PolyMedica surges, Bristow gains, New Plan flat on debuts; XM rises on upgrade, U.S. Bancorp plans deal

By Kenneth Lim

Boston, Sept. 14 - New deals continued to keep the convertible bond market busy on Wednesday, with PolyMedica Corp.'s outshining its peers for one of the strongest debuts this week.

Bristow Group Inc.'s fresh paper also ticked up on its first trading day after the deal arrived in the midpoint of talk.

New Plan Excel Realty Trust Inc. was lackluster in comparison, trading mostly around its reoffered price on Thursday.

Meanwhile, U.S. Bancorp announced a $2.5 billion overnight offering of convertible senior debentures, the biggest deal of the month so far.

Outside of the new issues, XM Satellite Radio Holdings Inc. improved slightly on a dollar-neutral basis amid a stock upgrade and speculation about possible mergers.

The convertible bond market in general continued to be active, driven in part by trading in the new issues.

"It's been pretty active," a sellside convertible bond trader said. "Issuance has picked up, which is always good, and most of the new ones have been pretty decent."

Meanwhile, Ford Motor Co.'s 6.5% convertible preferred eased about a quarter-point in line with the stock after reports of the company possibly posting up to $9 billion in losses for the year. The preferred ended at 36.36, down by about 0.66%, while Ford stock (NYSE: F) fell 1.09% or 10 cents to close at $9.09.

"The stock's been climbing the past couple of days," the trader said. "I guess some guys took the chance to take some profit."

A Detroit newspaper on Thursday cited internal documents that said the Dearborn, Mich.-based an auto maker could lose up to $9 billion in 2006 after including the costs of its restructuring plans. The company, which did not comment on the report, plans to announce details of its new turnaround plan Friday morning. The company also confirmed Thursday after the market closed that it will offer buyout offers to all its hourly employees in the United States of up to $140,000 each.

PolyMedica gets robust start

PolyMedica's newly priced 1% convertible due 2011 surpassed its offer price by more than two points outright after the deal was seen as cheap during talk.

The convertible was bid at 102 before the market opened, and traded at 102.875 against a stock price of $42.20 later in the day. PolyMedica stock (Nasdaq: PLMD) ended at $41.99, down by 0.07% or 3 cents.

"They traded really well, traded up on a neutral basis by a couple of points," a buyside convertible bond trader said.

The convertible was offered at par in a $180 million deal that priced late Thursday at the rich end of talk, with an initial conversion premium of 14%. Price talk guided for a coupon of 1% to 1.5% and an initial conversion premium of 10% to 14%. The deal amount includes a $30 million greenshoe option that was immediately exercised.

Bank of America and Deutsche Bank were the bookrunners for the Rule 144A offering.

PolyMedica, a Wakefield, Mass.-based provider of healthcare products and services for patients of chronic diseases, said it will use the proceeds of the offering to concurrently buy back about $29.6 million of its common stock from convertible purchasers, representing the 705,000 shares remaining in its current stock repurchase program. The proceeds will also be used to fund convertible note hedge and warrant transactions, and to pay off about $118.6 million of outstanding bank debt.

The trader, who was looking at PolyMedica from a hedged perspective, said PolyMedica's low premium and the inclusion of dividend protection were enough to offset the dividend yield on the common stock.

"The premium was such that you could hedge it up," the trader said. "The lower the premium, the higher the hedge that we can get it up on...and it's dividend protected. The fact that the common pays a dividend, it's all factored into the price."

Bristow gains on debut

Bristow's newly priced 5.5% mandatory convertible preferred due 2009 also rose on Thursday after the deal priced within talk.

The convertible traded at about 50.10 against a stock price of $35.05 on its debut. Bristow stock (NYSE: BRS) declined 1.28% or 45 cents to close at $34.81.

"Those also did pretty well," a convertible bond trader said.

Bristow priced the $200 million deal late Wednesday at a dividend of 5.5% and a threshold appreciation of 22.5%.

The deal was talked at a dividend of 5.25% to 5.75% and a threshold appreciation range of 20% to 25%. The preferreds were offered at $50 apiece, and there is a greenshoe option for a further $30 million.

