AirTran stays quiet; Ford holds firm; Boston Private gets support; Charming Shoppes, Cheniere see interest

By Kenneth Lim

Boston, April 25 - The convertible market ended the week on a firmer note Friday as everything outside of airlines seemed to improve slightly.

"It was a little of a relief, actually," a sellside convertible trader said. "After the last four weeks, the high-yield markets finally traded well."

AirTran Holdings Inc.'s new 5.5% convertible notes due 2015 did not trade on their secondary market debut, with the deal believed to have landed with a small number of buy-and-hold investors.

Ford Motor Co.'s 4.25% convertibles due 2036 were poorer outright but held steady on a dollar-neutral basis as the stock gave back some of its day-earlier gains following equity downgrades.

Other names that were active included Boston Private Financial Holdings Inc., Charming Shoppes Inc. and Cheniere Energy Inc.

Convertibles in general finished better, but traders said the market was not out of the woods yet.

"It was a little bit better for me," a Connecticut-based trader said. "It wasn't great, but we're just trying to get back to good."

AirTran quiet on debut

AirTran's new 5.5% convertible senior notes due 2015 were marked slightly lower but did not trade Friday as investors stayed away from airlines in general.

"I saw it bid a little below the issue," a trader said. "I think the people who bought it were in general embarrassed to say that they did."

AirTran priced the $65 million deal Thursday after the market closed at the cheap end of talk. The initial conversion premium was set at 20%. AirTran common stock (NYSE: AAI) closed at $3.22, up by 0.62% or $0.02.

The convertibles were talked at a coupon of 5% to 5.5% and an initial conversion premium of 20% to 25%.

There is an over-allotment option for a further $9.75 million.

Morgan Stanley & Co. Inc. was the bookrunner of the registered shelf offering.

There was an upsized concurrent common stock offering of 22,312,500 common shares priced at $3.20 per share for a total of $71.4 million. The stock offering has a greenshoe for an additional 3,346,900 common shares, or $10.71 million. The original stock offering was for 14.25 million common shares and a greenshoe for an additional 2,137,500 common shares.

AirTran, an Orlando, Fla.-based airline, said it will place part of the proceeds from the notes offering into an escrow account to fund the first six interest payments. The rest of the proceeds will be used for general corporate purposes, which may include working capital, capital expenditures, debt retirement and strategic investments.

Interest for the note was extremely limited in the days ahead of pricing, as critics pointed out the high risks of getting into the company as the airline industry suffers from high fuel costs and the airline's stock is languishing.

"It's probably a tough sell, but I guess it was well-placed in a few hands," the trader said. "My feeling is if you bought that one you may be married to it for a little while."

A sellsider doubted that AirTran would be an active name.

"They don't trade on the streets," the sellsider said. "I'm sure they got put away. This is not something everybody's going to buy."

Ford lower outright with stock

Ford's 4.25% convertible due 2036 dropped about 10 points outright but improved slightly on a dollar-neutral basis as the stock fell following Thursday's rally.

The convertible note traded at 105 against a stock price of $7.60. Ford common stock (NYSE: F) dropped 10.71%, or 90 cents, to close at $7.50 on Friday.

Ford's 6.5% convertible preferred also slipped 2.46%, or 88 cents, to close at $34.94.

"These are always active. Looks like they had a good bump up yesterday," a sellside trader said. "They're just in line, down with the stock; the stock's down about a buck."

Ford took a dive on Friday, giving up most of the gains made on Thursday after the Dearborn, Mich.-based automaker unexpectedly reported a profit for its first quarter.

Equity analysts had been cautious about the Thursday rally.

Citigroup equity analyst Itay Michaeli reaffirmed his sell recommendation on Ford stock.

"Ford continues to demonstrate progress in first-quarter 2008, but a low quality beat and unsustainably high margins abroad did not compensate for the challenges ahead," Michaeli wrote in a note.

A convertible hedge buysider said Friday's stock movements may not have made much of a difference to outright and arb funds.

"If you just look at today you'd think the outright guys were crying, but really it's just coming down from Thursday, so it's more normal now," the buysider said. "I think it's still an interesting story. Whether you're outright or hedge I think the first-quarter results give a little more comfort, even though everyone knows they still have a ways to go."

Boston Private improves

Boston Private's 3% convertibles due 2027 gained a couple of points outright as significant buying activity helped boost the notes.

The convertible traded at 89 against a stock price of $9.35. Boston Private common stock (Nasdaq: BPFH) closed at $9.48, up by 4.64%, or 42 cents.

A sellside convertible trader said the support for the convertible could be coming from the company itself, which bought back $107.5 million in principal of the $250 million issue in March.

"I don't know who's buying them, but since the company bought back $100 million of them last month, there's a chance they could still be doing it," the trader said.

In a filing with the Securities and Exchange Commission in March, Boston Private, a Boston-based multi-bank holding company, said it expected the repurchases to result in an after-tax gain of about $7.9 million. Boston Private also said it may make additional repurchases from time to time.

Charming Shoppes sees interest

Charming Shoppes' 1.125% convertible note due 2014 continued to gain on Friday, marking an unusual week of activity for a normally quiet name.

The convertible was marked at 59 against a stock price of $5.00. Charming Shoppes common stock (Nasdaq: CHRS) closed at $5.01, higher by 3.3%, or 16 cents.

"The Charming Shoppes they just started trading again, like two days ago," a convertible trader said. "They haven't traded for like a really, really long time, and then on April 23 they went up to like 57."

Charming Shoppes came into play earlier in the week after hedge funds Crescendo Partners and Myca Partners engaged in a proxy battle hoping to replace the current board of Charming Shoppes, a Bensalem, Pa.-based women's apparel retailer.

Charming Shoppes said Friday it is exploring strategic alternatives for its non-core brands and hopes to cut spending for the next fiscal year.

"It's a name that hadn't traded in months," the trader said.

Cheniere higher with stock

Cheniere Energy's 2.25% convertible notes due 2012 also capped a steady climb over the week, gaining about 3 points outright to trade at 66 against a stock price of $10.50.

Cheniere common stock (Amex: LNG) was 1.71%, or 18 cents, higher for a close of $10.68 on Friday.

There was little on the news front that accounted for Cheniere's gains, but a convertible trader said the bond likely benefited from a generally better week for high-yield names.

Cheniere is a Houston-based operator of natural gas terminals and pipelines.

"They had traded a few days ago at 62, last week at 56," the trader said. "It's capping off just a big up-move in high-yield oriented buyers. The high yields are really the ones that are active now, not your run-of-the-mill names."

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