Orbital soars on launch; Superior Energy sees small gain; Prudential modest on debut; Ford stays buoyant

By Kenneth Lim

Boston, Dec. 8 - Another three new convertibles started life in the convertible bond market on Friday with varying results, wrapping up a week dominated by fresh paper.

Orbital Sciences Corp. had the best debut on Friday, gaining 2 to 4 points outright after the deal came at talk and saw its greenshoe immediately exercised.

Superior Energy Services Inc. eked out a slight gain after its offering priced at the midpoint of price talk.

Prudential Financial Inc.'s $2 billion deal, the largest for the day, failed to make any significant rise amid grumblings that the deal was too aggressively priced.

Meanwhile, Ford Motor Co.'s 4.25% convertible due 2036, which priced Wednesday, continued to hover well above par. The convertible was at 104.625 against a stock price of $7.15 on Friday, unchanged from the previous session. Ford stock (NYSE: F) closed at $7.23, up 0.98% or 7 cents.

"The Fords continue to be active on their second day," a sellsider said. "They're kind of in line with yesterday."

Orbital blasts off

Orbital Sciences' new 2.4375% convertible senior subordinated notes due 2026 jumped about 2 to 4 points above par on Friday, as investors cheered the cheapness of the deal.

The convertible was at 102.5 bid, 104 offered at the opening stock price of $18.83. Orbital stock (NYSE: ORB) gained 1.49% or 28 cents to close at $19.11 on Friday.

"That one priced pretty well," a sellside convertible bond strategist said. "They traded well at 102.5, 103.5."

Orbital's $143.75 million deal, which includes an $18.75 million greenshoe that was immediately exercised, priced late Thursday with an initial conversion premium of 30%. The convertibles were offered at par, and priced exactly at talk.

Wachovia and Banc of America were the bookrunners of the 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.

"Hedge guys probably liked this," a sellside convertible bond analyst said. "It came really cheap, and it looks like it can be set up OK. It's actually a good deal for the company, because they're getting rid of the 9s of 2011 and replacing it with a much cheaper piece of paper."

A hedge buysider had a quick summary: "Involved, liked it, played it, accumulating."

Superior Energy slightly better

Superior Energy's new 1.5% exchangeable senior note due 2026 was flat to slightly better on Friday, with the deal seen as just fairly priced.

The convertible was seen at 100.625 against a stock price of $33.77 on Friday. Superior Energy stock (NYSE: SPN) gained 1.87% or 63 cents for a close of $34.39.

"That was kind of quiet," a sellsider said. "It was quoted up a little, but then the stock was up too."

The $400 million deal priced Thursday within talk, with an initial exchange premium of 35%. The deal amount included $50 million from an over-allotment option that was immediately exercised.

The notes were offered at par. They were talked at a coupon of 1.25% to 1.75% and an initial exchange premium of 32.5% to 37.5%.

Bear Stearns and Lehman Brothers were 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.

"They modeled cheap but not that cheap," a convertible bond analyst said, adding that he calculated it as between 1% and 2% cheap.

But the analyst reckoned that it priced just enough for the deal to get done.

"I guess they placed it, and it traded," the analyst said. "The company should be happy. When the company issues paper and it goes up to 108, they're going to be furious...because the company could have gotten much better terms."

Prudential fails to impress

Prudential's new floating-rate convertible due 2036 traded mostly flat around its reoffered price of 99.25, as the new paper met resistance to its short call structure and high premium.

The convertible was seen at 98.75 bid against a stock price of $86 on Friday. Prudential stock (NYSE: PRU) slipped 0.69% or 60 cents to close at $86.24.

"It came at 99.25, so they're basically trading around the reoffered price," a sellside convertible bond trader said. "Obviously not a lot of pick up."

Prudential on Friday priced its $2 billion offering at talk, at a coupon of three-month Libor minus 240 basis points and an initial conversion premium of 20%.

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

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

The convertibles are non-callable for the first year. They may be put in years one, two, three, four, five, 10, 15, 20 and 25.

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.

"I didn't think the terms were all that great. The old issue actually looked kind of more attractive," a buyside convertible bond analyst said, referring to Prudential's existing 2.956% convertible due 2026. "It should do well. The stock probably has more upside, and it's a good stock, I just preferred the old ones."

The analyst said that from an outright perspective, the older notes seemed better, especially in light of Prudential's strong stock.

"With the stock on such a run, it looked like they were picking an opportunistic time to offer," the analyst said.

The poor call protection was also a slight negative, the buysider said.

"It's a bit of a negative for a new issue," the analyst said. "You'd like to see a little more call protection, but I guess with the U.S. Bancorp deal it was the same, right? Obviously you'd like to see a little more, but."

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