Ciena's convertibles gain on debut; International Coal quiet in the gray; ProLogis prices

By Rebecca Melvin

New York, March 9 - Ciena Corp. priced an upsized $375 million of convertible bonds ahead of the market open Tuesday - which was ahead of schedule - and the paper, which was repriced beyond the rich end of initial talk, traded higher out of the gate to 104.5 versus a share price of $15.35 early on, according to market sources.

Ciena's existing paper traded mostly steady, with the Ciena 0.25% convertibles up a little to 84, while the Ciena 0.875% paper moved lower by a little to 67.75 to 68.

Also in the primary market, ProLogis launched and priced an upsized $400 million of convertibles on Tuesday, near the midpoint of talk. During the session, the issue, which was launched ahead of the market open, was seen in the gray market at as high as 101 ahead of final terms. Late in the session, the issue was plus 0.325 point bid to plus one in the gray market.

ProLogis' existing 2.25% convertibles due 2037 traded at 97.125, which was up 0.75 point, according to Trace data.

International Coal Group Inc. was still not seen in the gray market after the coal producer launched a $75 million offering of seven-year convertibles on Monday. But some market players saw the deal as cheap and expected it to gain in the gray market Wednesday, ahead of final terms expected after the Wednesday close.

While the session was mostly dominated by new issue action, other trades included Ford Motor Co.'s newer 4.25% convertibles, which were in line with their underlying shares, at 154 versus a share price of $12.50, compared to 154.75 versus a share price of $13.00 on Monday.

Eastman Kodak Co. looked a little weaker, trading at 112.25 versus a share price of $6.00, compared to 112 versus a share price of $6.00 on Monday.

Meanwhile, TRW Automotive Holdings Corp. traded at 117 versus a share price of $27.75, which was essentially unchanged compared to Monday's 117 versus a share price of $27.65, according to a New York-based sellside desk analyst.

Ciena upsizes, moves up

Ciena's newly priced 4% convertibles due 2015 traded a lot at the 103.25 bid, 103.50 offered range versus a share price of $15.05 before the stock rallied, a Connecticut-based sellside trader said.

Later the paper was higher at 104.5 versus a share price of $15.35.

Late in the day, the new Ciena paper was 104.375 bid, 104.625 offered versus the same higher $15.35 share price.

Shares of the Linthicum, Md.-based communications networking company added 32 cents, or 2%, on the day, to settle at $15.42.

The existing Ciena 0.25% convertibles due 2013 moved up to 84 from about 82.5, while the existing Ciena 0.875 paper due 2017 was at 67.9, which was down less than a point from Monday.

The new Ciena convertibles were repriced for a coupon of 4% and an initial conversion premium of 35%. That compared to original talk of 4.25% to 4.75%, with a 25% to 30% premium.

Ciena sees strong demand

When the deal launched Monday, the Ciena offering had been talked at $250 million in size, and it was also expected to price after the close of markets on Tuesday. But strong demand led to the deal being upsized and coming ahead of schedule before the market open Tuesday.

Even though one sellsider pointed out that he thought the long-term credit profile of Ciena will likely deteriorate, he recommended the new paper based on the fact that it looked cheap.

Using a credit assumption of 750 basis points over swap and a 40% vol., the sellsider thought the bonds looked cheap by 1% to 3% even after repricing.

The same sellsider recommended selling the Ciena 0.875% convertibles, given that it's likely they will lag the new bonds' performance.

The Rule 144A deal was sold via Morgan Stanley & Co. Inc. and Deutsche Bank Securities Inc.

The notes will be non-callable for three years and then provisionally callable at a 150% price hurdle.

If they are called early, there is a coupon make-whole feature. Conversion settlement will be only stock settled.

Proceeds will be used to replace its existing contractual obligation to issue $239 million in 6% senior convertible notes due 2017 as part of the purchase price for its pending Nortel's Metro Ethernet Networks business acquisition.

Ciena's agreement to acquire Nortel's optical networking and carrier ethernet assets permits Ciena to replace the $239 million in 6% senior convertible notes due 2017 with cash equivalent to 102% of the face amount of the notes replaced, or $243.8 million.

Remaining proceeds will be used to reduce the amount of cash on hand needed to fund the $530 million cash portion of the Nortel acquisition purchase price.

ProLogis upsizes deal

ProLogis priced an upsized $400 million of five-year convertible senior notes after the close of markets Tuesday near the midpoint of talk to yield 3.25% with an initial conversion premium of 29%.

During the session, the deal was seen in the gray market at about plus 0.75 point to plus one point.

Nevertheless, there were complaints about the issue.

It's "not a great looking deal," a New York-based sellside trader said, mentioning that the 30% premium was looking particularly high for a real estate investment trust.

"This will get done because it's a small deal and outrights need investment-grade paper. But I do not like it. If I want ProLogis paper, I will buy the old ones and the stock for better yield," the sellsider said.

A syndicate source said during the session that there was significant demand from outrights for the issue, and he anticipated it would be upsized.

The registered offering was initially expected to be $350 million in size when launched early Tuesday.

The deal priced at the midpoint of talk for the coupon, which was 3% to 3.5%, and near the midpoint of talk for the premium, which was 27.5% to 32.5%.

Citigroup Global Markets Inc., Barclays Capital Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Morgan Stanley were joint bookrunners for the deal.

ProLogis was also planning to price 10-year straight senior notes.

Proceeds from both offerings are earmarked to repay borrowings under ProLogis' global line of credit. The company expects to re-borrow such amounts to fund the cash purchase of certain of its senior notes that are being tendered, the repayment or repurchase of other debt and for general corporate purposes.

The convertibles are non-callable for life with no puts and include dividend and takeover protection.

Conversion settlement will be stock only.

Denver-based ProLogis is a real estate investment trust focused on distribution and retail facilities.

International Coal quiet in the gray

International Coal's pending $75 million of convertibles talked to yield 4% to 4.5% with an initial conversion premium of 20% to 25% were viewed favorably by a few sellsiders.

"They should be plus one bid," a New York-based sellsider said.

Shares of the Scott Depot, W.Va.-based coal producer ended up 4 cents, or nearly a percentage point on Tuesday, at $4.28, after a 10% slide on Monday.

Concurrently with the convertible offering, International Coal is tendering for its existing 9% convertible notes due 2012 and its existing 10.25% senior straight notes due 2014.

There is also a concurrent offering of 21.2 million shares of its common stock and $200 million of senior secured second-priority notes due 2018.

None of the offerings is contingent upon the completion of the others.

The registered, off-the-shelf convertible offering is being made via Morgan Stanley and UBS Securities Inc. as joint bookrunners.

The convertibles, which were expected to price Wednesday after the close of markets, will be non-callable for life.

Mentioned in this article:

Eastman Kodak Co. NYSE: EK

Ciena Corp. Nasdaq: CIEN

Ford Motor Co. NYSE: F

International Coal Group Inc. NYSE: ICO

ProLogis NYSE: PLD

TRW Automotive Holdings Corp. NYSE: TRW

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