Ford climbs further on upsize, new talk; First Potomac, Acadia flat on debuts; Superior Energy plans deal

By Kenneth Lim

Boston, Dec. 6 - Ford Motor Co.'s upsized $4.5 billion offering of 30-year convertibles and other new issues continued to hog the spotlight in the convertible bond market on Thursday, with Ford gaining further in the gray market ahead of pricing.

First Potomac Realty Trust and Acadia Realty Trust were flat on their first day of trading, as weak stocks and muted interest took some of the shine off the new issues.

MannKind Corp. was not seen in the gray market, but investors said its planned $100 million offering looked attractive but risky.

Meanwhile, Superior Energy Services Inc. launched a $350 million deal expected to price Thursday after the market closes.

With the rest of the secondary market relatively slow in typical year-end fashion, the robust primary scene has been providing a fair bit of action for convertible players.

"Hot dog!" a buysider quipped. "Can't get enough! We'll have plenty of busted convertibles soon."

Ford deal gains

Ford's upsized $4.5 billion offering of 30-year convertible senior notes continued to improve in the gray market on Wednesday, even after the company revised price talk toward the rich end of original guidance.

"It's still attractive," a buyside convertible bond trader said. "The coupon's lower now, but the premium's still low enough to set it up. Everyone wants a piece of this."

The convertible was at 104.5 bid, 105 offered in the gray market on Wednesday afternoon after the books were closed, about ½ point higher than levels on Tuesday. Ford stock (NYSE: F) closed at $7.36, down by 4.17% or 32 cents.

Ford on Wednesday priced the convertible at the rich end of talk, at a coupon of 4.25% and an initial conversion premium of 25%.

Price talk was for a coupon of 4.25% to 4.75% and an initial conversion premium of 23% to 25%. The notes were originally talked at a coupon of 4.75% to 5.25% and an initial conversion premium of 23% to 27%.

The size of the deal was originally $3 billion. The over-allotment option remains at a further $450 million.

Citigroup, Goldman Sachs, JP Morgan, Deutsche Bank, Lehman Brothers, Merrill Lynch, Pierce, Fenner & Smith and Morgan Stanley were the bookrunners of the registered off-the-shelf offering.

Dearborn, Mich.-based Ford, an auto maker, said on Nov. 27 that it was raising money through the convertible offering and another $15 billion of senior secured debt to address near- and medium-term negative operating-related cash flow, fund restructuring and to provide a liquidity cushion against unexpected events. Ford on Wednesday also said that it was increasing the revolving credit portion of that senior secured debt to between $10.5 billion and $11.5 billion, from the originally announced $7 billion to $8 billion.

"If you're outright and you're optimistic about the company's ability to restructure itself, then this convertible is very attractive," a sellside convertible bond trader said. "It's got better protection than the equity and the preferreds."

The trader said hedge investors also liked the convertible.

"It just looks cheap, even after they lowered the coupon," the trader said. "And this is really the only convertible bond Ford is going to have, so you can bet the hedge guys are interested."

Ford's other convertible issue, the $5 billion sold in 2002, are lower in the capital structure as trust preferreds and have a conversion price of $17.70, way above the current stock price.

A sellside convertible bond analyst said the increase in the convertible and revolving credit debt amounts did not significantly affect the attraction of the convertibles.

"You're talking about a credit that's already deep in junk," the analyst said. "The key thing here is they're raising a ton of cash which gives them a very comfortable amount of liquidity while they try to restructure the company. And they may not even have to draw down the revolver."

Acadia, First Potomac flat

First Potomac's new 4% exchangeable senior notes due 2011 were quoted just north of their reoffered price on Wednesday, while Acadia's fresh 3.75% convertible senior note due 2026 was mostly flat amid lackluster debuts.

First Potomac's exchangeable was quoted at 99.75 bid against the opening stock price of $30. First Potomac stock (NYSE: FPO) slipped 1% or 30 cents from the previous day to close at $29.80.

First Potomac priced its upsized $110 million offering within talk late Tuesday, at a coupon of 4% and an initial exchange premium of 20%, and reoffered at 99.5.

