Ford drives market into frenzy; MannKind leaps ahead; Superior Energy flat in gray; Prudential plans deal

By Kenneth Lim

Boston, Dec. 7 - The convertible bond market had a busy session on Thursday, fueled by the debut of Ford Motor Co.'s new notes.

"Everybody went into this thing," a buyside convertible bond trader said. "Everyone who was a convert account, everyone who isn't a convert account. It's the biggest deal this year."

MannKind Corp. also surged on its first day of trading, attracting strong demand despite pricing richer than price talk and concerns about a tough stock borrow.

Superior Energy Services Inc.'s planned offering was seen mostly flat in the gray market, as the market seemed split over the attractiveness of the deal.

Meanwhile, the recent wave of new deals, which started in the last week of November, continued on Thursday. Prudential Financial Inc. launched a $2 billion offering after the market closed, while Orbital Sciences Corp. announced a $125 million issue. Both are overnight deals.

Ford fever hits market

Ford's new 4.25% convertible senior note due 2036 climbed as high as 5 points above par on Thursday, as convertible bond investors chased one of the year's most attractively priced multibillion-dollar convertible offerings.

"We've seen 500 million to one billion [Ford] bonds trade today," a sellsider said.

The convertible closed around 104 against a stock price of $7.16, but was seen as high as 105.25 earlier in the day. Ford stock closed at $7.16, down by 2.72% or 20 cents.

Ford on Wednesday priced the upsized $4.5 billion offering at the rich end of revised talk, at a coupon of 4.25% and an initial conversion premium of 25%.

Demand for the paper had been strong since it launched earlier in the week. Price talk was changed to a coupon of 4.25% to 4.75% and an initial conversion premium of 23% to 25% on Wednesday, from the original guidance for a coupon of 4.75% to 5.25% and an initial conversion premium of 23% to 27%. The size of the deal was increased from the earlier $3 billion, while the over-allotment option remained at a further $450 million. The convertible drew bids at 103.5 to 104.5 in the gray market.

Citigroup, Goldman Sachs, JP Morgan, Deutsche Bank, Lehman Brothers, Merrill Lynch, Pierce, Fenner & Smith and Morgan Stanley were the bookrunners of the registered off-the-shelf offering.

Dearborn, Mich.-based Ford, an auto maker, said on Nov. 27 that it was raising money through the convertible offering and another $15 billion of senior secured debt to address near- and medium-term negative operating-related cash flow, to fund restructuring and to provide a liquidity cushion against unexpected events. The revolving credit facility portion of that senior secured debt was increased on Wednesday to between $10.5 billion and $11.5 billion, from the previously announced $7 billion to $8 billion.

Like a well-timed year-end holiday gift, the large offering was just what the convertible bond market had been looking for, a sellside convertible bond trader said. A large amount of the money that had been wandering in the convertible space finally found a home with the Ford deal, the trader explained.

"This deal will soak up a lot of the extra gravy on the plate," the trader said. "This is enormous for the convertible community."

The trader noted that a number of other convertibles also seemed to trade slightly lower in the run-up to the pricing of Ford's offering, suggesting that some investors may have freed up some cash to "put in for a lot more than they needed," hoping that when all the divvying up was done they'd at least get a smaller piece of the issue.

Ford's offering could also continue to keep the market active going forward.

"I'm hopeful that as time goes on, the paper will get more reasonable and you'll get more activity," the trader said.

MannKind takes giant leap

MannKind's new 3.75% convertible senior note due 2013 also had a strong debut on Thursday, jumping about 4 points above par after the deal priced richer than talk.

The convertible traded around 104 and 105, against a stock price of $17.50 to $17.80. MannKind stock (Nasdaq: MNKD) gained modestly by 0.17% or 3 cents and closed at $17.45.

MannKind priced its $100 million offering on Wednesday with an initial conversion premium of 29%. The notes were offered at par, after being talked at a coupon of 3.75% to 4.25% and an initial conversion premium of 22% to 28%.

There is an over-allotment option for a further $15 million.

Merrill Lynch and JP Morgan were the bookrunners of the registered off-the-shelf offering.

There was a concurrent shelf offering of 20 million shares of MannKind's common stock at $17.42 apiece. There is an over-allotment option for a further 3 million shares in the stock offering.

