Chiquita convertible size cut; PNM ahead; GM, Ford gyrate; BearingPoint rises; Navistar skids

By Ronda Fears

Nashville, March 18 - General Motors Corp. continued to weigh on the credit side of the convertible market Friday, and those issues remained very active as analysts staked out positions on both sides of the fence.

While Lehman Brothers Inc. analysts stood by the GM convertibles - with the 6.25% and 5.25% issues for equity exposure and the 4.5% issue as a yield play - Merrill Lynch & Co. analysts removed the 6.25% issue as a recommendation.

The GM and Ford Motor Co. convertibles, which altogether total nearly $15 billion, remained extremely busy Friday, but some buyers emerged on Lehman's stance.

GM's 6.25s were unchanged at 21.5 but traded heavily, a dealer said, while the 5.25s gained 0.25 point to 19.125 on heavy buying. The 4.5s lost 0.25 point to 23.75 in a modest sell-off, but the dealer said there were buyers for that issue as well. GM shares on Friday edged up 9 cents, or 0.32%, to $28.44.

Ford's 6.5% convertible preferred was steady at 47, though heavily traded, the dealer added, while the stock lost 31 cents on the day, or 2.66%, to end Friday at $11.36.

Elsewhere in the transportation sector, airline paper was again mostly lower as Northwest Airlines Corp. said it would ground 24 jets and axe 930 jobs while FLYi Inc. announced it cut the salaries of top executives, estimating $2.2 million in annual savings.

Navistar International Corp., which makes semi trucks, school buses and truck engines, was clipped Friday when the Securities and Exchange Commission inquiry following its restated financials back to 2002 became a formal investigation as a result of the company delaying its annual report with the SEC.

BearingPoint Inc., however, escaped repercussions in the convertible market from its delay in filing financial reports with the SEC, getting applause as it hired away the chief financial officer of Oracle Corp. as its new chief executive officer. Standard & Poor's however, cut the credit and left it on negative watch as well.

M Systems Flash drops to 97

Israel-based M Systems Flash Disk Pioneers Ltd. sold $75 million of 30-year convertible senior notes at par to yield 1.0% with a 26% initial conversion premium - at the cheap end of guidance for a coupon of 0.5% to 1.0% and initial conversion premium of 26% to 30%.

Bookrunner Citigroup Global Markets Inc. closed the new issue at 97 bid, 98 offered.

M Systems Flash shares ended Friday lower by 39 cents, or 1.73%, at $22.20.

For the March 21 week, the market was looking for a mandatory from PNM Resources Inc. as well as guidance to surface on Chiquita International Brands Inc.'s convertible preferred.

PNM $215 million issue on tap

PNM Resources launched a $215 million mandatory for next Wednesday's business with guidance for a 6.5% to 7.0% dividend and 18% to 22% initial conversion premium. At the same time the Albuquerque-based utility holding company is selling 3.4 million shares of common stock, with proceeds from both deals earmarked in part to retire debt assumed in its $1.024 billion acquisition of TNP Enterprises.

PNM Resources shares on Friday lost 43 cents, or 1.54%, to close at $27.54.

In announcing Federal Energy Regulation Commission approval of the merger on March 2, PNM Resources noted that the acquisition would result in business cost savings and rate reductions that will be passed on to customers. PNM Resources chief financial officer John Loyack also stood by PNM's earnings forecast, which does not include the TNP acquisition, of $1.40 to $1.55 per share for 2005.

Chiquita convertible at $75 million

Chiquita severely cut back the convertible and junk bond portions of its financing arrangements to pay for the $855 million acquisitions of the Fresh Express produce segment of Performance Food Group Co., with the company now planning a $75 million perpetual convertible preferred and a $150 million straight bond, whereas those were estimated together at $350 million before.

Chiquita shares closed Friday off 27 cents, or 0.99%, at $26.90.

