Entertainment Properties rises slightly on debut; Peabody slides further with sector; Ford rallies on upgrade

By Kenneth Lim

Boston, Dec. 20 - Entertainment Properties Trust improved slightly outright on its debut Wednesday, as limited interest and a lackluster stock took most of the shine out of the new issue.

Peabody Energy Corp. continued to slide, in line with sector-wide stock declines as natural gas prices dropped further.

Ford Motor Co. improved slightly with its stock, which was upgraded by an equity analyst on Wednesday.

The rest of the convertible bond market was typically languid with less than two weeks left in the year.

"It's a pretty quiet day," a sellside convertible bond trader said. "It seems like everybody's already gone on holiday."

Entertainment Properties sees modest gain

Entertainment Properties' new 5.75% perpetual convertible preferred stock traded just north of its reoffered price of 24.50 on Wednesday, after the deal was upsized and priced at the cheap end of talk.

The preferreds were seen at 24.375 bid, 24.625 offered near the close on Wednesday. Entertainment Properties stock (NYSE: EPR) closed at $59.60, up by 0.25% or 15 cents.

"They were trading outright," a sellside convertible bond trader said. "The stock for the most part bounced around."

Entertainment Properties Trust priced its $135 million offering Tuesday after the market closed, with an initial conversion premium of 20%.

The preferreds were initially expected to be offered at par of 25, and were talked at a dividend of 5.5% to 5.75% and an initial conversion premium of 20% to 24%.

The size of the offering was originally $125 million. The over-allotment option was reduced to an additional $15 million, from an additional $18.75 million.

Bear Stearns was the bookrunner of the registered off-the-shelf offering.

Entertainment Properties, a real estate investment trust that owns entertainment retail centers, cinemas and other entertainment-related properties, said it will use the proceeds of the deal to fund general corporate purposes, including acquisitions, and to reduce debt under a KeyBank facility.

"It looks like it came just slightly cheap," a buyside convertible bond analyst said. "It helped that they reoffered it, but they really had to do that for anyone to want this. At par it's just too expensive."

The analyst said that although Entertainment Properties' focus on movie theaters made it a slightly more interesting name, it was ultimately yet another REIT.

"Obviously the market still has appetite for REITs, because this deal got done and we're probably going to see more," the analyst added. "But the appetite isn't as big now as it was at the start of the year before all those other REITs came along."

Peabody slips with sector

Peabody's recently issued 4.75% convertible due 2066 declined by about 1.5 points outright on Wednesday, weighed by a drop in the stock amid lower natural gas prices.

The convertible traded at 97 against a stock price of $41.70. Peabody stock (NYSE: BTU) dropped 3.5% or $1.51 to close at $41.61 on Monday.

"They were down slightly," a sellsider said. "The stock's down, so these are just trading down with the stock."

Peabody is a St. Louis, Mo.-based coal company.

Coal stocks slid on Monday, as natural gas futures continued to fall on expectations that data by the Energy Department will reflect a better than usual supply of natural gas. With the mild winter so far, lower natural gas prices could soften demand for coal among energy producers.

"It looks like the coal stocks came down because of the data that's coming out tomorrow," a buyside convertible bond analyst said. "What's interesting here is that nobody's asked about coal companies in some time."

Peabody's paper, which was issued a week ago, is the only outstanding convertible issued by a coal company at the moment.

Ford rallies with stock

Ford's newest 4.25% convertible due 2036 gained just over a point outright, while its convertible preferred improved ¼ point on Wednesday, as the common stock got a boost from recent analysts' upgrades.

The 4.25% convertible traded at 104.5 versus a stock price of $7.29, while the 6.5% convertible preferred closed at 34. Ford stock (NYSE: F) ended the day at $7.33, up by 2.09% or 15 cents.

"The new Ford 4.25s continue to be active, the stock's up today," a sellsider said. "They've been pretty active ever since Day 1, and they continue to do well."

Dearborn, Mich.-based Ford saw its common stock upgraded to hold from sell by KeyBanc equity analyst Brett Hoselton on Wednesday. In a research note, Hoselton said Ford's restructuring plans should help the auto maker reduce costs and bring production down closer to reduced demand.

"Although fundamentals are unlikely to show any meaningful improvement in 2007, the rapid deterioration in earnings witnessed during 2006 should begin to taper next year," Hoselton wrote.

Hoselton's upgrade came a day after Morgan Stanley equity analyst Jonathan Steinmetz also raised his recommendation on the stock to overweight from equal weight.

Steinmetz cited the Ford's recent fundraising activities as providing substantial liquidity to fund its restructuring efforts. Steinmetz also expressed optimism in Ford's ability to improve its product portfolio in the next three to five years, and reckoned that the risk of bankruptcy in the next two to three years was low.

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