MannKind, a drug developer whose lead diabetes treatment is currently in phase 3 clinical trials, in November filed a registration statement to sell up to $500 million of securities. The proceeds of the offerings were earmarked for clinical trial costs, research and development and for general purposes.

"Those did excellent," a sellside convertible bond trader said. "They were overshadowed by Ford, of course. Some guys who wanted them probably held off and went for the Fords instead."

Despite the strong performance by MannKind and the concurrent stock offering, the name continued to be plagued by concerns about the poor stock borrow.

"This was another good deal, but there was no borrow," a buysider said, although that did not stop the buysider from getting in on the action.

"But I still played it a little," the buysider added.

Superior flat in gray

Superior Energy's planned $350 million of 20-year exchangeable senior notes was mostly flat in the gray market on Thursday, as the offering received mixed reviews.

The convertible was seen bid below 100.125, and offered at 100.25 in the gray market. Superior Energy stock (NYSE: SPN) closed at $33.76, higher by 0.15% or 5 cents.

Superior Energy planned to price the deal after the market closed, with talk at a coupon of 1.25% to 1.75% and an initial exchange premium of 32.5% to 37.5%.

The notes were offered at par.

There is an over-allotment option for a further $50 million.

Bear Stearns and Lehman Brothers are the bookrunners of the Rule 144A offering.

Superior Energy, a Harvey, La.-based oilfield services and equipment provider, said it will use the proceeds and some of its available cash to repurchase up to $160 million of its common stock concurrently with the offering. It will also use $233 million of the proceeds to pay the $175 million consideration of its Warrior Energy Services Corp. acquisition, refinance its existing debt and to pay for expenses related to the acquisition.

A buyside convertible bond analyst said the deal modeled about 1.5% to 2.5% cheap, depending on the credit spread and volatility assumptions, and noted that the company's "heavy Gulf of Mexico exposure" made the stock a little more volatile than average for the sector.

"It looks like a good name with a lot of vol, and it looks like it's a name with a lot of vol that will continue to be volatile," the analyst said, adding that on an outright basis the equity was also a "good story."

But a buyside trader from another firm reckoned that the deal was only fairly valued to a touch cheap, saying that price talk was too aggressive.

"I don't really think it's attractive at all," the trader said. "I don't think it's priced good enough. The premium's too high, the coupon's too low...I don't see that there's much to be excited about."

Prudential, Orbital launch overnight deals

With the market still awash with Ford's $4.5 billion offering, Prudential expects to bring another $2 billion of convertibles to the market Friday in an overnight deal.

The offering of 30-year convertible senior notes is talked at a coupon of three-month Libor minus 240 basis points and an initial conversion premium of 20%, and a reoffered price of 99.25. Prudential stock (NYSE: PRU) slipped 0.79% or 69 cents to $86.15 in after-market trading on Thursday after the deal was announced.

There is an over-allotment option for a further $300 million.

Citigroup and Morgan Stanley are the bookrunners of the overnight Rule 144A offering.

Prudential, a Newark, N.J.-based insurance and investment company, said it will use the proceeds to buy back up to $205 million of its common stock from purchasers of the convertibles. It will also use the proceeds to buy an investment-grade fixed-income investment portfolio and for general purposes.

Orbital Sciences also announced a $125 million overnighter, comprising 20-year convertible senior subordinated notes talked at a coupon of 2.4375% and an initial conversion premium of 30%.

Those convertibles are being offered at par. Orbital stock (NYSE: ORB) closed at $18.83 before its deal was announced, a decline of 0.79% or 15 cents.

There is an over-allotment option for a further $18.75 million.

Wachovia and Banc of America are the bookrunners of the overnight Rule 144A offering.

Orbital, a Dulles, Va.-based builder of small rockets and space systems, said it will concurrently buy back up to $50 million of its common stock using the proceeds of the deal. It will also buy back its outstanding 9% senior notes due 2011. Orbital on Thursday announced a cash tender offer and consent solicitation for those 9% senior notes. The total consideration for that offer will include a $20 consent fee per $1,000 note, and a yield equal to a spread of 50 basis points plus the bid-side yield of the 3.625% Treasuries due June 30, 2007.

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