On the bank side of the Cincinnati-based banana king's financing plans, though, a bank meeting is slated for Wednesday to launch a new $650 million credit facility, up from a previous expectation of $600 million in new bank debt, sources told Prospect news on Friday. Also, it was expected earlier that if proceeds from the notes and convertible offerings surpassed $350 million, commitments under the term loan and/or bank revolver would be reduced.

In January, Chiquita's main operating subsidiary obtained a new $150 million five-year secured revolving credit facility with an accordion feature that allows the size to be increased to $200 million, which is secured with liens on substantially all of its U.S. assets, in addition to stock pledges of in the parent and certain subsidiaries.

Pro forma for the acquisition, Chiquita's debt to EBITDA ratio is expected to be 4 times and EBITDA to interest coverage of 3.5 times, but by 2006 the debt ratio should drop below 3 times and interest coverage rise to more than 5 times.

Chiquita reaps cautious view

Still, credit analysts are not suggesting anyone load up on Chiquita paper.

"A significant amount of the new debt financing could be bank debt layered ahead of the existing high-yield bonds. The bonds are already structurally subordinated to subsidiary debt and we estimate that leverage ahead of the bonds will increase by 1.5x," said GimmeCredit analyst Kim Noland in a recent report.

"We would not rush out to buy the bonds [7.5% senior notes due 2014 (B2/B] trading at yields of 7% until we see evidence that the Fresh Express integration is going as planned."

The Fresh Express acquisition for a total price tag of $855 million is a nice sale at an estimated 9.5 times EBITDA, Noland said, as the purchase will add more than $1 billion in sales to Chiquita and diversify its business both in terms of products and geographically. But, to the downside, she estimates that leverage will almost double.

"Chiquita took a trip through bankruptcy a few years ago," the analyst added, "and although the company's business today is more stable and its credit measures far stronger, Chiquita is still affected by factors beyond its control such as weather and the worldwide banana supply."

BearingPoint hire seen a coup

BearingPoint countered ill-boding events such as its delayed SEC filing and credit downgrade with news that it had hired away Oracle's CFO as its new CEO.

A big factor in the market cheering the news, a buyside trader said, is that Oracle's Harry You "is seen as a deal-maker" and that could portend growth for BearingPoint, a McLean, Va.-based business consulting and outsourcing firm.

BearingPoint's convertibles gained about 3 points on swap, or about 5 points outright, he said, with the 2.5% issue settling Friday at 104.5 bid and the 2.75% convertibles at 106 bid. BearingPoint shares closed up 98 cents, or 13%, at $8.53.

You's transition to BearingPoint also was seen a positive step toward resolving a number of SEC matters, which the company said late Thursday would cause it to delay filing its annual report with the SEC. BearingPoint also warned that it may have to restate past financial results.

In response to the news, S&P cut BearingPoint's corporate credit rating to BB from BB+ and said it was keeping the ratings on negative watch. S&P expressed heightened concerns about BearingPoint refinancing its bridge credit facilities, which mature May 22, 2005, as well as the filing delay and its expected loss for the fourth quarter and possibly for 2004 on whole.

BearingPoint will be in technical default on its interim credit facility if audited financial statements are not received by April 29, S&P pointed out.

Navistar skids on SEC probe

Navistar was another of a string of delayed financial reports, but its downfall Friday was due to an SEC formal investigation, which previously was merely an inquiry.

The Navistar 2.5% convert skidded about 2.25 points to 128.25 bid, 129 offering on the development, while Navistar shares lost 96 cents, or 2.36%, to close Friday at $37.80.

Late Thursday, Navistar said that during its ongoing cooperation with the SEC it identified "information potentially relevant to the investigation that may be in the possession of one or more former employees outside of its control," which in turn prompted the SEC to amend the nature of the inquiry.

In January, Navistar had said that it would restate the aforementioned results because of the way subsidiary Navistar Financial Corp. accounted for some securities transactions. On Monday, the company said that it had delayed filing its first-quarter 10-Q with the SEC due to the late filing of its 2004 annual report.

Navistar said it expects to file first quarter results by mid-April.

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