Energy takes center stage as merger and asset sales surface; TOP Tankers price talk revised again

By Sara Rosenberg

New York, May 9 - News of Cinergy Corp. and Duke Energy Corp.'s planned merger and Dynegy Inc.'s decision to look into asset sales combined with the release of first quarter numbers put the energy sector as a whole in the spotlight creating activity in names like CenterPoint Energy Inc. and NRG Energy Inc.

Meanwhile, TOP Tankers Inc. set a new expected pricing date and has revised price talk once again to make the deal juicier to investors.

Houston-based CenterPoint Energy saw its convertibles move up about half a point on the day with the 3¾% issue closing out the session at 113.16 bid, 113.41 offered and the 2 7/8% closing out the session at 104.66 bid, 104.91 offered, according to a trader. The stock closed up $0.20 or 1.67% at $12.18.

As for Minneapolis-based NRG, its preferred issue was quoted up a few points at 948½ versus a stock price of $32, up from morning levels of approximately 945, according to a trader. The stock closed at $32.59, up $0.98 or 3.10%.

Both CenterPoint and NRG were said to be relatively active in trading on Monday and both companies saw gains in their convertibles despite the lack of specific company news, leaving some market sources with the impression that Cinergy and Duke's announcement as well as Dynegy's announcement drew investors' attention to the energy sector and therefore created this activity.

On Monday, Cinergy and Duke Energy announced that they have entered into a definitive merger agreement to create an energy company with approximately $36 billion in market capitalization and 5.4 million retail customers. The combined company, to be based in Charlotte, N.C., and named Duke Energy Corp., will have approximately $27 billion in annual revenues and $1.9 billion in annual net income.

Under the merger agreement, each common share of Cinergy will be exchanged for 1.56 shares of Duke Energy. Following the merger, Cinergy shareholders will own about 310 million shares or 24% of Duke Energy's pro-forma shares outstanding, and Duke Energy shareholders will own 76% of the total 1.3 billion shares.

The merger is conditioned upon approval by the shareholders of both companies, as well as a number of regulatory approvals or reviews by federal and state energy authorities.

Also, pulling focus towards the energy sector was Dynegy's announcement that it is evaluating strategic opportunities for its Midstream natural gas business and has launched a process to consider alternatives for this unit.

Credit Suisse First Boston has been hired to work on the Houston-based energy company's review of strategic alternatives for the Midstream business.

Any taxable gains from a potential divestiture would be offset by the company's net operating losses, capital loss carry-forwards and tax credits, thereby largely offsetting taxes associated with the gains.

Dynegy also announced first quarter numbers on Monday, including a net loss of $267 million, or $0.70 per diluted share, compared to net income of $65 million and diluted earnings per share of $0.14 for the first quarter 2004.

The year-over-year decrease in net income primarily resulted from a $156 million settlement of the company's shareholder class action litigation and a $109 million charge associated with the restructuring of the Independence power tolling arrangement.

As of March 31, Dynegy's liquidity was $968 million consisting of $371 million in cash on hand and $597 million in unused availability under its $700 million revolving credit facility.

Management also revised 2005 earnings and cash flow guidance estimates, expecting a net loss from its core businesses in a range of $145 million to $130 million, compared to the previously announced estimated loss of $199 million to $183 million, expecting a GAAP net loss of $410 million to $395 million, compared to the previously announced estimated net loss of $335 million to $319 million, and expecting core business operating cash flow in a range of $315 million to $330 million, compared to the previous range of $200 million to $215 million.

TOP Tankers revises terms

TOP Tankers set new price talk of 6.5% to 6.75% with an initial conversion premium of 20% on its $300 million perpetual convertible preferred offering to sweeten the deal up for a second time, according to a market source.

Furthermore, the convertible is now expected to price after the close Tuesday after being delayed from its expected pricing after the close last Thursday because of market conditions.

Early last week, price talk on the deal had already been revised once, with the dividend going up to 5.875% to 6.0% from 5.625% to 5.875% and the initial conversion premium to 30% to 32.5% from a range of 32.5% to 37.5%.

"It's just a buyer revolt," a market source said about the new pricing guidance.

TOP Tankers is selling six million shares of the convertible preferred stock at a par value of $50 per share.

Cantor Fitzgerald is sole bookrunner of the Rule 144A offering.

The deal is putable in year five only, sources said. At the time of price talk changes last week, it was said that puts were added in years 10 and 15. However, now only the five year put is expected.

The issue will be non-callable for five years. Beginning April 30, 2010 through April 30, 2011, the company can redeem the notes at a premium of $52 per share. Beginning April 30, 2011 through April 30, 2012, the company can redeem the notes at a premium of $51 per share. After April 30, 2012 the company can redeem the issue at par.

There is full dividend protection as well as a make whole provision for holders.

A $45 million greenshoe is available.

The issue is effectively being sold on swap, as the Athens-based shipping company also said that it has been advised that Kingdom Holdings, one of its shareholders, intends to purchase about $20 million of TOP Tankers common shares from purchasers of the convertible.

Also, the company said it plans to use about $50 million of proceeds to repurchase stock.

Remaining proceeds will be used to fund vessel acquisitions and for general corporate purposes.

GM, Ford rebound from downgrade

Detroit, Mich.-based automaker General Motors Corp. and Dearborn, Mich.-based automaker Ford Motor Co. saw slightly better levels on Monday as the companies appear to be rebounding slightly from last week's surprise junk downgrade, according to a market source.

GM's convertibles had a pretty good day, with the GBM issue gaining $0.30 or 1.81% to $16.90, the GPM issue gaining $0.49 or 2.57% to $19.58 and the GXM issue dropping $0.08 or 0.34% to $23.11. The stock closed up $0.57 or 1.85% at $31.33.

Meanwhile, Ford's convertible also made some headway, with the 6.5% convertible trust preferred gaining $1.01 or 2.69% to $38.61. The stock closed up $0.19 or 1.95% at $9.95.

Last Thursday, Standard & Poor's downgraded both GM and Ford to junk status - sending the convertibles lower - because of competitive challenges and, in large part, worries that sport utility vehicles would no longer be as profitable for the companies has it had been in the past. While the downgrades were widely expected, the timing was earlier than many had anticipated.

S&P lowered GM's long-and short-term corporate credit ratings to BB/B-1 from BBB-/A-3, with the rating outlook set on negative. Ford's long- and short-term corporate credit ratings were lowered to BB+/B-1 from BBB-/A-3, with the rating outlook set at negative.

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