Hartford Financial's debut crimped by lower stock; Nasdaq steady to stronger; Ford gains

By Rebecca Melvin

New York, March 18 - The Hartford Financial Services Group Inc.'s newly priced 7.25% convertible mandatory preferreds were higher out of the chute Thursday in heavy action, but pricing lost a little steam as the session progressed as its common stock came under pressure, market sources said.

Trading in the new Hartford mandatory was active, and definitely a focus of the session, functioning as "really a secondary to the straight debt deal," a New York-based sellside trader said.

Hartford Financial also planned to issue $1.1 billion in senior straight notes, and concurrently with the mandatory deal, the company sold at a discount $1.45 billion of common shares.

Proceeds of the offerings are earmarked to fund the buyback of preferred shares issued to the U.S. Treasury Department under the Treasury's Capital Purchase Program.

Nasdaq OMX Group Inc.'s convertibles were steady to stronger after coverage was initiated on the company's common stock by JMP Securities at "market outperform."

RadioShack Corp. convertibles were looking strong at 116 versus a $22.00 stock price, moving up in line with the Forth Worth, Texas-based consumer electronics retailer's shares.

Ford Motor Co. continued to rise as well after strong buying action in Wednesday's session after the company received a ratings upgrade from Moody's Investors Service.

Overall trading in the convertibles market was fairly quiet, sources said, with what action there was tilted toward investment-grade paper.

"The lower credit quality has rallied so much, it's hard to find anything cheap," a sellsider said, adding that action was squelched by balmy New York weather and the NCAA basketball championship, which got underway Thursday, stealing market players' focus.

Europe sees new deals

There were no new issues in the U.S. primary market, but in Europe two new deals launched and priced.

Salamander Energy plc's new 5% convertibles due 2015 traded up to about 102 bid, 103 offered in the gray market on Thursday ahead of pricing. The common stock fell 5.55%, or 15.50p, to close at 264p in London.

"It's a small deal, and I think it could be a success story because if the oil price goes up as it does, it will of course be profitable," said a London-based trader, who was viewing the deal as an outright and thought that the stock had strong upside.

But the new Salamander paper could be quiet on Friday because of strong outright interest, the trader said.

"I think it was placed with bigger firms and they will hold this name," the trader said. "I don't think they will be trading it much."

Salamander priced the $100 million deal with an initial conversion premium of 37.5% after the market closed. Goldman Sachs International was the bookrunner, with EQL Capital and Oriel Securities as joint lead managers.

Proceeds will be used to help fund an acquisition of a 50% interest in a northern Vietnam development. The company is a London-based oil and gas exploration company.

Aegis prices

Also Aegis Group plc's 2.5% convertibles due 2015 were 102 bid, 103 offered in the gray market, the trader said, but activity was lighter than for Salamander. The common stock closed at 125.9p, lower by 1.33% or 1.70p.

Aegis is a London-based marketing company.

"The deals have been really successful," the trader said. "Especially for small deals, there are guys looking for more risk and for more reward of course...Aegis wouldn't be my top pick, but it looks like folks are waiting for deals like these. The older deals are getting more and more expensive, and they're waiting for these new deals to position themselves."

Aegis priced the £170 million offering with an initial conversion premium of 35% after the market closed. J.P. Morgan Cazenove and Societe Generale Corporate & Investment Banking were the bookrunners.

Proceeds will be used to repay existing revolving debt.

Hartford active, up a little

Hartford Financial's newly priced 7.25% convertible mandatory preferreds were seen at the close of markets at about 25.70, which was where the issue had been sitting for much of the session after slightly higher trades early on.

One market was reported at 25.75 bid, 25.85 versus a share price of $27.81, and another sellsider said the paper early was 27.70 bid, 26.10 offered.

Pressure on the common stock of the Hartford, Conn.-based financial services company, which ended down 74 cents, or 2.6%, to $27.84 on the day, was blamed for the dampened mandatory pricing.

In the gray market ahead of final terms, the paper was higher at 26 bid, 26.25 offered, which was plus 5 points on a bond basis.

"The stock was getting beat up all day," a sellsider said. "The deal was over-allocated, and that's why they lowered the coupon from 7.5% to 7.25%."

"Some people flipped it immediately, but there were no real sellers in the name," the sellsider said.

Hartford Financial priced $500 million of mandatory convertible preferred stock late Wednesday at par of $25 per depositary share.

The deal priced at the rich end of talk, which was for a dividend of 7.25% to 7.75% or a premium of 18% to 22%.

There is a $75 million greenshoe.

Hartford also priced $1.45 billion of common stock, selling 52.253 million shares at a discounted $27.75 each. The common shares closed Wednesday at $28.58.

The company also planned a $1.1 billion offering of senior straight notes.

Price talk on the straight notes was 165 basis points over Treasuries for the 2015 paper, plus 190 bps for the 2020 paper and plus 210 bps for the 2040 notes. But they were all pricing 5 bps below those levels.

In addition to repurchasing shares sold to the Treasury, the company will repurchase senior debt maturing in 2010 and 2011 with proceeds of the offerings.

Goldman Sachs & Co. and J.P. Morgan Securities Inc. were joint bookrunners for the mandatory convertible preferred stock offering, with Bank of America and Morgan Stanley acting as joint lead managers.

Nasdaq steady to stronger

Nasdaq's 2.5% convertibles due 2013 were seen last at 96.125 versus a closing share price of $20.73. Shares of the New York-based securities exchange company were up 22 cents, or 1%, on the day.

Coverage was initiated on Nasdaq by JMP Securities.

In addition, Barclays Capital equity-linked strategies and convertibles research put out a note recommending the Nasdaq 2.5% convertibles are attractive as a solid intermediate duration security compared to other like investment-grade convertibles and straight bonds.

Holders of investment-grade convertibles of similar profile should also swap, the analysts said, citing examples including Transocean's 1.5% series C convertibles, which are putable in 2.7 years and yielding 3.08%, ProLogis' 1.875% convertibles, which are putable in 2.8 years and yielding 4.07%, and ProLogis' 2.625% convertibles, which are putable in 3.2 years and yielding 4.55%.

Barclays reported that the Nasdaq convertibles, prior to publishing, were trading at 95.875 versus a share price of $20.51. That worked out to a 3.8% yield to maturity and a premium of 158%.

The 3.4 year convertibles are yielding 3.8%, or 190 bps over interpolated Treasuries, only slightly lower than the 4.8-year 4% bonds, which are yielding 4.01%, or 149 bps over interpolated Treasuries, the analysts wrote.

"The converts have a duration that is 1.5 years shorter, offer similar yield and a far higher spread over Ts than the straights - indicating clear relative value. Not to mention the convert holders also get a call option, albeit deep out of the money (delta ~ 10). Also the convert yield of 3.80% is 59 bps higher than the BBB+ - BBB- 3 - 4 year bonds in the U.S. credit index (weighted average yield to worst of 3.21%)," the Barclays analysts wrote.

Mentioned in this article

Aegis Group plc London: AGS

Ford Motor Co. NYSE: F

Hartford Financial Services Group Inc. NYSE: HIG

Nasdaq OMX Group Inc. Nasdaq: NDAQ

RadioShack Corp. NYSE: RSH

Salamander Energy plc London: SMDR

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