because, traders said, the rating outlook was revised to stable from negative. (See full story elsewhere in this edition.)

"There was a stampede to the convert, the volume was off the charts," said a convertible dealer.

Ford's 6.5% convertible trust preferreds gained 2.25 points, or 4.86%, to close at 48.5 on the New York Stock Exchange with 3.1 million shares moving, compared with the three-month running average volume of 511,301 shares a day.

Ford stock rose 75c, or 6.09%, to close at $13.06, also on heavy volume. Some 35.5 million shares of Ford stock traded, compared with the average 9 million shares.

The convert dealer said Ford's straight bonds tightened along with the credit default swaps "maybe as much as 50 or 60 basis points."

New deal activity kept players rather busy too, traders said.

After the closing bell, Radisys launched $75 million of 20-year convertible notes, with three years of hard call protection, talked to yield 1.375% to 1.875% with a 23% to 27% initial conversion premium. There will be a full day of marketing, with pricing after the close Thursday.

The Hillsboro, Ore.-based computer networking firm said proceeds would be used for general corporate purposes, including working capital and potential acquisitions. Radisys' old 5.5% convertibles were called in August.

Radisys shares closed up 88c, or 4.35%, to $21.10 but were off by 69c, or 3.27%, in after-hours trading.

Also at bat after Thursday's close is Casual Male's $75 million of 20-year convertible notes, non-callable for three years, which are being sold on swap. The issue is talked to price to yield 5.0% to 5.5% with a 28% to 32% initial conversion premium.

Casual Male shares ended down 56, or 6.63%, to $7.89.

Lehman Brothers analysts put the Casual Male convertible 3.42% cheap at the middle of guidance, using a credit spread of 1,000 bps over Treasuries and a 45% stock volatility.

AmeriCredit sold $200 million of 20-year convertible notes, non-callable for five years, at par to yield 1.75% with a 32.5% initial conversion premium - at the cheap end of guidance for a 1.25% to 1.75% yield, up 32.5% to 37.5%.

AmeriCredit shares ended up 3c, or 0.21%, to $14.10.

At the middle of price talk, sellside analysts had put the AmeriCredit convert anywhere from right at about fair value to 4% cheap. Many players, as well as sellside analysts, expected the issue to price at the cheap end of guidance, given the somewhat tight borrow on the stock, despite the scarcity of new issues recently.

Merrill Lynch analysts put the AmeriCredit convert 0.33% cheap at the middle of price talk, using a credit spread of 600 bps over Treasuries and a 43% stock volatility.

Lehman Brothers analysts put it 4.13% cheap at the middle of guidance, using a credit spread of 500 bps over Treasuries and a 50% stock volatility.

Another sellside shop put AmeriCredit's convertible 0.7% cheap at the midpoint of talk, using a credit spread of 650 bps over Treasuries and a 48% stock volatility.

Chesapeake Energy got the opposite results, selling $150 million of perpetual convertible preferreds, with three years of hard call protection plus two additional years of provisional call protection, at par of 100 to yield 5.0% with a 37.5% initial conversion premium.

That deal sold at the aggressive end of price talk that put it pricing to yield 5.0% to 5.5%, up 32.5% to 37.5%. Some onlookers had anticipated the Chesapeake deal to price at the mid-to-cheap point of guidance, though, given the lack of stock borrow at a regular rebate.

Also Wednesday, Chesapeake sold $200 million of 6.875% senior notes due 2016, non-callable for five years, in the high yield Rule 144A market. The junk bond, via bookrunners Banc of America, Lehman and Deutsche Bank Securities, sold at 98.977 to yield 7.0%.

Merrill analysts had put the new Chesapeake convertible 2.4% cheap at the middle of price talk, using a credit spread of 510 bps over Treasuries and a 30% stock volatility.

Chesapeake shares ended off 22c, or 1.81%, to $11.93 and its existing convertible preferreds fell in tandem with the pressure on the stock from the new issue. The 6% perpetual convert dropped 1.5 points to 68.25 bid, 68.75 offered.

Photronics Inc. also fell on a dollar-neutral basis with the underlying stock, but did not experience the sell-off seen in the shares, traders said. The stock sold off sharply as Banc of America slashed its estimates for the current and upcoming quarters due to a lack of new design releases by chipmakers.

Elan Corp. plc's new convert was higher, however, on its earnings report and several other recent additions to the convertible universe gained ground.

Elan reported Wednesday a much narrower third quarter loss amid sharp decline in operating costs and massive asset sales. The cash-strapped Irish drugmaker also said its financial flexibility is adequate through to 2005, partly due to the new convertible sale.

Elan's new 6.5% convertible due 2008 was quoted up 2.125 points to 113.625 bid as the stock gained 21c, or 4.1%, to $5.33.

New converts from United Rentals Inc., Placer Dome Inc., Navigant International Inc. and Finisar Corp. were also higher, which one trader attributed to the ongoing healthy demand for new paper in the market.

Nextel Partners Inc. was up sharply, traders said, on news of a new $475 million senior credit facility, which will refinance existing bank lines and reduce interest costs. The newest 1.5% convert due 2008 was quoted at 117.25 bid, and the old 1.5% convert due 2008 was quoted at 171.75 bid.

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