Credit Suisse and Goldman Sachs were the bookrunners of the registered off-the-shelf deal.

Bristow, a Houston-based provider of helicopter services to the offshore oil and gas industry, plans to use the proceeds of the deal to fund aircraft purchases. Upon the completion of the offering, Bristow will exercise options it currently has to acquire additional large aircraft.

A buyside convertible bond analyst described the offering as an "OK deal, OK stock, nothing special" from an outright perspective, but it was nevertheless reasonably priced.

"I liked it a little better after I had a look at it," the analyst said, noting Bristow faces few competitors. "The stock had underperformed the rest of the energy group a few days before it was priced, and it's a stable company so we weren't worried too much about the downside."

The buysider added that although the paper faces some restrictions because of the mandatory structure - "you can't, like, gamma trade it that easily, and if volatility picks up it's probably not a good thing for mandatories," the analyst said - overall the deal seemed reasonable.

New Plan flat on same old story

New Plan Excel Realty's freshly priced 3.7% convertible due 2026 traded mostly unchanged at its reoffered price of 99 on Thursday as investors described the paper as another in a long line of real estate investment trust offerings.

"It was kind of a dead deal, dead money, traded right at the issue price," a buysider said.

New Plan's $175 million deal priced late Thursday with a coupon of 3.7% and an initial conversion premium of 22%. The deal was talked at a reoffer range of 99 to 99.25, a coupon of 3.7% and an initial conversion premium of 20% to 22%.

There is an over-allotment option for a further $25 million.

Merrill Lynch and Bank of America were the bookrunners of the Rule 144A offering.

New Plan, a New York-based real estate investment trust focusing on community and neighborhood shopping centers in the United States, said it will concurrently buy back $50 million of its common stock with the proceeds of the deal. It will also repay a $350 million revolving credit line and fund general corporate purposes.

"It looked to me like it was just another one of those REIT deals," a sellside convertible bond analyst said.

The analyst said the deal looked slightly cheap, and offered good downside protection for investors. But it did not stand out from the other recent REIT deals.

"It doesn't look any worse than all the other REITs," the analyst said. "They all look about the same."

XM Satellite gets upgrade boost

XM Satellite's 1.75% convertible due 2009 improved slightly on Thursday as the stock shot up on an upgrade by Citigroup.

The convertible was marked at 79.75 against a stock price of $13.82, about half a point better on an outright basis. XM Satellite stock (Nasdaq: XMSR) closed at $13.69, up by 9.43% or $1.18.

"There were takeout rumors, and somebody upgraded the stock," a convertible bond trader said, noting that credit spreads tightened for XM's debt securities, with the straight bonds improving by about half a point.

Credit Suisse equity analyst Bryan Kraft upgraded XM stock to outperform from neutral on Thursday, citing an improved sales environment and more realistic expectations.

The fourth-quarter retail environment should be strong, with gas prices falling, and retailers allocating more space to satellite radio, Kraft wrote in a note. A new channel by talk show celebrity Oprah Winfrey should also drive sales, the analyst wrote.

Kraft also looked at the impact of a hypothetical merger between XM and rival Sirius Satellite, and reckoned that a 50-50 merger between the two would benefit both companies.

But a sellside convertible bond trader said a merger between the two competitors was difficult to envision at this point.

"It's pure speculation at this point," the trader said. "There's no clear motivation for them to merge at this point."

U.S. Bancorp plans $2.5 billion deal

U.S. Bancorp on Thursday launched an overnight $2.5 billion offering of 30-year convertible senior debentures priced at a floating coupon set at Libor minus 175 basis points and an initial conversion premium of 16%, and expected to be reoffered between 98.9 and 99.1 apiece on Friday before the market opens.

The overnight deal has an over-allotment option for a further $375 million. U.S. Bancorp stock (NYSE: USB) closed at $33 on Thursday, gaining 0.58% or 19 cents before the deal was announced.

Citigroup is the bookrunner for the Rule 144A offering.

U.S. Bancorp, a Minneapolis, Minn.-based bank, said part of the proceeds of the deal will be used to fund a concurrent repurchase of up to 10.2 million shares. The remainder of the proceeds will be used for general corporate purposes, including possible additional share buybacks.

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