Massey Energy up on merger; Alpha Natural off; Savient upsizes; Avatar, Hovnanian on tap

By Rebecca Melvin

New York, Jan. 31 - Early, light trading Monday - with the exception of Massey Energy Corp., which was jumping after merger news - gave way to a flurry of new deals launched just before month-end, and creating a last-minute scramble among convertibles players, sources said.

"Accounts are loving this, with month-end...to finish," a New York-based sellsider said.

Massey was 10 points higher outright after news that fellow convert issuer Alpha Natural Resources Inc. agreed to buy the coal company for $7.1 billion, representing a 21% premium to Massey's closing share price on Friday. Alpha Natural's convertibles were lower on the news, however.

In the primary market, Savient Pharmaceuticals Inc. launched an issue of seven-year convertible notes that was upsized during the session to $175 million from $125 million. The deal was seen pricing after the market close Monday, but terms weren't available by Prospect News' deadline.

Hovnanian Enterprises Inc. launched a $75 million offering of tangible equity units that was expected to price Thursday after the market close and was talked to yield 7.25% to 7.75% with an initial conversion premium of 18% to 22%.

In addition, Avatar Holdings Inc. launched a $100 million offering of five-year convertible senior notes after the market close, but proposed terms and timing weren't immediately available.

Pricing on Molycorp Inc., which was already on the calendar, remains "to be determined," a syndicate source said. The Greenwood Village, Colo.-based producer of rare earth oxides plans a $172.5 million offering of mandatory convertible preferred stock and a concurrent secondary offering.

Back in established issues, Intel Corp.'s 3.25% convertibles due 2039 were seen trading about half a point lower at 121.1 on Monday after the Santa Clara, Calif.-based chip giant said it expects to take a $700 million hit related to a design flaw in a chip that will delay the rollout of new computers.

Intel lowered its gross profit margin forecasts for the fourth and first quarters; but it didn't expect any change in projected full-year revenue.

Flotek Industries Inc.'s convertibles were trading actively.

Massey jumps on merger

Massey Energy's 3.25% convertibles due 2015 traded at 110.25 versus a share price of $63.50, which was up from about 99.75 on Friday.

Massey Energy's 2.25% convertibles due 2024, of which there is only $9 million left outstanding, were quiet.

Shares of the Richmond, Va.-based coal producer gained $5.63, or nearly 10%, to $62.86 in heavy volume.

There was "a lot of activity," a New York-based sellside desk analyst said about the Massey convertibles.

Given the make-whole takeover protection on the bonds, the bonds were seen valuing around 108, the analyst said. But, he explained, "Some are thinking it could be worth more holding it, as the [new] company will be [a] better credit, and with upside potential in the shares."

Alpha Natural lower

Alpha Natural's 2.375% convertibles due 2015 were seen at about 126 bid, 127 offered at the close, compared with a closing price of about 132 on Friday.

Shares of Abingdon, Va.-based coal producer fell $4.15, or 7%, to $53.73 in heavy volume.

Alpha Natural said it would purchase Massey Energy for $7.1 billion in stock and cash.

In the deal announced on Saturday, Alpha agreed to buy Massey, whose shareholders will receive 1.025 Alpha shares for each Massey share in addition to $10 a share in cash, for a value of about $69.33 a share.

On Jan. 11, Howard Weil Inc. downgraded the shares of Alpha Natural to "market perform" from "market outperform." Prior to that, the Alpha Natural convertibles had traded at about 140.

The tie up of Alpha Natural and Massey will create the world's third-largest producer of metallurgical coal used to make steel, and it stoked speculation that there is more consolidation on the horizon for the coal sector.

Other coal companies with convertible bonds targeted for possible acquisition are International Coal Group Inc. and Patriot Coal Corp.; potential acquirers are Peabody Energy Corp.

International Coal's 4% convertibles due 2017 were seen higher at about 179 on Monday, compared to a previous level around 173, according to a pricing source.

Peabody Energy's 4.75% convertibles due 2066 were seen higher at 127 compared to a previous level around 123, and Patriot Coal's 3.25% convertibles due 2013 were seen about half a point higher at 97.4 compared to 96.8, the pricing source said.

Savient upsizes

Savient's planned offering of seven-year convertible notes was upsized during the session to $175 million and was talked to yield 4.5% to 5% with an initial conversion premium of 20% to 25%, according to a syndicate source.

Initially the deal was seen at $125 million in size.

Final terms on the registered deal were expected to be set late Monday but weren't immediately available, a syndicate source said.

The bonds will be non-callable for four years with no puts.

There is takeover protection.

Proceeds will be used to commercialize Savient's Krystexxa drug in the United States, to fund clinical development, to seek regulatory approval for Krystexxa in the European Union and for general corporate purposes.

J.P. Morgan Securities LLC was the bookrunner for the offering, with Lazard Capital Markets LLC acting as the co-manager.

East Brunswick, N.J.-based Savient is a specialty biopharmaceutical company focused on developing and commercializing Krystexxa, which received regulatory approved for the treatment of chronic gout in adult patients in September 2010.

Avatar to price

Coral Gables, Fla., real estate development company Avatar plans to price $100 million of five-year convertible senior notes via bookrunner Barclays Capital Inc. in a registered offering.

Proceeds will be used to repay debt, including Avatar's 4.5% convertible senior notes, and for potential new acquisitions of real estate and real estate-related assets.

Holders can put the notes at par plus interest upon a fundamental change or after three years, on Feb. 15, 2014. Fifty percent of the notes can be put upon a breach of certain financial covenants at 110% of par and unpaid interest.

Hovnanian to price

Red Bank, N.J.-based homebuilder Hovnanian launched a $75 million offering of tangible equity units that were talked to yield 7.25% to 7.75% with an initial conversion premium of 18% to 22%, according to a syndicate source.

The equity units, with a 25% par, were expected to price after the market close Thursday.

The registered, off-the-shelf convertible was launched concurrently with offerings for $50 million of common stock and $150 million of straight notes due 2014.

Credit Suisse, Citigroup and JPMorgan are the joint bookrunners for the tangible equity units, with Bank of America Merrill Lynch, Deutsche Bank Securities and Wells Fargo Securities serving as the co-managers.

Proceeds of the offerings are expected to be used to fund the purchase of K. Hovnanian's 8% senior notes due 2012, 8.875% senior subordinated notes due 2012 and 7.75% senior subordinated notes due 2013 via tender offers for those securities launched Monday. Remaining proceeds will be used for general corporate purposes.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Avatar Holding Inc. Nasdaq: AVTR

Flotek Industries Inc. NYSE: FTK

Hovnanian Enterprises Inc. NYSE: HOV

Intel Corp. Nasdaq: INTC

International Coal Group Inc. NYSE: ICO

Massey Energy Corp. NYSE: MEE

Molycorp Inc. NYSE: MCP

Patriot Coal Corp. NYSE: PCX

Peabody Energy Corp. NYSE: BTU

Savient Pharmaceuticals Inc. Nasdaq: SVNT

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