NCI issue gains after pricing wide of talk; Advanced Medical off; Delta, airline paper weaker

By Ronda Fears

Nashville, Nov. 10 - NCI Building Systems Inc. priced its small $150 million issue wide of guidance, and that boosted it in the immediate aftermarket by 1.5 points or so. Traders saw the revised terms as a better signal than printing it with a lower coupon and the underwriter discounting it to boost the yield.

"There have been a lot more [below-par] repricings lately and that doesn't really sit well with buyers," one trader said.

Ahead of the Federal Reserve's move, the market was somewhat busy, but afterward flow virtually dried up. The quarter-point interest rate hike was just background noise, though, as it was no surprise, traders said.

"Nothing really happened this afternoon, after the Fed," said a buyside trader at a hedge fund. "The market is just so picked over. I'm not going to reach for a 2.5% coupon; it's just not worth my while."

The real trouble is the lack of any sizeable new deals to stimulate trading.

"It's been a tough couple of days this week. Hopefully, after the Fed does their thing today the market will loosen up some," said a sellside trader. "The new issues [of the past week since the U.S. presidential election] help a little, but there's been nothing big enough to make a difference."

Indeed, another tiny deal launched Wednesday after the close. FuelCell Energy Inc. is pitching a $75 million perpetual convertible preferred with a 4.5% to 5.0% dividend and 15% to 20% initial conversion premium for Thursday's business via Citigroup Global Markets Inc.

Issues marked as vulnerable to being called in the next few months, such as Gap Inc., were causing some anxiety, too, but traders said overall worries about paper getting taken out of circulation has escalated. "The market is shrinking fast," another sellside trader said. "We're even seeing them getting rid of bonds that are not even callable, like Crown Castle."

Fresh paper mostly higher

NCI Building sold $150 million of 20-year convertible notes at par to yield 2.125% with a 32% initial conversion premium - at the cheap end of guidance for a 1.375% to 1.875% coupon and 35% to 40% premium. Thus, buyside traders said it came out of the chute higher and gained ground at least until early afternoon when activity slowed markedly.

The last market on the new NCI convert was at 101.5, a trader said. The stock closed Wednesday up 29 cents, or 0.95%, to $30.70.

Other recent new deals also were mostly on higher ground, traders said, but with little activity.

Powerwave Technologies Inc.'s new 1.875% convertible, which was reoffered at 98.5, edged up 0.125 point to 97.875 bid, 98.375 offered. Its older 1.25% convertible added 0.75 point to 102.5 bid, 103.5 offered, while the underlying stock ended up 13 cents, or 1.67%, to $7.90.

Ryerson Tull Inc.'s new 3.5% convertible gained 0.625 point to 100.875 bid, 101.875 offered with the stock up 13 cents, or 0.88%, to close at $14.98.

AudioCodes Ltd.'s new 2% convertible - another below-par reoffered issue, at 99 - slipped, though, by about a quarter-point to 99.125 bid, 100.125 offered. The stock closed off a penny to $13.06.

"There was a little bit going on with some of the new issues, but nothing to get excited about," a buyside trader said. "Let's get real; these terms just aren't that attractive when you see interest rates going up everywhere else."

FLYi dives on bankruptcy alert

FLYi Inc., the former Atlantic Coast Airlines Holdings Inc., took another sharp dive Wednesday on the heels of acknowledging in a Securities and Exchange Commission filing that it could be forced to file bankruptcy.

The 6% convertibles were quoted off 4.375 points to 24.375 bid, 26.875 offered with the stock plunging 32%. FLYi shares ended down by 61 cents to $1.30.

In its quarterly report at the SEC, the discount airline - focused mainly on the Washington, D.C., area - said its big problem right now is $83 million in aircraft lease payments due in January. Fierce competition and soaring fuel prices that have drained cash are other nagging problems, which also have impacted the major carriers.

For third quarter, FLYi reported a net loss of $82.7 million, or $1.82 per share, widened from $21.3 million, or 47 cents a share, in third quarter 2003.

"They have a terrible business model in my opinion," a sellside trader said of FLYi. "Their 48% load capacity last month speaks to that."

FLYi said it is trying to restructure and retire some of the leases, saying it has begun talks to secure funding to cover the lease payments and future obligations.

