GM, Ford convertibles higher; E*Trade, C&D Technologies, The Pantry rise; primary deals emerge

By Rebecca Melvin

Princeton, N.J., Nov. 17 - The convertibles market was said to be marginally improved again Thursday after buyers stepped in a day earlier, staving off a selling spree that had been dousing performance for more than a couple of days, sources said.

The convertibles of auto names General Motors Corp. and Ford Motor Co. bounced higher Thursday after a weaker start and a slide for much of the last week that had led the market lower.

"There were better buyers in select names, with the auto stuff all over the place," a New York-based sellside trader said.

Three new convertible issues closed higher Thursday for their debut in the secondary market. The issuers included E*Trade Financial Corp., C&D Technologies Inc. and The Pantry Inc.

Another two deals were launched, including CompuCredit Corp.'s bought, overnight deal for $300 million of 30-year convertibles, announced after the close. The second deal was a one-day book of $150 million 10-year convertibles from Sonic Automotive Inc., which was expected to price after the close on Thursday.

Sources said Sonic was pricing outside the price talk range, at a coupon of 4.5% and an initial conversion premium of 20% to 25%. Early price talk was for a lower coupon of 3.75% to 4.25%.

According to one sellsider, the flurry of issuance was due to a pick up in volatility as deals emerged that had been waiting in the wings. A buysider noted that the new deals represented a sort of "barbell," with both large and small companies issuing convertibles, but few mid-cap companies doing so.

Among names that were said to be better in trade in the secondary market was Miami-based Carnival Corp., which was better by about 0.625 point. Its shares closed higher by 1.78%, swept up mostly at the end of the day in a rally that lifted the overall stock markets.

Ahead of the close, a buyside trader was surprised by Carnival's improvement: "The stock did move up a point, but there's no reason for the bonds to have gotten better by 0.625," the trader said.

Yahoo Inc. convertibles were also better at about double par as its shares gained 5.47% on the day. The Sunnyvale, Calif.-based company's' 0% convertibles traded at 199.50 bid, 200 offered.

Meanwhile, new issuance, which hasn't been doing well in the convertibles market of late, made a respectable showing.

E*Trade gains in active trade

The new 6.125% E*Trade mandatories, with an initial conversion premium of 21.2%, were probably the most actively traded among new issues, moving steadily higher throughout the session in step with its underlying shares.

E*Trade sold $450 million of common equity units in a mandatory convertibles deal at par of $25.

The three-year mandatories priced at the cheap end of talk on the coupon, which was 5.625% to 6.125%, and toward the cheap end for the initial conversion ratio, which was 20% to 25%.

Concurrently with the mandatories were offerings of common stock and senior notes, all of which were offered to help finance E*Trade's previously announced $1.6 billion acquisition of BrownCo, the online brokerage service of JP Morgan.

Morgan Stanley & Co. and J.P. Morgan Securities were joint bookrunners for the offerings from E*Trade, a New York-based online investment brokerage.

The 6.135% mandatories closed at 26.325 bid, 26.50 offered, according to a syndicate source. Its shares closed up 96 cents, or 5.28%, to $19.14.

The Pantry clucks higher

The convertibles of The Pantry moved up smartly even as its shares remained lower to little changed much of the session before rallying higher at the end of the day.

The convenience store chain operator priced $135 million seven-year convertibles at par to yield 3% with an initial conversion premium of 27.5%, a syndicate source said.

The Rule 144A deal via bookrunner Merrill Lynch & Co. priced at the cheap end of talk, which was 2.5% to 3% for the coupon and 27.5% to 32.5% for the initial conversion premium.

The deal amount was $5 million more than the $130 million issue price previously announced. The final greenshoe was $15 million, which was $5 million less than an additional $20 million originally expected.

The bonds are non-callable and have contingent conversion at a 120% trigger. It is also a net share settled deal.

Proceeds were expected to be used to pay down existing senior debt and for general corporate purposes, including acquisitions. Additionally, the company intends to use a portion of proceeds for a convertible bond hedge and separate warrant transactions in connection with the notes.

