World Acceptance richens talk; LeCroy flat in the gray; Pier 1 gains on dividend cut; Forest City plans deal

By Kenneth Lim

Boston, Oct. 3 - The convertible bond market had another quiet session on Tuesday, with a couple of new deals piquing investors' interests.

World Acceptance Corp.'s planned $100 million of five-year convertibles was described as attractive at the mid-point of initial price talk, with some liking the deal even after price talk was tightened toward the more aggressive end.

LeCroy Corp.'s coming $60 million offering of 20-year convertibles was bid around par in the gray market, as investors noted possible borrow problems despite attractive pricing.

The primary market continued to be active, with Forest City Enterprises Inc. launching a $250 million series of five-year putable equity-linked notes that are expected to price Wednesday after the market closes.

In the secondary market, Pier 1 Imports Inc.'s 6.375% convertible due 2011 improved a couple of points outright from week-ago levels and on a dollar-neutral basis after the company ended its quarterly dividend and assured investors that it has enough liquidity.

The convertible traded at 97 against a stock price of $7.15 on Tuesday, while Pier 1 stock (NYSE: PIR) fell 1.81% or 14 cents to close at $7.60.

"Pier 1 was up a couple of points on the dividend cut," a sellside convertible bond strategist said.

Pier 1, a Fort Worth, