Iconix looks cheap; Callidus shares drop; Micron expands 2 points on swap; Radian flat

By Rebecca Melvin

New York, May 17 - Iconix Brand Group Inc.'s $275 million of five-year convertible senior subordinated notes looked cheap to market players sizing up the deal Tuesday ahead of final terms expected to be fixed after the close.

There was no Iconix gray market reported, but the deal, coming from a pretty unique entity in the convertible market - one that is not capital intensive but involves licensing brands and has high margins - was anticipated to have strong demand and spur action in the market on Wednesday.

"My own feeling is that it might be upsized. The way they priced it, it looks pretty cheap, so there should be a decent bit of demand hopefully, and it will get upsized," a New York-based sellside analyst said.

Iconix's existing convertibles traded some in line.

Callidus Software Inc.'s $70 million of five year senior convertibles was also expected to price after the market close Tuesday, but it wasn't getting as much attention given a difficult borrow and the deal's small size. Callidus shares dropped sharply, ending the session down 9.4%.

In the primary market in Europe, Derwent London plc priced £175 million of five-year convertibles to yield 2.75% with an initial conversion premium of 30%. The Regulation S offering came at the middle of coupon talk and at the rich end for the premium.

Also in Europe, Fonciere des Regions SA launched Monday a €480 million to €550 million offering of six-year convertible bonds that was seen pricing Wednesday.

Elsewhere, convertibles were pretty quiet. Equities were selling off, and there was some concomitant selling in the convertibles market as well, but also a lot of sitting on hands, sources said.

Micron Technology Inc. was a bright spot, however, with its 1.875% convertibles due 2014 lower outright but gaining 2 points on swap with shares lower on concerns about SanDisk's new acquisition putting competitive pressure on Micron, a convertibles source said.

Radian Group Inc. was also trading lower outright, but those convertible were pretty much flat in terms of points over parity, as shares of the mortgage insurer pulled sharply lower.

Alpha Natural Resources Inc. convertibles on the other hand were higher outright along with a 5% jump in the underlying shares, but the premium over parity actually came in slightly on the convertibles of the Abingdon, Va.-based coal producer.

Iconix looks cheap

Iconix looked about 3 points cheap at the midpoint of talk, using a credit spread of 450 basis points over Libor and 28% volatility, a New York-based sellside analyst said.

After the market close Monday, Iconix launched a convertibles deal that was talked at a coupon of 2.5% to 3% and an initial conversion premium of 27.5% to 32.5%.

"It's a pretty solid credit and the bonds looked cheap," a sellsider said. The older ones are pretty short-dated so the two pieces of paper are not similar trades, he said.

"The newer ones looked cheaper than the older ones, but the older ones traded in line," another sellsider said.

The existing Iconix traded at 104.5 on Tuesday.

EBITDA margins are 64% for Iconix, a New York-based apparel branding company. Its planned convertible bond offering spurred Moody's Investors Service to revise Iconix's outlook to positive from stable and affirmed its B1 corporate family and probability of default ratings and B2 senior subordinated convertible notes.

The company has an SGL-2 speculative-grade liquidity rating.

The positive outlook also reflects improved flexibility for the company as a result of the release of the security for the $111 million term loan that is being prepaid, the agency added.

Proceeds from the offering would be used to repay the company's existing $111 million secured term loan due January 2012 in full. The balance of proceeds will provide additional liquidity to the company and provides the company with greater capacity to meet its remaining 2012 maturities.

Derwent deal seen cheap

London-based Derwent London is a real estate investment trust focused on central London properties. Its Regulation S offering priced at the middle of talk for the coupon, which was 2.5% to 3%, and at the rich end of premium talk, which was 25% to 30% less £0.2025 to be paid to shareholders on the share register May 20.

It was looking 101 to 104 on the worst to best end of talked terms, using a credit spread of 175 bps over Libor and 21% volatility, according to Barclays Capital's London-based convertibles analysts.

Derwent represents the second deal that the European market has seen in a month. Fonciere was the first with its launch Monday.

Although Derwent "adds to a recent glut of real-estate sector supply, positives include an explicit investment-grade rating at BBB, a rarity within the sector of GBP denomination, and liquid stock borrow," Barclays analysts wrote in commentary published Tuesday.

"As with FDR's new issue yesterday, we note that the dividend versus coupon balance is favorable compared to Wereldhave, but not versus Gecina and Unibail (both full dividend protection)," Barclays said.

"Our valuation equates to a bond floor range of 92.0-94.3 and implied volatility of 14-19% (17-22% in a credit-calibrated model)," according to Barclays.

Micron opens up

Micron's 1.875% convertibles due 2014 traded at 106.5 on Tuesday, lower outright, compared to 108 bid, 109 offered previously but better on swap with the underlying shares lower by 61 cents, or 6%, to $9.94.

"It definitely opened up," a trader said of the Micron 1.875% convertibles.

The Boise, Idaho-based chip maker's shares fell 5% to 6%, and the convertibles were down about 2.5%, the trader noted.

"It's shadow AA paper; it doesn't have a rating, and it traded fair amount," the trader said.

"SanDisk made an acquisition that will offer a competition to Micron," the sellsider said, referring to flash memory maker SanDisk's agreement to buy Pliant Technology Inc. for $327 million, which jump starts its entry into the low-power, faster storage business solutions.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Callidus Software Inc. Nasdaq: CALD

Derwent London plc London: DLN

Fonciere des Regions SA Paris: FDR

Iconix Brand Group Inc. Nasdaq: ICON

Micron Technology Inc. NYSE: MU

Radian Group Inc. NYSE: RDN

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