Countrywide slips as mortgage deal nears; Microchip Technology, Hologic, Transocean announce big deals

By Evan Weinberger

New York, Dec. 3 - Countrywide Financial Corp. convertibles edged lower as a deal to freeze teaser rates on subprime mortgages drew closer Monday.

Meanwhile, one issue of Mylan, Inc. convertible preferreds traded down with the generic drug maker's stock on the day.

And Ford Motor Co. convertibles drove lower ahead of earnings.

Separately, E*Trade Financial Corp. convertible equity units traded lower Monday as their $2.55 billion bailout from Citadel didn't look any better.

iStar Financial Inc. convertibles ended the day higher.

Trading was relatively light and few big price moves were seen on the day. "Last I looked there was hardly anything trading in big volumes today," an analyst said as trading drew to a close Monday.

One new deal was scheduled to price Monday after the market close. Chandler, Ariz.-based semiconductor producer Microchip Technology Inc. launched $900 million in convertible junior subordinated debentures due 2037 talked at a 2.125% to 2.625% coupon with a 10% to 15% initial conversion premium Monday before the market open.

There is a $100 million over-allotment option on the Rule 144A transaction.

That deal was announced early Monday morning, but the fireworks were set to go after the close. "Looks like it'll be puny next to some other stuff that's coming," an analyst said of Microchip's deal.

After the close, Bedford, Mass.-based medical device maker Hologic, Inc. launched $1.3 billion in convertible senior notes due 2037. The convertibles are talked at a 1.75% to 2.25% coupon for the first six years and at a contingent interest of 0.40% of the trading price of the notes if the trading price equals or exceeds 120% of the accreted principal amount of the notes after six years. Initial conversion premium talk was set at 22.5% to 27.5%.

The Securities and Exchange Commission-registered transaction has a $195 million greenshoe and is set to price Tuesday after the market close.

The convertibles have six years of call protection and puts in years six, 10, 15, 20 and 25.

Hologic plans to use the proceeds to pay down existing debt.

Hologic stock (Nasdaq: HOLX) lost $1.59, or 2.39%, Monday to close at $64.80.

Those fireworks not big enough? Try Transocean Inc.'s $6 billion in convertible senior notes that were announced Monday after the market close. The $6 billion will come in three tranches, all due in 2037. All three tranches are talked at a 27.5% to 32.5% initial conversion premium, have a contingent conversion subject to a 130% hurdle and have dividend and takeover protections.

The A tranche is talked at a 1.625% to 2.125% coupon with a hard call at year three. There are puts in years three, five, 10, 15, 20 and 25.

The B tranche is talked at a 1.5% to 2% coupon with a hard call at year four. There are puts in years four, five, 10, 15, 20 and 25.

The C tranche is talked at a 1.5% to 2% coupon with a hard call at year five. There are puts in years five, 10, 15, 20 and 25.

The convertibles are set to price Wednesday.

Transocean is a Houston-based oil and gas drilling company. The proceeds are going to repay debt incurred in its acquisition of GlobalSantaFe Corp. earlier in the year.

Transocean stock (NYSE: RIG) added 26 cents, or 0.19%, for a $137.55 close.

Stock markets broadly had a down day Monday.

The Dow Jones Industrial Average lost 57.15 points, or 0.43%, for a 13,314.57 close.

The Nasdaq fell 23.83 points, or 0.90%, to close at 2,637.13.

And the Standard & Poor's 500 closed at 1,472.42, a dip of 8.72 points, or 0.59%, on Monday.

Countrywide down as deal nears

Treasury secretary Henry Paulson announced in a speech Monday that a deal was near to ease the coming adjustment of teaser rates on subprime mortgages.

Most subprime mortgages were designed with low introductory rates lasting for two or three years, which then skyrocket for the rest of the usually 30-year term of the loan. Millions of those loans are set to jump in the coming months, and estimates of more than 2 million foreclosures are feared.

The deal being talked about would freeze the low teaser rates for anywhere from three to five years. Housing and Urban Development secretary Alphonso Jackson said that there could be an announcement as early as Thursday, according to media reports.

"I see a good step" a trader said, adding that Countrywide, Sovereign Bancorp Inc. and Washington Mutual Inc. would see among the biggest benefits.

