UniSource up; Genesis launches; Chiquita joins calendar; Calpine, Goodyear watched; FLYi tumbles

By Ronda Fears

Nashville, Feb. 23 - Banker types continued to rally issuers to the convertible market as a new deal from Genesis HealthCare Corp. launched while Chiquita Brands International Inc. joined Allied Waste Industries Inc. on the forward calendar. After the closing bell, UniSource Energy Corp. was on tap and its issue traded up nicely in the gray market.

While primary market activity trickled along, secondary dealings were still feeling sluggish, although traders at the bigger sellside shops said they are managing to stay busy shuffling paper. Buyside traders, though, are not clamoring to shoot out bids because many feel further cheapening is in order.

"We're not really seeing anything out there that we need to just jump on," said a convert trader at a hedge fund in Chicago. "There will have to be a lot more contraction for me to get excited about much out there. We're content to stand pat on our convertible positions for right now."

Calpine Corp. and Goodyear Tire & Rubber Co. were showing up on some radar screens, however. Calpine is scheduled to report earnings early Thursday, and the market is looking for further signals about debt reduction plans, particularly in relation to the 5% convertible trust preferreds. Goodyear issued a better-than-expected earnings forecast and another step of refinancing that was heartily cheered.

FLYi Inc. took a dive, though, even as it managed to find a way to pay the coupon on its 6% convertibles, but traders said it was the means of coming up with the interest payment that disturbed many holders. As a result, there were a couple of holders peeling out of the issue.

Genesis launches for Thursday

Genesis HealthCare's $150 million convertible was talked to get printed with a coupon of 2.25% to 2.75% and initial conversion premium of 32.5% to 37.5%. It may come on swap, with the company earmarking up to $20 million of proceeds to buy back stock from short sellers.

"There seems to be a lot of bells and whistles, but really I think it's pretty basic," said a hedge fund manager in New York. "It should do fine because healthcare is an area people are looking at right now, although I think it's cooled off a bit recently."

There is a full day of marketing scheduled before the deal is set to price after the close Thursday.

The Kenneth Square, Pa.-based eldercare concern said $119.7 million of proceeds after the stock buybacks would be used to repay outstanding borrowings under the term loan portion of its senior credit facility and the balance for general corporate purposes, which may include repurchases of additional shares of common stock.

A $30 million greenshoe is available.

Genesis HealthCare shares closed Wednesday up 71 cents, or 2.27%, at $41.01, but on the offering news the stock was seen down by $1.71, or 4.17%, in after-hours trading.

UniSource soars to 101.5 bid

Tucson, Ariz.-based utility holding company UniSource Energy's small $100 million convert also was seen as a hot item because of its sector affiliation as well as the market taking a liking to the terms. The 30-year notes, talked to yield 4.5% to 5.0% with a 20% to 25% initial conversion premium, climbed steadily throughout the day in the gray market, traders said.

At the open, a convert trader at an outright shop in New York said the first look showed a trade at 0.5 point over issue price. By day's end, he said the bid was 1.5 points over with an offer at 2.5 points over. A sellside trader, though, also said after the market close that he saw an offer at 3 points over.

UniSource shares ended Wednesday off 16 cents, or 0.53%, at $30.

"We're hearing that this is getting played outright mostly," the buyside trader said.

UniSource models 1.5% cheap

Another convertible trader on the buyside, at a hedge fund, said a sellside analyst was putting the UniSource convert 1.5% cheap at the midpoint of guidance, using a credit spread of 275 basis points over the comparable Treasury note and a stock volatility of 20%.

Major selling points, the trader said, include less takeover risk - as UniSource is now repositioning itself as an independent utility following the Arizona Corporation Commission barring a takeover in late 2003 by a private equity group - plus the fact that there is no parent level debt.

However, he said a negative point is that operating subsidiary Tucson Electric Power Co. is restricted from funneling contributions to the parent under its bank facility. UniSource, though, is planning to restructure the credit facility soon.

