Jefferies trades below par on debut; Forest City jumps; Navistar up in gray; Dole on tap

By Rebecca Melvin

New York, Oct. 21 - Jefferies Group Inc.'s newly priced 3.875% convertibles were seen closing below par Wednesday, with some activity just above the 100 mark also on its debut, market sources said.

The weaker debut, which has been the norm of late, was blamed on the Jefferies paper's 20-year structure, a term that is of longer duration than many of the new issues recently coming to market, sources said.

Forest City Enterprises Inc.'s newly priced 5% convertibles jumped up to 108 immediately out of the gate Wednesday. But that paper was not as actively traded, changing hands "strictly upstairs," and it closed the session at 107 versus a share price of $11.16, according to a syndicate source.

Navistar International Corp.'s planned $500 million of five-year convertibles, which were expected to price after the close on Thursday, were 103 bid, 105 offered in the gray market on Wednesday.

Meanwhile, details emerged on the Dole Food Co. Inc. mandatories, which were expected to price after the close on Thursday, along with Navistar.

The structure of the Dole mandatories is going to be a trust-based exchangeable, which was considered somewhat unusual. Citigroup did a few deals in that structure in 2001 and 2002, and one sellside source said he didn't see the Citigroup Labranch mandatories, which priced in 2002, being valued any differently than other mandatories.

Talk also emerged on GMX Resources Inc.'s planned $70 million of six-year convertibles, which were also expected to price after the market close on Thursday. That deal is talked to yield 4.5% to 5% with an initial conversion premium of 20% to 25%, a syndicate source said.

Elsewhere in the convertibles market, SanDisk Corp., which reported strong earnings after the close of markets Tuesday, was active and higher by about 1.75 points outright.

Jefferies slips below par on debut

Jefferies' newly priced 3.875% convertibles due 2029 traded initially around 99.25 bid, 99.50 offered before gaining to about par. But then the paper backed up again and ended below par, according to market sources.

"There was a lot of noise around Jefferies," a sellsider said, suggesting that there was more talk than actual trading.

"They held up pretty well, but the fact is that with pricing out of the norm like this it's a reach for a lot guys," the sellsider said.

The sellsider noted the eight-year put and the fact that it's provisionally callable after 2012 at a price hurdle of 130%. "That's not the way deals have been priced lately," he said.

The deal will be non-callable for three years and then provisionally callable between Nov. 1, 2012 and Nov. 1, 2017 at 130% of the conversion price.

The notes are callable after 2017 at 100%. There are investor puts in years 2017, 2019 and 2024.

The convertibles also have dividend and takeover protection.

A buysider concurred: "I'd say that the market prefers plain vanilla - particularly a market that is dominated by cross-over investors who aren't convertible specialists."

Jefferies also priced more quickly than most deals, launching the overnight deal late Tuesday.

Jefferies priced $300 million of 20-year convertibles at the midpoint of talk, which was 3.625% to 4.125% for the coupon with an initial conversion premium of 32.5% to 37.5%.

The paper had been seen plus 0.5 point in the gray market.

Jefferies & Co. Inc. is the bookrunner, and Citigroup Global Markets Inc. is a joint lead manager.

Proceeds are for general corporate purposes.

Jefferies is an investment banking group based in New York.

Forest City ends at 107

Forest City's newly priced 5% convertibles due 2016 jumped up to 108 in initial trading on its debut in secondary dealings. The paper settled at about 107, according to a syndicate source.

The fact that it traded "upstairs," meaning that it was controlled by the underwriter, meant fewer market participants saw activity in the new paper.

Forest City priced $175 million of convertibles - for deleveraging purposes - at the rich end of talk for a yield of 5% to 5.5% and a conversion premium of 22.5% to 27.5%.

Bank of America was the lead manager on the convertible, and Barclays Capital Inc. was the co-manager.

Proceeds will be used to reduce outstanding borrowings under a $750 million revolving credit facility, to repay debt, to fund existing development projects and for general corporate purposes. A portion of the proceeds from the sale will be used to cover the cost of the convertible note hedge transactions.

Cleveland-based Forest City owns, develops, manages and acquires commercial and residential real estate.

Navistar seen 3% cheap

Navistar's planned $500 million of five-year convertibles, seen pricing after the market close Thursday, traded up plus 3 to plus 5 in the gray market.

One New York-based sellside analyst saw the paper 3% cheap at the midpoint of talk, using a credit spread of 550 basis points over Libor and a vol. of 30% to 35%.

The five-year bullet has a greenshoe of $75 million of notes.

Concurrently, Navistar plans to price $1 billion of straight notes due 2021.

J.P. Morgan Securities Inc., with Credit Suisse, Bank of America Merrill Lynch, Citigroup, Deutsche Bank Securities and Goldman Sachs are joint bookrunners of the convertible offering. Co-managers are RBC Capital Markets Corp., Scotia Capital and UBS Investment Bank.

Warrenville, Ill.-based Navistar is a maker of commercial trucks.

Dole Food to price Thursday

Dole Food planned to price $300 million of three-year mandatory convertibles after the close of markets on Thursday. There is a 15% greenshoe of $45 million of mandatories; and pricing will be done concurrently with an initial public offering of 35.7 million shares at $13 to $15 per shares.

The paper was talked to yield 6.75% to 7.25% with an initial conversion premium of 20%.

The issue is non-callable and features no investor puts.

Proceeds from the offering are expected to be used to purchase a portfolio of stripped U.S. Treasuries and pay the purchase price to the seller.

The structure will be a trust-based exchangeable, not a preferred. There was some debate among market players as to how unusual that structure is. One source said it hadn't been used for many years, but another source said it looked like a three-year DECs structure.

A comparison was made to an issue for Labranch, a NYSE floor broker, in February 2002 via Citigroup. But one source pointed out that his shop hadn't modeled the old Labranch issue any differently from other mandatories.

Citigroup also did a couple of deals for AT&T Corp. using this structure in October and December of 2001, a source said.

Mentioned in this article:

Dole Food Co. Inc. Nasdaq: LNCR

Forest City Enterprises Inc. NYSE: FCE-A

GMX Resources Inc. Nasdaq: GMXR

Jefferies Group Inc. NYSE: JEF

Navistar International Group NYSE: NAV

SanDisk Corp. Nasdaq: SNDK

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