The seven-year hedge and warrant transactions effectively increase the conversion premium associated with the convertible notes during the term of these transactions from 27.5% up to about 60% from the company's perspective.

The Pantry has headquarters in Sanford, N.C.

The new 3% convertibles due 2012 closed at 102, according to a syndicate source, while its shares ended up 52 cents, or 1.32%, at $39.81.

C&D packs some power

Although it was a small deal that no big sellside firms had seen in trade, the new 5.25% convertibles of C&D gained in trade to a close of 101.5 bid, 102 offered, according to a syndicate source.

C&D priced $60 million 20-year convertible senior unsecured notes at par to yield 5.25% with an initial conversion premium of 21%, which was at the cheap end of talk that called for a 4.75% to 5.25% coupon and a 21% to 27% initial conversion premium.

Joint bookrunners of the Rule 144A deal were Credit Suisse First Boston and Wachovia Securities.

There is an additional $15 million greenshoe.

The notes are non-callable for five years and provisionally callable for two more years, with puts in years seven, 10 and 15.

Proceeds will be used to repay outstanding borrowings under its existing senior secured credit facility.

Blue Bell, Pa.-based C&D makes systems for electrical power conversion and storage, including industrial batteries.

CompuCredit selling overnight, bought deal

CompuCredit's $300 million offering of 30-year Rule 144A notes was talked to yield 5.875% with an initial conversion premium of 20% to 25%, according to market sources.

Bear, Stearns & Co. was bookrunner for the senior convertible notes, which were expected to price early Friday, sources said.

The Rule 144A deal has a greenshoe of $50 million. The notes are non-callable for 3.25 years and there are no puts.

In addition to a press release about the convertibles, CompuCredit put out a second announcement that it had entered into a 30-year share lending agreement with Bear Stearns International Ltd. as principal and Bear Stearns as agent to loan to Bear Stearns International up to 6.686 million shares of common stock.

Bear Stearns International will offer the shares borrowed under CompuCredit's shelf registration to the public to facilitate hedging transactions by holders of CompuCredit's convertible notes.

CompuCredit said it will not receive proceeds of the registered offering of common stock by Bear Stearns International. It said the borrowed shares won't be considered issued or outstanding and will have no dilutive impact on its earnings per share.

Proceeds from the convertibles are expected to be used to fund acquisitions and for general corporate and working capital purposes.

Atlanta-based CompuCredit provides consumer credit and related financial services.

Sonic looks 2.5% cheap at the cheaps

Sonic, which has an existing 5.25% convertible, said it plans to price another $150 million of 10-year convertible senior subordinated notes.

Initial price talk for the registered deal was for a coupon of 3.75% to 4.25%, with in initial conversion premium of 20% to 25%. Late Thursday, sources said the yield on the coupon was coming a little higher at 4.5%.

Based on a credit spread of Libor plus 475 or 480 basis points, and a volatility of 27%, the issue looked fairly valued, or 0.375% cheap, at the mid point of price talk, according to a New York-based sellside analyst.

At the cheap end of talk, the analyst said, the deal looked 2.5% cheap.

Sonic's existing convertible, with which the new convertible is likely to rank pari passu, is rated a notch lower than Sonic's 8.625% straight bond outstanding. But the straight bond is eight-year paper, the analyst reasoned. And the new convertible is considered five-year paper, effectively canceling out any difference seen in spread between the bonds, the analyst explained.

Joint bookrunners for the Sonic offering are Banc of America Securities LLC, J.P. Morgan Securities Inc. and Merrill Lynch & Co.

The notes are non-callable for five years with a put in year five. There is an over-allotment of up to an additional $10 million.

Proceeds were expected to repay a portion of its revolving credit facility, which may be re-borrowed, and for general corporate purposes, including acquisitions.

Sonic also intends to use a portion of net proceeds to pay for a convertible note hedge and warrant transaction with affiliates of certain of the underwriters in connection with the offering.

Based in Charlotte, N.C., Sonic Automotive is an automotive retailer, operating 174 franchises and 38 collision repair centers.

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