Forest City climbs on debut; Electronic Arts up in gray market; Western Refining rises

up with stock

By Kenneth Lim

Boston, July 14 - Forest City Enterprises, Inc.'s new convertibles jumped on their secondary trading debut on Thursday, a bright spot in an otherwise weak convertible market as equities continued to struggle.

Electronic Arts Inc. announced a $550 million offering of five-year notes, and solid demand helped to draw a positive bid in the gray market ahead of pricing.

The convertible market in general had a lackluster session, with equities having another down day.

"A lot of names took a hit today," a sellside trader said. "Equities were down for most of the day, and converts just got dragged down."

Western Refining Inc.'s 5.75% convertible due 2014 rose with its stock, bucking the overall market trend. The convertible was seen at 198.25 against a common stock price of $19.80.

The stock gained by 1.31% or $0.26 on the day to close at $20.09 per share.

"It was just trading in line, down this morning with the stock and up at the close," one trader said.

Western Refining is an El Paso, Texas-based independent oil refiner.

Kinross Gold Corp.'s 1.75% convertible due 2028 slipped half a point outright to be marked at 99.5 bid, 100 offered against a closing stock price of $17.01.

The common stock was down by 0.35% or $0.06 on the day. Kinross is a Toronto, Onta.-based gold mining company.

Mylan Inc.'s 1.25% convertible due March 2012 was also down by half a point at 109.25 bid, 109.75 offered versus a $23.86 stock price.

The common stock closed at $23.86 on Thursday, lower by 0.67% or $0.16. Mylan is a Canonsburg, Pa.-based maker of generic drugs.

Micron Technology Inc. saw its 1.875% convertible due 2014 slip by a quarter point to 97 bid, 97.5 offered against the closing stock price of $7.29.

The Boise, Idaho-based memory device maker saw its stock slip by 2.67% or $0.20 on the day.

Forest City up on debut

Forest City's new 4.25% seven-year notes were seen bid at 104 at the close after pricing at par on Thursday with an initial conversion premium of 20%.

The common stock closed at $18.37 on Thursday, up by 1.72% or $0.31 per share.

The upsized $300 million deal was offered at par and arrived at the cheap end of talk.

Price talk was at a coupon of 3.75% to 4.25% and an initial conversion premium of 20% to 25%.

The size of the deal was originally $250 million. An over-allotment option remains at $50 million.

Goldman Sachs & Co., Barclays Capital Inc., Merrill Lynch and Morgan Stanley & Co. Inc. were the bookrunners of the Rule 144A offering.

Conversion may be terminated after three years if the underlying stock exceeds 130% of the conversion price, but holders will be made whole.

Proceeds will be used to pay off reduce existing debt, including $46.9 million of Forest City's Puttable Equity-Linked senior notes due 2011, a $450 million revolver and certain mortgage debt. The proceeds will also be used for general corporate purposes.

Forest City is a Cleveland-based real estate developer.

A buysider who got in on the deal said it did not seem to be well received in the early stages of marketing, partly because the provisional conversion was seen as too tough. The terms were softened later in the day to include a make-whole and a three-year restriction.

"It didn't seem very well-received, which I supposed I attribute to the fact that it was seven years," the buysider said. "It priced on the cheap end and they even had to amend the soft call, which I think was a good illustration that people will push back against terms that they don't like."

But the buysider said the company looks good on an outright basis, with a full development pipeline that could boost returns in the future.

Value investors would find the deal attractive because the name is not very liquid, and buying a new issue is a good way to get into the name on a discount. The move seemed to the right one on the first day of trading.

"The stock did rebound 1.7%, so it was probably one of our better positions today," the buysider said.

The buysider added that the make-whole of the provisional conversion feature helped to make that particular part of the terms more palatable given that returns could be capped if the stock does very well.

Electronic Arts up in gray

Electronic Arts' planned $550 million offering of five-year convertible senior notes was big at about 101 in the gray market near the close, having been quoted at about 102 earlier in the day, a trader said.

The deal was to price after the market closed, talked at a coupon of 0.75% and an initial conversion premium of 32.5% to 35%.

There is an over-allotment option for an additional $82.5 million.

J.P. Morgan Securities LLC and Morgan Stanley & Co. Inc. are the bookrunners of the Rule 144A offering.

Proceeds will be used to pay part of the company's $1.3 billion cash-and-stock bid for PopCap Games, Inc. and to fund convertible note hedge transactions. If the PopCap deal is not completed, the proceeds will be used for general corporate purposes.

Electronic Arts is a Redwood City, Calif.-based video game maker.

The company's common stock slipped 1.67%, or $0.40, on Thursday to close at $23.51.

A buysider said the deal looked "less appealing on the face of it" compared to the Forest City offering simply because the coupon was lower, but acknowledged that Electronic Arts, with its stellar credit quality, could justify the tight terms.

"It was well subscribed," the buysider said.

Electronic Arts could probably get excellent terms as well if it just did a straight-debt offering, the buysider noted.

"You question why they actually did the deal because if they could borrow at 1%, they would as well," the buysider said. "It's somewhat opportunistic, I think, but I don't complain because it gives the market another deal."

Mentioned in this article:

Forest City Enterprises, Inc. NYSE: FCEA

Electronic Arts Inc. Nasdaq: ERTS

Western Refining Inc. NYSE: WNR

Kinross Gold Corp. NYSE: KGC

Mylan Inc. Nasdaq: MYL

Micron Technology Inc. Nasdaq: MU

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