Ford slips on Aston Martin sale; Macerich deal seen as fair to cheap; Asbury offering seen as interesting

By Kenneth Lim

Boston, March 12 - Ford Motor Co. slipped in line with its stock on Monday after the company said it was selling its Aston Martin luxury brand to a consortium of investors.

The Macerich Co. was quiet in the gray market ahead of its $700 million offering's expected pricing after the market closed. The deal was seen as fair to cheap, convertible analysts said.

Asbury Automotive Group Inc.'s planned $100 million offering also remained untouched in the gray market, with price talk seen as reasonable ahead of pricing after the close Monday.

The convertible market got off to a slow start on Monday with equity markets mostly advancing. Stock volatility that stemmed from concerns over the sub-prime mortgage lending sector mostly left convertible investors untouched.

"We're not really seeing any significant effect from that," a convertible strategist said.

A sellside convertible analyst said "it's going to take a while to see if there's going to be any fallout."

"Certainly it's more significant for an asset like IndyMac [Bancorp Inc.] that actually had some exposure to subprime mortgage loans," the analyst said. "It's possible that they'll be affected, but it's not always the same borrower that is in the subprime auto or credit card market as in houses...Right now I think there's a lot of speculation in there."

The analyst said the impact on real estate investment trusts could also be limited.

"It probably won't affect them in commercial/office," the analyst said. "People will always look at shopping centers, because they see that as having ties to the consumer, but then again most of those are tied to long-term leases. Unless those retailers start closing their doors and walking away from their leases in big numbers, it probably won't be that big of an impact. Maybe demand for rental apartments might pick up and the apartment REITs will do better."

Ford slips on sale

Ford's 4.25% convertible due 2036 eased about a point outright on Monday after the company said it had sold its Aston Martin luxury brand for $925 million.

The convertible traded at 111.25 against a stock price of $7.90, while Ford stock (NYSE: F) dropped 1.39% or 11 cents to close at $7.82.

"The Fords were lower outright, mostly in line," a sellside convertible trader said. "We saw some trading this morning, but most of it was early in the day."

Ford will receive $848 million from the investors and retain a $77 million stake in the deal. The buyers of the brand include Kuwaiti companies Investment Dar and Adeem Investment Co., banker John Sinders and racing businessman David Richards.

"They've been trying to sell Aston Martin for some time, so it's positive that they were able to get the offers they wanted," a buysider said. "They're also trying to sell their other luxury brands, so this deal raises hopes that they'll be successful with those other deals."

"The sale is positive for their credit, because it's about $800 million of cash that will add to their liquidity," the buysider said. "If they can sell their other luxury brands, that could be another $10 billion, depending on what they're selling."

But the buysider said long-term concerns about the Dearborn, Mich.-based auto maker's ability to turn around remained.

"Everything depends on their ability to rebuild their main brands, which is basically Ford," the buysider said. "These brands that they're selling are profitable, but they don't really have much of a choice right now because they need the cash for their restructuring. But if they don't turn the business around, you're going to be stuck with a company whose assets aren't as attractive as they are right now."

Macerich quiet in gray

Macerich's planned $700 million of five-year convertible senior notes was quiet in the gray market on Monday with the deal seen as fair to cheap.

The deal was expected to price after the market closed. It was talked at a coupon of 2.875% to 3.375%, an initial conversion premium of 20% and a reoffer price of 99.

There is an over-allotment option for a further $140 million.

Deutsche Bank and JP Morgan are the bookrunners of the Rule 144A offering.

Macerich is a Santa Monica, Calif.-based real estate investment trust that focuses on regional and community shopping centers. It will use the proceeds of the deal to repay an existing $250 million term loan that bears an interest rate of Libor plus 150 basis points due 2007 and to partly pay down a $1.5 billion revolving loan.

A convertible analyst said the deal looked about 1% cheap at the midpoint of the coupon range and priced at par, using a credit spread assumption of just under 200 basis point over Treasuries and a volatility of just below 25%.

"So it's going to be that much cheaper at the reoffered price," the analyst said. "It looks OK as a hedge idea even though with REITs, there seems to be a bit of extra volatility in them now. As an outright idea, it looks OK for that as well, the only difference is where's the stock going to go. It's still trending up, but it's hard to tell."

A sellsider thought that a volatility assumption above 20% was too high for a REIT.

"It's a REIT, although it's a relatively levered REIT, but I wouldn't use a vol assumption that high," the sellsider said.

The sellsider noted that the company's credit profile was probably in the region of 100 basis points over Libor, based on existing debt. At the midpoint of price talk, the deal would have an implied volatility of just under 20%, the sellsider said.

"It looks OK if they bring it at the mids or better," a sellsider said.

The sellsider said the deal would not be attractive at the rich end of talk.

"It doesn't look that great there, not too far from where the actual vol is," the sellsider said. "If they came at the cheap end then it would be more attractive. I'd like it a lot better if it came at the cheap end, it's OK if it comes at the mids and I don't like it if it comes at the rich end."

Asbury seen as reasonable

Asbury's planned $100 million of 5.5-year convertible senior subordinated notes was also quiet in the gray market, but the deal was seen as potentially interesting.

The deal was talked at a coupon of 3% to 3.5% and an initial conversion premium of 20% to 25%.

The notes will be offered at par.

There is an over-allotment option for a further $15 million.

Goldman Sachs is the bookrunner of the Rule 144A offering.

There is a concurrent $150 million offering of 10-year senior subordinated notes.

Asbury, a New York-based automotive retailer, said it will use the proceeds of the convertible and straight bond deals to buy back its outstanding $250 million of 9% senior subordinated notes due 2012. It will also buy back up to 1.3 million shares of its common stock using available cash and fund convertible note hedge and warrant transactions.

"That one looks OK," said a convertible analyst who modeled the deal using a credit spread of just over 200 basis points over Libor and a volatility in the low 20% region. "I marked them off the high-yields, the 8% due 2014, which is a couple of years longer."

The analyst said the convertible's historic volatility appeared closer to the mid 20s, although the underwriters could be using a 27% volatility assumption.

"I think that's a little high," the analyst said.

The analyst said that despite the possible cheapness of the Asbury deal, the comparable existing 3.5% convertible due 2026 by United Auto Group Inc. could be more interesting.

"Relative valuations wise, United Auto Group, those are kind of 23ish vol," the analyst said. "That's a better value than paying 27 vol."

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