Chiquita plan seen gobbled up

Any convertible from Cincinnati-based banana king Chiquita will likely "get gobbled up," said a buyside source who manages a fund based in the Northwest United States.

"The sector is fresh, if you can pardon the pun," he said. "I think it will be a home run. But, of course, the actual reaction will also depend on the terms."

Chiquita plans to sell a perpetual convertible preferred, bonds and bank debt as permanent funding for its $855 million cash acquisition of the Fresh Express fresh-cut produce segment from former convertible issuer Performance Food Group Co., which called its 5.5% convertible bonds last September.

More specifically, the company plans on using at least $75 million of cash on hand and at least $350 million in gross proceeds from the straight bonds and convertibles for permanent financing. Chiquita also plans on getting a new $700 million credit facility.

Bank loan terms 225-175 bps

The bank facility would consist of a $150 million five-year term loan A at an initial interest rate of Libor plus 175 basis points, a $350 million seven-year term loan B at an initial rate of Libor plus 225 basis points and a five-year revolver for up to $200 million at an initial rate of Libor plus 175 basis points with a 50 basis point commitment fee, according to a commitment letter filed with the Securities and Exchange Commission on Wednesday.

Chiquita said it also has received a commitment for a $225 million one-year term loan C with an interest rate of Libor plus 375 basis points just in case the notes and convertibles are not issued prior to closing of the transaction, which is expected in second quarter.

If proceeds from the notes and convertible deals exceed $350 million, commitments under the term loan tranches would be reduced, and, if proceeds from the notes and convertibles are in excess of $300 million, the revolver will be reduced dollar-for-dollar up to $50 million.

Morgan Stanley advised Chiquita and Goldman Sachs advised Performance Food during the acquisition negotiations.

FLYi convertibles tumble 6 points

FLYi's convertibles took a dive Wednesday as a couple of holders bowed out of the situation after the Dulles, Va.-based low-fair airline carrier was able to come up with the coupon payment through some financial wrangling one holder referred to as "borrowing from Peter to pay Paul."

The FLYi 6% converts traded Wednesday down to 46 from 52 on Tuesday, a sellside trader said.

"There were only a couple of trades, but they dropped quite a bit," he said. Confirming the holder's view, he added, "Some people don't like how they are paying the coupon."

The parent of Independent Air announced Tuesday that a majority of its aircraft creditors agreed to reduce or defer $164.5 million in lease payments through February 2007 in exchange for FLYi agreeing to issue 8.3 million shares of stock and $6.1 million in notes to the creditors.

The restructuring also included FLYi returning 24 regional jets and 21 regional turboprop planes to lessors and lenders and deferral but not reduction of some payments on financings backed by another 52 regional jets.

Goodyear sees smoother ride

A positive outlook from Goodyear, saying higher price and new products in the fourth-quarter would more than offset higher-than-expected raw material costs, sent its in-the-money Goodyear 4% convertible bonds, which are trading about 20 points over parity, up about 1.5 points on swap, a sellside trader said.

Goodyear's junk bonds also were better on the profit projections with the 7.857s due 2011 up 1.25 points to 103.25 bid, 104.2 offered. The stock shot up 88 cents on the day, or 6.71%, to end Wednesday at $14.

The Akron, Ohio-based tire company forecast a fourth-quarter profit of 55 cents to 65 cents a share, versus the First Call analyst consensus of 4 cents a share, before special items.

Equally cheered, Goodyear also said it will refinance about $3.3 billion of its credit and loans due in the next two years with $3.35 billion of terms due in 2010.

A new $2.7 billion credit facility is due to launch Friday in the United States, loan market sources told Prospect News on Wednesday. The company also plans a euro equivalent of $650 million in credit facilities for its Dunlop subsidiary in Europe.

Goodyear said it ended 2004 with debt of about $5.6 billion and a cash balance, excluding restricted cash, of approximately $2 billion. Total cash and available credit lines came to more than $3 billion.

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