Nabors down on Transocean deal; Ford falls; Microchip deal prices aggressive, opens flat

By Evan Weinberger

New York, Dec. 4 - Increasing debt, slowing sales and the probability of increased fuel efficiency standards in a new Congressional energy bill hammered Ford Motor Co. convertibles Tuesday.

Countrywide Financial Corp. continued to slide, as did Level 3 Communications Inc.

XM Satellite Radio Holdings Inc. convertibles were down as royalty charges for music increased and doubts emerged about the likelihood of XM's takeover by Sirius Satellite Radio Inc.

Microchip Technology Inc. brought its convertibles to market. And with investors hungry for new issues, they brought it in big and rich. Microchip upsized its offering of convertible junior subordinated debentures due Dec. 15, 2037 to $1.03 billion. The coupon came in at 2.125%, and the initial conversion premium came in at 15% Monday after the market close. The deal came in at the rich end of talk, which had been for a coupon of 2.125% to 2.625% with an initial conversion premium of 10% to 15%. The principal amount was originally announced at $900 million.

The Rule 144A transaction has an upsized $120 million over-allotment option. The greenshoe was originally announced at $100 million.

The deal is expected to close Dec. 7.

No new deals were launched Tuesday, but two were on track to come to market. Bedford, Mass.-based medical and diagnostic equipment producer Hologic Inc. was set to bring $1.3 billion in convertible senior notes due 2037 after the market close Tuesday. "Very good credit, undervalued stock; it looks like it's about 2% cheap," was how one analyst assessed the coming Hologic convertibles.

Transocean Inc.'s $6 billion in convertible senior notes due 2037, divided into three tranches, looms Wednesday. With Transocean sitting pretty on its investment-grade rating, excitement is building for the pricing of those convertibles. There was so much interest in Transocean that many investors were seen getting out of Nabors Industries Ltd. convertibles.

Stocks had a generally downbeat day Tuesday.

The Dow Jones Industrial Average lost 65.84 points, or 0.49%, to close at 13,248.73.

The Nasdaq dropped 17.30 points, or 0.66%, for a close at 2,619.83.

The Standard & Poor's 500 closed at 1,462.79, a dip of 9.63, or 0.65%, on the day.

Microchip opens flat

Microchip had such a good reception for its convertible junior subordinated debentures due Dec. 15, 2037 that not only did the company upsize the bid; it brought the deal in on aggressive terms. The 2.125% coupon and 15% initial conversion premium both came in at the outer reaches of talk.

Did Microchip overplay its hand? "I know it was upsized and came at the rich end and that it didn't look as attractive on swap there," one analyst said.

The deal got snapped up quickly and traded within the vicinity of par throughout the day.

A trader pegged the closing price of the Microchip convertible debentures at 100.375 versus a closing stock price of $29.30.

Microchip stock (Nasdaq: MCHP) fell 40 cents, or 1.35%, in trading Tuesday.

That close brought the stock farther from the debentures' conversion price of $34.16. The conversion ratio is set at 29.2783.

There is a provisional call after 10 years subject to a 150% hurdle. There is talk of dividend protection with a $0 threshold level.

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.

Transocean drives down Nabors

The buzz around Houston-based oil and gas driller Transocean's $6 billion in convertible senior notes due 2037 divided into three tranches is building in the run-up to pricing Wednesday.

"It's investment grade, so it won't take me long to slag a spread on that one," an analyst said.

But the buzz surrounding the Transocean convertibles is stealing some of the thunder from Hamilton, Bermuda-based oil and gas driller Nabors.

A trader said late in the afternoon that many investors who didn't want to get too heavily into oil and gas were getting out of Nabors in preparation of the arrival of Transocean.

"That would make sense," an analyst said, noting a "pretty steep drop" in the bid price on Nabors convertibles.

Nabors' 0.94% exchangeable senior notes due May 15, 2011 were hit the hardest among the company's convertibles. They closed Tuesday at 93.8538 versus a closing stock price of $26.42 in heavy trading. They closed Monday at 95.1536 versus a stock price of $26.82.

Nabors' zero-coupon convertible senior notes due June 15, 2023 had a somewhat easier time of it Tuesday, closing at 99.5698 versus a stock price of $26.42. They closed Monday at 99.9312 versus a stock price of $26.82.

Nabors stock (NYSE: NBR) fell 40 cents, or 1.49%, on Tuesday.

Ford slashed on debt, sales worries

Fitch Ratings said Tuesday that despite cost-cutting measures and the removal of retiree health benefits from Ford's balance sheet, there are still debt concerns hanging over Ford.

Add that to the projected slowdown in sales for 2008 and increased fuel efficiency standards planned for the new energy bill, and you get a down day for Ford's convertibles and stock.

Ford's 4.25% convertible senior notes due Dec. 15, 2036 closed Tuesday at 101.91 versus a closing stock price of $6.97. They closed Monday at 105.08 versus a stock price of $7.25.

The Dearborn, Mich.-based automaker watched its stock (NYSE: F) fall 28 cents, or 3.86%, on the day.

Countrywide slips again

Calabasas, Calif.-based mortgage lender Countrywide saw its convertibles slip again Tuesday as concerns about the credit crisis continued to weigh on investors.

Countrywide's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Tuesday at 80.8159 versus a closing stock price of $10. They closed Monday at 82.3695 versus a stock price of $10.68.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 15, 2037 closed Tuesday at 75.5028 versus a stock price of $10 after finishing Monday at 77.3304 versus a stock price of $10.68.

Countrywide stock (NYSE: CFC) got crushed, losing 68 cents, or 6.37%, on the day.

Level 3 sinks

Broomfield, Colo.-based telecommunications firm Level 3 watched its 3.5% convertible senior notes due June 15, 2012 close Tuesday at 88.61 versus a closing stock price of $3.17. They closed Monday at 91.037 versus a stock price of $3.38.

Level 3 stock (Nasdaq: LVLT) was pummeled, losing 21 cents, or 6.21%, on Tuesday.

XM down

Washington-based XM Satellite Radio had the rates it pays for music set through 2012 Tuesday. In 2008, the company will pay 6% of its revenues for the songs its stations play, with the percentage moving up to 8% in 2012. The royalty rates were set by the Copyright Royalty Board of the Library of Congress.

The rates hold true for Sirius Satellite Radio, whose chief financial officer said the acquisition of XM was on pace to close by the end of 2007.

At the same time, a Goldman Sachs analyst downgraded both companies' stock and cast doubts over the federal government providing the necessary approvals for a deal to go through.

All of that added up to a down day for XM. The company's 1.75% convertible senior notes due Dec. 1, 2009 closed Tuesday at 89.0833 versus a closing stock price of $14.98. They closed Monday at 89.89 versus a stock price of $15.83.

XM stock (Nasdaq: XMSR) tumbled 85 cents, or 5.37%, on Tuesday.

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