While freezing the lower rates for several years might hurt investors looking to get their money back from struggling investors, an analyst said it was far more important that borrowers get some relief. "They shouldn't care so much about the banks or the investment banks or the hedge funds, those are big boys that can take care of themselves," he said.

Calabasas, Calif.-based Countrywide edged lower on all fronts Monday.

The company's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Monday at 82.36 versus a closing stock price of $10.68. They closed Friday at 82.47 versus a stock price of $10.82.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 15, 2037 closed Monday at 77.33 versus a stock price of $10.68 after closing Friday at 77.826 versus a stock price of $10.82.

Countrywide stock (NYSE: CFC) dropped 14 cents, or 1.29%, Monday.

Microchip deal has mixed reaction

Microchip's announced $900 million in convertible junior subordinated debentures drew a mixed reaction from market watchers Monday.

"It looks OK to me," one analyst said. "They generate a ton of cash. [With] the amount of cash that they have, and the ability to support the debt going forward, I think they'll be OK."

Microchip, which supplies semiconductors for the auto industries, also doesn't have a lot of outstanding debt, the analyst added.

But other observers were unhappy with the length and lack of puts on the paper. There is a provisional call after 10 years subject to a 150% hurdle.

If corporate rates keep climbing, this is the kind of paper that's going to get slaughtered," another analyst said. "It's structured to be so high above bond floor I just don't see how much downside protection there is."

Recent issues from Linear Technology Corp. (two tranches trading slightly below par) and Xilinx Inc. (trading at around 87) have had similar long-term maturities with few if any puts. That, the first analyst said, should put some investor minds at ease.

It hasn't for everyone. "No put? Hope it is coming on swap!? Do not like pricing," a fund manager said in an e-mail.

The first analyst said investors were "starving" for new issues not linked to mortgages. "I hear it's going really well," he said. "I hear it's five times oversubscribed."

That could just be a case of hungry market players hearing that others are getting in on a new deal and not wanting to miss the boat, the second analyst cautioned.

Microchip stock (Nasdaq: MCHP) surged 91 cents, or 3.16%, to close at $29.70.

Microchip Technology is a Chandler, Ariz.-based semiconductor producer. The company plans to use $625 million of the proceeds to repurchase shares of its common stock. The rest of the proceeds will go toward future stock repurchases and general corporate purposes.

Mylan trades down

Canonsburg, Pa.-based Mylan's 6.5% mandatory convertible preferred stock due Nov. 15, 2010 closed Monday at 1,027.4 versus a closing stock price of $14.24. They closed Friday at 1,031.5 versus a stock price of $14.38.

Mylan stock (NYSE: MYL) lost 14 cents, or 0.97%, in trading Monday.

Ford down on auto sales report

Car sales in the United States dropped 1.6% in November, according to a report by AutoData Corp. Most of that drop was attributed to an 11% fall in Detroit-based General Motors Corp. sales.

Dearborn, Mich.-based Ford saw its sales increase a modest 0.4%, the report said, driven by a steep increase in sales to commercial fleets.

Both GM and Ford have cut production targets for the first quarter of 2008 because of reports of slowing sales, despite Ford's slight gain.

Also cut Monday was Ford's 4.25% convertible senior notes due Dec. 15, 2036, which closed at 105.08 versus a closing stock price of $7.25. They closed Friday at 106.44 versus a stock price of $7.51.

Ford stock (NYSE: F) fell 26 cents, or 3.46%, on Monday.

E*Trade deal not looking better

Investors clearly weren't thrilled last week with New York-based online financial institution E*Trade Financial Corp.'s $2.55 billion bailout by the hedge fund Citadel.

The view of the deal didn't change much after investors had a weekend to mull it over.

E*Trade's 6.125% common equity units due Nov. 18, 2008 (Nasdaq: ETFCP) closed Monday down 71 cents, or 9.23%, at $6.98.

Stock in E*Trade (Nasdaq: ETFC) crumbled a further 49 cents, or 10.65%, to $4.11 on Monday.

iStar ends day up

New York-based commercial real estate financer iStar saw its Libor plus 50 bps convertible senior floating-rate notes due Oct. 1, 2012 close Monday at 91.881 versus a closing stock price of $29.25. They closed Friday at 89.3459 versus a stock price of $29.27.

iStar stock (NYSE: SFI) slipped 2 cents, or 0.07%, on Monday.

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