Lehman drops again; Cheniere jumps, Fleetwood adds; NetApp, American Oriental to price

By Rebecca Melvin

New York, June 3 - Financials remained a focus in the convertibles market Tuesday as their underlying shares succumbed to further selling pressure, market players said.

Lehman Brothers Holdings Inc. was in the cross-hairs of investor anxiety over ongoing credit problems. And statements like that of a Standard & Poor's analyst that the New York-based investment bank has "significantly higher risk exposures" than its U.S. peers fueled those concerns.

"The stock is getting killed," a New York-based sellsider said.

However, convertibles players didn't seem to think that another blow to the credit market should be expected. "I think risk is priced better," a Connecticut-based sellside trader said.

Lehman's 7.25% convertible preferred stock traded at 1,027.5 versus a share price of $33.875 in the first half of the session, compared with 1,065 versus a share price of $35.75 on Monday. Lehman shares fell further from there, however, to end the day lower by 9.5% at $30.61.

Financials weren't the only names moving. Cheniere Energy Inc.'s convertible bonds jumped about 5 points to trade at 60, versus a share price of $6.35, along with a jump in its underlying shares amid no particular news. One source surmised that liquefied natural-gas deliveries to the LNG distributor may have renewed optimism about the U.S. LNG market.

"There was the question whether they could get shipments, and they did announce they were bringing in a couple of cargos; but they need to get a steady pipeline," a sellside analyst said.

The stock had been at $40 in November and $20 in April, so a jump from $5.50 to $6 isn't that significant, the analyst said.

Meanwhile Fleetwood Enterprises Inc.'s 6% convertible preferred continued to creep up a month or so after the after the troubled maker of motorhomes and camping trailers said it was deferring dividend payment on the paper as a way to help generate funds. It also said at that time that its quarterly sales had tumbled and that it sold its Riverside, Calif.-based headquarters.

The Fleetwood preferred stock, with a par of 50, traded in the 16 bid, 18 offered level, after being down at 14. Fleetwood's 5% convertible bonds were seen little changed at 95 bid, 96 offered.

In the primary market, two deals emerged for pricing after the market close Wednesday. They were American Oriental Bioengineering Inc.'s $125 million of convertible perpetual preferred stock and NetApp Inc.'s $1.1 billion of five-year convertible senior unsecured notes.

Fleetwood finds buyers

The 6% preferred stock due 2028 closed at 17.875 versus a share price of $3.86, compared to 14.65 versus a share price of $3.88 on Monday.

The Fleetwood 5% convertibles due 2023, which are puttable Dec. 15, were seen at 95 bid, 96 offered.

In its Dec. 6 earnings call, the company said that it had the funds to meet the put, a Connecticut-based sellside analyst said. Meanwhile, the 6% preferred isn't due until 2028 and has a yield to maturity of 13%, so "if you think they're going to make it that long, it's a 20-year risk," the sellside analyst said.

American Oriental to sell $125 million

The borrow on the American Oriental Bioengineering deal was said to be good while the stock drop on Tuesday was attributed to shorting by hedge investors ahead of the company's plans to sell about $125 million of convertible perpetual preferred stock Wednesday after the market close.

"How do you value this?" an analyst asked, citing comparables given for the Shenzhen, China-based company as other biotechnology companies and generic drug companies. "The analysts do like it though."

Piper Jaffray is sole bookrunner of the offering, talked to yield a dividend of 1.5% to 2%, with an initial conversion premium of 12.5% to 17.5%.

There is an option to purchase up to an additional $25 million to cover over-allotments.

Net proceeds from the offering are earmarked for working capital, general corporate purposes, repurchases of outstanding capital stock, funding a prepaid forward contract that the company may enter into; and possible acquisitions of and investments in complementary businesses and products.

American Oriental makes and distributes pharmaceutical and nutraceutical products for primarily Chinese markets.

NetApp to price $1.1 billion

NetApp Inc. plans to price $1.1 billion of five-year convertible senior unsecured notes after the market close Wednesday, with a coupon talked between 1.5% and 2% and an initial conversion premium of 30% to 35%.

The notes, being sold via Goldman Sachs and Morgan Stanley under a Rule 144A deal, are non-callable and there are no puts. There is standard dividend and takeover protection and contingent conversion subject to a 130% price hurdle.

NetApp plans to repurchase $275 million of stock. The company also plans to enter into convertible note hedge transactions with counterparties, which will be paid for with a portion of proceeds, offset by separate warrant transactions with the hedge counterparties.

Sunnyvale, Calif.-based NetApp is a data storage company.

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