High-grade names in demand; PNC trades strongly; Ford grabs interest; BioMed Realty prices

By Rebecca Melvin

New York, Jan. 5 - Convertible players saw market activity tick up on Tuesday, with interest still high in investment-grade names that are in short supply in the convertibles space at this point. Also two deals were launched with pricing of BioMed Realty Trust Inc. occurring after the close of markets.

Also launching was Beazer Homes USA Inc. with a $50 million offering of mandatories.

PNC Financial Services Group Inc. saw its convertibles tightening up due to short supply, with its current pricing putting its yield to maturity at about 2%.

"It's just getting tighter because there is less and less IG. In general, there was more paper getting better," a New York-based sellside trader said.

NII Holdings Inc. was in action as well, with its shares on a tear after a recommendation on its shares on Monday, so it was moving up on delta.

There was also a lot of Ford Motor Co. paper in trade after the Dearborn, Mich.-based automaker reported December sales numbers that were better than expected.

UAL Corp. was trading as its shares moved higher.

Stocks were mixed to lower after mixed economic data. The Commerce Department said Tuesday that factory orders rose by more than twice what had been expected, reflecting demand in the steel, computers and chemical industries.

In addition, the National Association of Realtors' said its seasonally adjusted index of pending home sales fell 16% to a level of 96, which was the first drop in nine months.

In the primary market, BioMed Realty launched an offering of exchangeable senior bonds that met with mixed reviews. There was no gray market in the name, and analysts saw the deal only mildly cheap or at fair value.

In addition, Beazer Homes USA Inc. plans to price $50 million of three-year convertible mandatories at par of $25 after the market close Thursday. The paper was talked at 7.5% to 8% with an initial conversion premium of 18% to 22%, according to a syndicate source.

PNC trades strongly

PNC saw its 4% convertibles due February 2011, formerly National City's 4% convertibles, trade in decent volume at about 102.0625 to 102.125, which translates into a 2% yield to maturity, according to a New York-based sellside trader.

"If you have to put your money into convertibles, there's less paper around at the upper end. There's no supply left, and it's unlikely that the supply issues for IG are going to be resolved any time soon," the sellsider said.

At the opposite side of the credit spectrum, distressed names are also doing well, but finding new names in distressed is also getting tighter, an analyst focused on distressed issues said.

"People are finding it a little harder to find opportunities. They are fewer and farther between, and people are piling into ideas," the analyst said.

Nevertheless, "there's a world in between," a sellsider said of the spectrum between investment grate and distressed issues.

Ford adds outright on sales

There was a lot of Ford trading on Tuesday, a New York-based sellside desk analyst said.

Ford Motor's 6.5% convertible trust preferred due 2032 traded at 43 versus a share price of $11.00.

The new Ford Motor 4.25% convertibles due 2016 traded at 136.5 during the session and were later seen settling at about 135, which was up about 6 points outright, according to Trace data.

The old Ford Motor 4.25% convertibles due 2036 were quoted at the end of the session at 136.375 bid, 136.625 offered, according to another sellsider, who said the levels were rough estimates.

Meanwhile Ford shares surged 68 cents, or 6.6%, to $10.96.

General Motors convertible bonds have also been "marching up" for the last few weeks and were currently trading in the upper 20s, a sellsider said. Previously the GM bonds were trading at 10 to 11.

Ford reported a 33% sales gain in December versus about a 13% gain expected by Wall Street. GM and Chrysler sales fell, however.

BioMed not seen in the gray

BioMed's planned $125 million of 20-year exchangeables that were talked to yield 3.25% to 3.75% with an initial conversion premium of 20% to 25% were not heard in the gray market.

The paper was expected and did price after the close; but, nevertheless, there was no gray, which was strange, a New York-based sellside trader said.

There was "not a word," he said.

Another sellsider said that investors didn't like the new offering and that it modeled fair at best and was not attractive as a hedged or outright play.

Another sellsider said he had mixed reviews.

The spread and vol. assumptions among various entities modeling the paper were divergent.

One sellsider said he was using a credit spread of 515 basis points over Libor and a 30% volatility, which put the paper at fair value at the mids.

Using 650 bps over Libor and a 38% vol. put the theoretical value at the mids at about 102, said another New York-based bulge bracket analyst.

BioMed planned to price $125 million of the exchangeables, and in fact, the deal was upsized to $150 million and priced on the cheap end of talk.

The paper is non-callable for five years, with puts in years five, 10 and 15.

BioMed recently tendered for its older 4.25% convertibles and there is only about $46 million of an original $150 million left outstanding.

Proceeds will be used to repay a portion of outstanding debt under an unsecured line of credit and for other general corporate and working capital purposes.

The San Diego-based real estate investment trust focuses on biotech laboratory and office space properties.

Beazer launches mandatory deal

Beazer Homes plans to price $50 million of three-year convertible mandatories at par of $25 after the market close Thursday.

Price talk was for a dividend of 7.5% to 8%, with an 18% to 22% initial conversion premium, according to a syndicate source.

Concurrently, Beazer plans to price an offering of 18 million shares of common stock.

Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC are serving as joint bookrunners for the offerings, with Deutsche Bank Securities Inc. and UBS Securities LLC serving as joint lead managers and Moelis & Co. LLC serving as co-manager for the registered, off-the-shelf offerings.

Beazer is an Atlanta-based homebuilder.

Mentioned in this article:

Beazer Homes USA Inc. NYSE: BZH

BMR Realty Trust Inc. NYSE: BMR

Ford Motor Co. NYSE: F

NII Holdings Inc. Nasdaq: NIHD

PNC Financial Services Group Inc. NYSE: PNC

UAL Corp. Nasdaq: UAUA

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