Edge leaps higher on debut; Ford gains with stock despite loss; Covanta bid up in gray; Baldor pulls deal

By Kenneth Lim

Boston, Jan. 25 - Edge Petroleum Corp. shot up on Wednesday on its first day of trading, drawing strong interest even after its deal priced at the rich end of talk.

Ford Motor Co. rose slightly outright with its stock, after the company reported another loss-making quarter but said it was on track to achieve profitability in 2009.

Meanwhile, Covanta Holding Corp. continued to see positive bids in the gray market, with price talk seen as fairly reasonable.

Baldor Electric Co.'s planned offering of convertible preferreds, however, was terminated on Thursday as the company decided to raise funds through a common stock offering and other debt instead.

Edge sharp on debut

Edge Petroleum's new 5.75% perpetual convertible preferred stock rose about 3 points in its first trading session on Wednesday, even after the deal was upsized and arrived at the rich end of price talk.

The convertible opened at 53 at its opening stock price of $13.78. The preferreds were offered at par of $50. Edge stock (Nasdaq: EPEX) closed at $13.87, lower by 0.87% or 12 cents.

"It was well bid, a solid deal," a sellsider said. "It traded up, plus three points the last I saw. A good deal, I think. The speculative nature of the deal required the underwriter to price a fair amount of cheapness in the deal, but using even a conservative spread assumption, market volatility, it was still attractive."

Edge priced its $125 million offering Wednesday after the market closed, with an initial conversion premium of 25%. Price talk was for a dividend rate of 5.75% to 6.25% and an initial conversion premium of 20% to 25%.

The size of the deal was originally $100 million. The over-allotment option was increased to an additional $18.75 million from an additional $15 million.

There was a concurrent offering of 9.5 million shares of Edge common stock at $13.25 apiece, with a greenshoe for an additional 1.425 million common shares.

JP Morgan and Raymond James were the bookrunners of the registered off-the-shelf offering.

Edge, a Houston-based energy company, said it will use the proceeds of the preferred and common stock offerings to finance its acquisition of oil and gas assets from Smith Production Inc. and to refinance its existing revolving loan. If the Smith acquisition is not completed, the proceeds will be used to reduce debt, fund Edge's drilling program, pay for possible other acquisitions and for general purposes.

A sellside convertible analyst said "it seemed pretty cheap to me" where it priced.

"I modeled it out about 9% cheap," the analyst said. "It's a $50 par, so up 3 points would be around 6%, which seems about right."

The analyst said there was some initial concern about limited interest in the deal and the difficulty of assigning a credit spread to the company.

"It's difficult to put a spread on it, it's just like a lot of high-yielding companies," the analyst said. "But it did look interesting."

Ford rolls on despite loss

Ford's 4.25% convertible due 2036 and its 6.5% convertible preferred improved slightly on Thursday, after the company reported a fourth-quarter loss but affirmed its goal of reaching profitability by 2009.

The 4.25% convertible traded at 117 against a stock price of $8.45 on Thursday, up by about 2.5 points outright, while the convertible preferred gained an eighth-point to close at 37.36 versus a stock price of $8.22. Ford stock (NYSE: F) rose to $8.52 in morning trading but slipped in the afternoon to end at $8.22, up by 0.24% or 2 cents.

"The new Ford 4.25s continue to be active," a buyside convertible trader said. "They came up with the stock earlier in the day, they're pretty much in line."

Ford on Thursday reported a fourth-quarter loss of $5.8 billion, or $3.05 per share, which brought the Dearborn, Mich.-based automaker's full-year loss to $12.7 billion, a company record. Ford's loss from continuing operations was $1.10 per share, falling short of analysts' expectations of a loss of about 94 cents per share.

Ford, which cited poor truck sales and restructuring charges for the fourth-quarter loss, said it burned $1.8 billion of cash in the quarter, and expects to spend $17 billion until 2009 as part of its restructuring efforts. Ford expects more losses in 2007 and 2008, but believes that it will reach profitability in 2009.

"Nobody was surprised that they lost money," the buyside trader said. "What guys were looking for was how well they're managing their cash, and how well they're trying to turn around the company. My understanding is that they seem to be managing a controlled burn in terms of their cash, although whether they can turn around remains to be seen."

A sellside convertible analyst said "everybody knew that it was going to be a quarter when they will take the largest loss ever."

"But you kind of hope that this is the kitchen sink quarter, were they throw everything in and hopefully try to clean it all up," the analyst said.

Covanta bid up in gray

Covanta's planned $325 million of 20-year convertible senior debentures continued to see positive interest on Thursday, with bids around 100.125 in the gray market.

The deal, which was expected to price after the market closed, was talked at a coupon of 1% to 1.5% and an initial conversion premium of 17.5% to 22.5%. The debentures were offered at par. Covanta stock (NYSE: CVA) gained 1.15% or 27 cents for a close at $23.77.

There is an over-allotment option for a further $48.75 million.

Lehman Brothers, JP Morgan and Merrill Lynch are the bookrunners of the registered off-the-shelf offering.

Covanta, a Fairfield, N.J.-based waste disposal, energy and specialty services company, plans to use the proceeds of the deals and cash on hand to buy back its outstanding notes.

A sellside convertible analyst noted that credit ratings agencies Moody's Investors Service and Standard & Poor's had raised their ratings for Covanta because of the refinancing exercise.

"I think people are getting more positive on the credit," the analyst said. "The volatility around 30% is a safe volatility assumption, and they modeled out a little cheap. Not as cheap as Edge Petroleum, but still worth doing."

A buyside convertible trader said the deal looked just barely attractive.

"The company's got an interesting business, it's got a nice credit story going on, but to me they're pricing it a little aggressively," the trader said. "You'll definitely make some money off of it, but there isn't as much there as I'd have liked. Of course, with the market the way it is today, they're probably going to be able to get away with it."

Baldor cancels deal

Baldor on Thursday canceled its planned $150 million offering of three-year mandatorily convertible preferred stock.

The convertibles were expected to price Thursday after the market closed.

UBS Investment Bank and Bear Stearns were the bookrunners of the terminated convertible deal, which was registered.

Baldor did not give a reason for canceling the convertible offering, but market sources said there was enough demand for the other portions of the company's refinancing package for the company to drop the convertibles.

Baldor was previously offering the convertibles together with $200 million of its common stock and $550 million of senior notes. The common stock offering has been increased to $275 million, with an over-allotment option for a further $75 million.

Baldor is also increasing its term loan borrowings by $50 million, to $1.05 billion, and os borrowing $25 million under the revolving credit facility portion of a new senior secured credit facility.

Baldor, a Fort Smith, Ark.-based maker of electric motors, drives and generators, was planning to use the proceeds of the deal to finance an acquisition and pay off debt.

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