Boston Private, Parker seen fair; Huntsman rated buy; Red Hat taken down; Ford motors on

By Evan Weinberger

New York, June 28 - With two small- to mid-sized issues - Boston Private Financial Holdings Inc.'s $250 contingent convertibles and Parker Drilling Co.'s $115 million convertible senior notes - set to price after market close Thursday, the action was in the secondary market. Ford Motor Co., Red Hat Inc. and Huntsman Corp. were among the more notable movers on the day.

With only one small offering priced, traders looked to make that last push before a summer weekend and the broken Fourth of July week.

"There's a flurry of a lot of different names. The Fourth of July marks the beginning of real summer. This is the last busy day before next week," said one sellside analyst, although he added that there might be some movement on Boston Private and Parker Drilling Friday. "I think we'll get good follow-through on the two new issues tomorrow morning."

A day after some analysts expressed trepidation that spillover from the subprime mortgage troubles could pull down the convertibles market, the Federal Reserve's reassuring message on inflation seems to have calmed some nerves, according to one sellside analyst.

One small offering came to market without much notice. LSB Industries Inc. of Oklahoma City priced $60 million of senior subordinated debentures due July 1, 2012.

In the secondary market, Red Hat's 0.5% senior unsecured notes due Jan. 1, 2024 closed at 104.7965 versus a stock price of $22.37 Thursday, down from 107.125 at its last trade on Tuesday. The stock closed at $23.36 Tuesday. There were at least 30 trades of more than a million Thursday, according to the Trace system.

The moves came in response to the Raleigh, N.C.-based software maker's earnings, announced after the close Wednesday. The company said it had spent heavily on research and marketing in the first quarter of 2007. Red Hat stock (NYSE: RHT) closed down 7.52%, or $1.82, at $22.37.

Huntsman dips but analyst recommends

Huntsman's 5% mandatory (NYSE: HUN-P) was down slightly Thursday even though J. Giordano Securities Group released a report advising investors to get in on the issue ahead of the Salt Lake City-based chemical manufacturer's acquisition by Basell Polyolefins Co. takes effect.

J. Giordano senior vice president Paul Berkman said in an e-mail to investors that the rise in Huntsman common stock after the merger was announced meant that the convertible, due Feb. 16, 2008, was likely to reach par.

"What's particularly interesting about this, particularly at this time, is that people in the convertibles market are worried about macro things. It is a very real risk," Berkman said in a telephone interview, referring to worries about subprime mortgages. "This is a situation that doesn't depend on that. It only depends on whether the merger goes through. So if I'm a convert guy and I've got money sitting around idly, this is a way to put it to work without getting exposed to all those other factors."

Huntsman's mandatory closed down $0.07, 0.14%, at $48.98. Another sellside analyst said that investors were looking to flip the issues quickly on purchase. Huntsman common stock closed up $0.09, 0.37%, at $24.36.

Overall, the stock markets were mixed. The Dow Jones Industrial Average closed down 5.45 points, or 0.04%, at 13,422.28. The Nasdaq closed up 3.02 points, or 0.12%, at 2,608.37.

Boston Private, Parker talk seen about right

Traders and analysts agreed that the two issues set to price after market close Thursday were in line with valuations from their models.

Boston Private's $250 million contingent convertibles were talked at a yield of 2.75% to 3.25% with an initial conversion premium of 20% to 25%.

"It looks okay. It's somewhat unusual in the two-year put call. I think people are comfortable with the credit at 100 over Libor, kind of 22-ish vol," said one sellside analyst. "It's fair valuish, at the mid, attractive at the low end of price talk."

A trader modeled the Boston Private convertibles slightly rich, using a credit spread of 254 bps and an implied volatility of 29.9%.

But even with the output from the models, one sellside analyst said that the mid-size deal wasn't getting anyone worked up. "At least over here it seems pretty quiet," he said.

Meanwhile, traders and analysts were very receptive to the guidance on Parker Drilling. The $115 million in convertible senior notes was talked to yield 1.625% to 2.125% with an initial conversion premium of 32.5% to 37.5%.

One sellside analyst said other analysts at his firm were rating the convertibles at even or slightly rich. He disagreed. "If it was me, it would be a little bit cheap," he said.

An analyst at a different firm said that most models were done with a credit spread of around 300 bps and a volatility in the mid to high 30s. The analyst said he used a more conservative estimate. "I was closer to 200 over Libor," he said. "If you use a 36 vol over 200, it's attractive at the mids, getting about par and a half."

A model from a different firm showed Parker Drilling at fair value at 101.18 using a credit spread of 390 bps and a volatility of 36%.

Ford convertibles drive up

Ford's 4.25% convertible senior notes due Dec. 14, 2036 closed at 126.375 versus a stock price of $9.49 Thursday, with more than 20 trades of over $1 million. Its previous close Wednesday was 123.50 versus a stock price of $9.28. At the same time, the Ford mandatory also traded up, closing $0.52 higher, or 1.35%, at $38.90.

Ford's stock also posted strong gains on news that Dana Corp., one of Ford's major parts suppliers, had settled a long-standing dispute with another parts manufacturer. Ford also announced plans for $105 million in improvements at a truck factory in Kentucky and the company posted gains in its market for crossover vehicles. Ford stock closed higher by $0.21, or 2.2%, at $9.49.

"You've yet to see any improvement under [new Ford Chief Executive Officer ] Alan Mulally, the stock's breaking out and the bond's been in line," one sellside analyst commented.

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