Ford gains on upgrade; Massey up on acquisition; Group 1 quiet, Knight higher on debuts

By Kenneth Lim

Boston, March 17 - Ford Motor Co. rose on strong buying action on Wednesday after the company received a ratings upgrade from Moody's Investors Service.

Massey Energy Co. gained with its stock after the company announced the acquisition of privately held Cumberland Resources Corp.

Group 1 Automotive Inc.'s new 10-year convertibles were relatively quiet after pricing at the cheap end of price talk, but other recently issued paper was busier. Knight Capital Group Inc.'s new convertibles were seen slightly up with their stock after being upsized.

In Asia, China Green (Holdings) Ltd. launched a RMB 1.2 billion offering of three-year convertible senior unsecured bonds. Singapore saw its second straight real estate investment trust offering with CapitaCommercial Trust's S$225 million deal.

The market as a whole was fairly active on the back of a busy primary scene, a sellsider said. But the sizes of the new deals have not been as big as hoped and convertibles continue to see a strong outflow of available paper amid numerous tenders and redemptions.

"There seems to have been quite a few guys who traditionally might have tapped the convertible market for funds hit the straight debt market," the sellsider said.

Ford gains on upgrade

Ford's 4.25% convertibles due 2016 jumped about 5 points outright on Wednesday after Moody's raised the company's credit rating.

The convertibles traded at 164.125 against a common stock price of $14. Ford common stock closed at $14.10, up by $0.61 or 4.52%.

"Just before the news came out they were 160 versus $13.60," a desk analyst said. "There were a lot of Fords today because they got upgraded."

Moody's on Wednesday raised Ford's corporate family rating to B2 from B3 with the possibility of further upgrades. Ford is a Dearborn, Mich.-based auto maker.

"Ford clearly has a much more robust and competitive business model that is capable of supporting significant improvement in performance over time," Moody's said in a statement. "The key issue we're assessing is the degree to which this pace of improvement could be delayed by things like a slowdown in demand, or an escalating use of incentives by competitors."

A sellside trader said the news was a welcome development for holders of Ford paper.

"People who bought the Fords last year or the older ones three years ago, they're really laughing all the way to the bank now," the trader said. "I know a lot of outrights really underweighted this sector, a lot of people just stopped looking at the sector all together. Those who stayed in are pretty happy right now."

But the trader cautioned against being too upbeat about Ford.

"They're still deep inside junk territory," the trader said. "I think there's probably a bit of overreaction today, and tomorrow people are going to wake up and realize this is a company that's still carrying a lot of debt."

Massey gains on bid

Massey's 3.25% convertible due 2010 jumped about 4 points outright to 98.5 against a common stock price of $53.50 after the company said it was buying privately held Cumberland for $960 million in cash and stock.

The common stock closed at $53.15, up by 5.83% or $2.93.

Massey, a Richmond, Va.-based coal producer, said it would buy Cumberland, which also operates coalmines in Virginia, for $640 million in cash and $320 million in shares.

"They're basically using up most of their cash on hand to pay for this," an analyst said. "I think from a business perspective it's a good way for them to tap into rising coal prices quickly, and if they're not taking on additional debt to pay for this it shouldn't affect the credit too much."

Group 1 quiet on debut

Group 1's new 3% convertibles due 2020 were quiet on Wednesday after the $100 million deal priced at the cheap end of talk with an initial conversion premium of 22.5%.

Price talk was at a coupon of 2.5% to 3% with an initial conversion premium of 22.5% to 27.5%, according to a market source.

The Rule 144A offering has a greenshoe of $15 million and was being sold via joint bookrunners J.P. Morgan Securities Inc. and Bank of America Merrill Lynch.

Proceeds will be used to redeem Group 1's existing $74.6 million balance of 8.25% senior notes and to pay the cost of the convertible hedge and warrant transactions.

Houston-based Group 1 is an automotive products and services retailer.

"I did not see the Group 1s," a sellsider said. "It's a small issue."

But other recently issued names were seen trading better.

Knight's new 3.5% convertibles due 2015 rose a half-point to 100.5 versus a common stock price of $16 after pricing at the midpoint of price talk.

The upsized $325 million offering came with an initial conversion premium of 32.5%. Price talk was at a coupon of 3.25% to 3.75% and an initial conversion premium of 30% to 35%.

J.P. Morgan Securities Inc. was running the books on the convertibles.

Proceeds will be used to repay $140 million of debt on a senior secured term loan and senior secured revolving facility and to pay for hedge and warrant transactions. The remainder will go toward general corporate purposes.

Based in Jersey City, N.J., Knight Capital Group is a financial services firm.

"The Knights did well," the sellsider said.

China Green, CapitaCommercial launch deals

China Green's planned RMB 1.2 billion of three-year convertible senior unsecured bonds on Wednesday was seen bid at around par in the gray market, with price talk at a coupon of 2.5% to 3% and an initial conversion premium of 4.5% to 5%.

The notes were offered at par of RMB 100,000 per note. They will be redeemed at 104.76 to 107.98 at maturity, implying a yield to maturity of 4.5% to 5%, depending on pricing.

There is an over-allotment option for an additional RMB 300 million on the Regulation S offering.

UBS Investment Bank and Macquarie are the bookrunners.

Proceeds will be used to repay existing convertible bonds and for capital expenditure.

China Green is a Hong Kong-based produce farmer and processor.

Barclays Capital analyst Heather Beattie wrote in a note that the deal appeared fairly valued at about 93.3 to 99.7 at issue using a credit assumption of 900 basis points and a 28% volatility.

"Although this new deal provides investors with rare exposure to the Chinese food sector, many of the existing bonds with similar exposure are undergoing protracted issues regarding early repayment," Beattie wrote. "Also China Green's stock is currently 10% below its all-time high."

The analyst added that borrow could be difficult to get with only a 55% free float on the common stock.

The use of a redemption price premium also harkens back to pre-financial crisis days, Beattie said. Issuers used to like the feature in the belief that they could save on interest payments because investors would most likely convert the bonds.

"When primary markets reopened last year the majority of Asian new issues were par-par structures, however premium redemption structures have begun to re-appear (however not to the same extent as before)," she said. "In the case of China Green the premium redemption mechanism was used to lower the coupon cost to the issuer."

Singapore's CapitaCommercial Trust also planned to price S$225 million of new five-year convertible bonds on Wednesday, with price talk at a coupon of 2.2% to 2.7% and an initial conversion premium of 20% to 25%.

The notes were offered at par and will be issued by HSBC Institutional Trust Services (Singapore) Ltd. as trustee of the company.

There was an over-allotment option for an additional S$25 million on the Regulation S offering, which is run by Credit Suisse.

Proceeds will be used for general corporate purposes, including working capital and refinancing of existing debt.

CapitaCommercial is a Singapore-based real estate investment trust focusing on Singapore commercial buildings.

The deal comes hot on the heels of Ascendas REIT's $300 million seven-year offering the day before, also out of Singapore.

"We find this bond attractive only if it prices on best terms for investors," Beattie wrote in a note, based on a credit of 225 bps and a 20% volatility. "The relatively high bond floor and ease of stock borrow may appeal to investors. However, this is the fifth real estate new issue of 2010, which represents 30% of year-to-date volume and hence investor appetite for real estate may be waning."

Mentioned in this article

Ford Motor Co. NYSE: F

Massey Energy Co. NYSE: MEE

Group 1 Automotive Inc. NYSE: GPI

Knight Capital Group Inc. Nasdaq: NITE

China Green (Holdings) Ltd. Hong Kong: 0904

CapitaCommercial Trust Singapore: C61U

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