Delta, other airlines also skid

FLYi also has been suffering by virtue of being a former regional line for Delta Air Lines Inc. Delta and virtually the entire pack of airline converts were lower Wednesday, as well.

Delta's 8% convertibles were quoted down by 1.25 points to 55.25 bid, 56.25 offered and the 2.875% converts fell 3.25 points to 53.5 bid, 54.5 offered while the underlying stock lost 17 cents, or 2.72%, to $6.08 on news it would issue 75 million shares in its latest efforts to avoid filing for bankruptcy protection.

The Atlanta-based carrier on Wednesday said it will grant shares to employees in exchange for previously negotiated wage concessions and to holders of its 7.7% straight notes for deferring debt maturities.

Delta's board used an exception to a New York Stock Exchange policy requiring shareholder approval of the offering, saying the time needed to obtain a shareholder vote would "seriously jeopardize the financial viability of the company." The company said the NYSE cleared its use of the exception for the issue, which will significantly dilute the value of its 125.6 million outstanding shares.

"Basically, they knew they wouldn't get the approval they needed," a buyside trader said. "But the punishment came anyway."

The airline added that it will slash between 6,000 and 6,900 non-pilot employees over the next 18 months, reduce certain benefits and cut pay by 10% across the board. The company is aiming for cost savings of $5 billion per year by 2006 and said it is on track to reach $2.3 billion of that by the end of this year.

Advanced Medical 2.5s drop

Advanced Medical Optics Inc. announced its second acquisition so far this year, this time a chunky $1.3 billion purchase for VISX Inc. Some holders felt the price tag was too much, traders said, and the market took its securities down.

The Advanced Medical 2.5% convertibles were quoted off 4 points to 107.5 bid, 108 offered while the underlying stock plunged $3.64, or 8.58%, to close Wednesday at $38.80.

The $1.27 billion purchase is a largely stock-financed transaction, which Advanced Medical said provides the potential for diversification in the ophthalmic surgery field.

Standard & Poor's said it was leaving Advanced Medical's ratings at BB- but noted that reflects continuing concern with the pace and size of its acquisition strategy. This is the company's second material acquisition in 2004; following the acquisition of the ophthalmic surgical business of Pfizer Inc. for $450 million in June, which was financed primarily with debt.

Tower 5.75s gain to 60.75 bid

Anxiety over the Nov. 15 coupon payment due on Tower Automotive Inc.'s new 5.75% convertible eased somewhat Wednesday on comments from chief executive Kathleen Ligocki at the Robert W. Baird industrial conference in Chicago, traders said.

"I think they'll probably make the coupon on the 5.75s and the preferreds this time, but after that it may be pretty iffy," a sellside trader said.

Ligocki acknowledged at the Baird conference that the company faces a tough row to hoe in regards to managing liquidity though the end of the year but said it is positioned for solid cash flow growth in 2005. She noted that the company is still working to get a new accounts receivable securitization of $200 million.

She also said the company needs to develop a strong operational foundation and that refinancing capex constraints will force tough choices as its high leverage causes the cost of capital to be too high to compete in such a capital intensive sector long term.

But, Ligocki said Tower Automotive's strengths include a strong global customer profile that it continues working toward diversifying.

Tower's short-term and mid-term outlook can be described in three phases, she said - consolidating its competitive position in 2005 and 2006 and looking to growth in 2007 and beyond.

Buyers bid up Six Flags 7.25s

Buyers for the Six Flags Inc. 7.25% convertible preferred pushed it up about a quarter-point to 20.5 on Wednesday, a dealer said, while the stock slipped in reaction to the theme park's earnings earlier this week.

Six Flags shares closed Wednesday off by a penny to $4.95.

On Monday, Six Flags reported that third-quarter net income fell 60%, blaming a 4.8% drop in attendance at its amusement parks on cool weather. Net income was $56.4 million, or 53 cents a share, down from $140.2 million, or $1.32 a share, in third quarter 2003. Revenue dropped to $527.4 million from $545.2 million.

Six Flags last month lowered its 2004 outlook for adjusted EBITDA to $250 million to $255 million, versus its forecast in August for full-year adjusted EBITDA of $265 million to $275 million.

In its earnings announcement, Six Flags said it has a "comprehensive plan in place to deliver meaningfully improved performance in 2005 and beyond" and noted that it has secured a modification to the financial covenants in its credit agreement.

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