Countrywide up on positive outlook, helps raise Beazer; Lincare opens strong; Micron active, up

By Evan Weinberger

New York, Oct. 26 - Countrywide Financial Corp. was the big story in convertibles land Friday as a positive fourth-quarter outlook raised investor confidence despite an ugly third-quarter loss linked to the mortgage mess.

The positive outlook on Countrywide helped financial and homebuilder stocks, and Beazer Homes USA, Inc. convertibles were also beneficiaries.

In other trading action, Micron Technology Inc. and Ford Motor Co. convertibles were moving around a fair amount, and both were up. Micron saw the bigger gains, however.

"Other than that, it's relatively quiet," one analyst said, especially when compared to the bloodletting several smaller convertibles issues experienced in the past few days. "Everyone got burnt out yesterday it seems."

One new issue hit the U.S. market Friday. Lincare Holdings Inc. priced $500 million of convertible senior debentures due Nov. 1, 2037 in two tranches, with both coming with a yield of 2.75% and an initial conversion premium of 52.5%.

The two tranches, priced after the close Thursday, were each sized at $250 million and each came at the middle of talk for a coupon of 2.75% to 3.25% and an initial conversion premium of 50% to 55%.

The conversion price is $51.27 and the conversion ratio for the Rule 144A transaction is 19.5044.

Each tranche has a $25 million over-allotment option. The settlement date is Oct. 31

Lincare provides oxygen and other respiratory therapy services to the home health care market. Lincare is based in Clearwater, Fla. The company plans to use $150 million to repurchase some of its common stock. An undisclosed further amount may be used for further stock buybacks. The balance will be used to fund some acquisitions and for general corporate purposes.

Coming in from overseas, International Securities Trading Corp. priced €150 million of 9% convertible subordinated bonds due Jan. 31, 2013 with an initial conversion premium of 10%. The convertibles will pay out 5% per year with 4% paid out in kind at maturity.

ISTC is not a listed public company but expects to be listed within the next 12 to 24 months. The convertibles are listed on the Cayman Islands Stock Exchange. The settlement date is expected to be Nov. 23.

The conversion price of the Regulation S transaction is €110 million, and the conversion ratio is 0.009. Currently 10% of ISTC is owned by private investors at €100 per share. The convertibles offering is being made to current shareholders and new investors, with current shareholders getting preference in the event of oversubscription.

Investors can put the convertibles at any time. There are no calls or mandatory conversions.

ISTC is a Dublin, Ireland-based firm that provides financing to banking and other financial institutions. The proceeds will be used for general corporate purposes.

And coming in from the Norwegian energy sector, Seadrill Ltd. priced an upsized $1 billion of 3.625% senior unsecured convertible bonds due November 2012 with an initial conversion premium of 45%. The deal was originally announced at $750 million. The convertibles were talked at a coupon of 3.625% to 4.125% and an initial conversion premium of 40% to 45%.

There is a $150 million over-allotment option on the Regulation S issue. The settlement date is expected to be Nov. 8.

The conversion price is $34.74.

The convertibles are callable after three years subject to a 130% hurdle.

There is dividend protection, a change-of-control put and a linearly amortizing ratchet.

Seadrill is an Oslo-based oil and gas driller. The company plans to use the proceeds for general corporate purposes and the construction of 14 new buildings.

Broad equity markets up

The positive outlook from Countrywide and a better-than-expected earnings report from Microsoft Corp. sent stocks racing Friday. Rumors of mergers and the chief executive officer possibly walking the plank at Merrill Lynch also helped to drive up the market.

The Dow Jones Industrial Average posted a 134.78 point, or 0.99%, gain on the day to close at 13,806.70.

The Nasdaq, after several losing days in a row, took the Microsoft news and ran with it. The tech-heavy index picked up 53.33 points, or 1.94%, for a 2,804.19 close.