The notes were talked at the same terms, with a reoffered price between 99.25 and 99.75.

The size of the deal was originally $100 million. The over-allotment option remains at a further $15 million.

Wachovia was the bookrunner of the Rule 144A offering.

First Potomac, a Bethesda, Md.-based real estate investment trust that owns industrial and flex properties in the Washington metropolitan area, Virginia and Maryland, will use the proceeds of the deal to repay outstanding debt, to fund hedging transactions and for general purposes, including future acquisitions.

Acadia's 3.75% convertible, meanwhile, stayed mostly at par on Wednesday, as Acadia's common stock (NYSE: AKR) dropped 1.24% or 32 cents to close at $25.40.

Acadia on Tuesday priced its $100 million offering of 20-year convertible senior notes within talk, with an initial conversion premium of 20%.

The notes were offered at par. They were talked at a coupon of 3.5% to 4% and an initial conversion premium of 20% to 25%.

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

Merrill Lynch and Lehman Brothers were the bookrunners of the Rule 144A offering.

Acadia, a White Plains, N.Y.-based real estate investment-trust focused on retail properties, plans to use the proceeds of the deal to repay outstanding debt, fund capital commitments and for general purposes.

"We didn't really see them at all today," a sellside convertible bond trader said. "It looks like their stocks were down, so that weighed a little on the converts. They looked like they were reasonably cheap, but it's hard to get excited about another REIT."

MannKind seen as cheap

MannKind's planned $100 million offering of seven-year convertible senior notes was seen as attractive but risky, investors said ahead of pricing expected after the market closed.

The deal, which launched a week ago, was talked at a coupon of 3.75% to 4.25% and an initial conversion premium of 22% to 28%.

The convertibles were offered at par.

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

Merrill Lynch and JP Morgan were the bookrunners of the registered off-the-shelf offering.

There was a concurrent shelf offering of 17.5 million shares of Mankind's common stock, which was also run by Merrill Lynch and JP Morgan.

MannKind, a drug developer whose lead diabetes treatment is currently in phase 3 clinical trials, earlier in November filed a registration statement to sell up to $500 million of securities. The proceeds of the offerings were earmarked for clinical trial costs, research and development and for general purposes. Mannkind also announced Monday that it has received approval to begin early-stage clinical trials for an experimental cancer treatment.

"I think it looks pretty compelling," a sellside convertible bond analyst said. "It looks like the bonds model pretty cheap depending on the borrow, but I guess they're going to create a borrow that might address that."

The analyst said the deal "sets up really nicely for hedges, but it may not be such a great outright idea."

MannKind's stock is not looking at any major stock-moving event in 2007, although catalysts are expected in early 2008 and 2009 as its key diabetes treatment is expected to move toward approval, the analyst said. Hedge investors can "set them up and get paid to wait," the analyst said.

But the analyst noted that the cheapness comes with quite a bit of risk.

"It's definitely a lot of risk," the analyst said. "But it's still attractive."

Superior Energy launches deal

Superior Energy plans to price Thursday after the market closes $350 million of 20-year exchangeable senior notes, talked at a coupon of 1.25% to 1.75% and an initial exchange premium of 32.5% to 37.5%.

The notes will be offered at par. They will be issued by Superior Energy subsidiary SESI LLC and exchangeable into shares of Superior Energy common stock. The listed company will also guarantee the exchangeables.

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

Bear Stearns and Lehman Brothers are the bookrunners of the Rule 144A offering.

Superior Energy, a Harvey, La.-based oilfield services and equipment provider, said it will use the proceeds and some of its available cash to repurchase up to $160 million of its common stock concurrently with the offering. It will also use $233 million of the proceeds to pay the $175 million consideration of its Warrior Energy Services Corp. acquisition, refinance its existing debt and to pay for expenses related to the acquisition.

Superior Energy stock (NYSE: SPN) closed at $33.71 on Wednesday, up by 0.51% or 17 cents, before the deal was announced.

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