And as it often does, the Standard & Poor's 500 finished right in the middle of the other two indices, adding 20.88 points, or 1.38%, to close at 1,535.28.

"All the mortgage names and banks are up. Confidence [is] slowly returning, panic [is] fading," one trader said. "The world goes on."

Countrywide bullish on future

It's rare that reporting a $1.2 billion quarterly loss would inspire investor confidence in a company. It helps when the company can say that it's going to turn a profit in the next quarter.

That's just what America's largest home lender, Countrywide, did Friday. The $1.2 billion loss, which was driven by the subprime mortgage mess, was Countrywide's first quarterly loss in 25 years. However, Countrywide CEO Angelo Mozilo, who is under fire for dumping stock in his company as the stock tumbled, said he expects to see his company head back into the black in the fourth quarter of 2007 and all of 2008.

"Countrywide's results for the third quarter of 2007 reflect the impact of unprecedented disruptions in the U.S. mortgage market and the global capital markets, as well as continued weakening in the housing market," Mozilo said in a statement. "However, during the period we also laid the foundation for a return to profitability in the fourth quarter. Countrywide has responded decisively and taken the steps we believe are necessary to address the current challenging market environment."

An infusion of cash from Bank of America, the tightening of lending standards and other measures solidified Countrywide, Mozilo said.

Countrywide stock (NYSE: CFC) sprouted $4.32, or 32.36%, on Friday.

Convertible investors liked what they heard but apparently not that much. "The outlook was better than I think people expected," one analyst said.

Calabasas, Calif.-based Countrywide's Libor minus 350 basis points series A convertible senior debentures due April 15, 2037 closed Friday at 87.9 versus a closing stock price of $17.30. They closed Thursday at 85 versus a stock price of $13.07.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 15, 2037 closed Friday at 85.1 versus a stock price of $17.30. They closed Thursday at 82.4 versus a stock price of $13.07.

Countrywide gain drives Beazer

Homebuilders were also smacked around during the mortgage crisis. Word Thursday that sales of new homes were up unexpectedly in September and Countrywide's positive outlook for the next quarter helped raise Atlanta-based Beazer Homes.

Beazer's 4.625% convertible senior notes due June 15, 2024 closed Friday at 76.229 versus a stock price of $12. They closed Thursday at 74.64 versus a stock price of $10.75.

Beazer stock (NYSE: BZH) added $1.25, or 11.63%, on the day.

Lincare ends first day up

Apparently more investors felt Lincare's new two-tranche convertibles that priced Thursday night were a good investment rather than something they wouldn't touch with a 10-foot pole.

Lincare's 2.75% series A convertible senior debentures due Nov. 1, 2037 closed Friday at 102.875 versus a closing stock price of $33.48.

Lincare's 2.75% series B convertible senior debentures due Nov. 1, 2037 closed Friday at 102 versus a stock price of $33.48.

Lincare stock (Nasdaq: LNCR) slipped 14 cents, or 0.42%, on Friday.

Ford up with labor talks

Word leaked on Thursday that Dearborn, Mich.-based Ford and the United Auto Workers had agreed on some labor cuts as their negotiations continued. That helped offset fears of a soft month of auto sales in October. Ford's convertibles didn't move up a lot, although they were active.

Ford's 4.25% convertible senior notes due Dec. 15, 2036 closed Friday at 117.19 versus a closing stock price of $8.67. They closed Thursday at 117.06 versus a stock price of $8.60.

The automaker's stock (NYSE: F) added 7 cents, or 0.81%, on Friday.

Micron active, up

Boise, Idaho-based semiconductor maker Micron was active Friday as investors tried to get in on tech stocks and convertibles after several down days.

In heavy trading, Micron's 1.875% convertible senior notes due June 1, 2014 closed Friday at 92.395 versus a closing stock price of $9.76. They closed Thursday at 90.655 versus a stock price of $9.43.

Stock in Micron (NYSE: MU) increased 33 cents, or 3.50%, on the day.

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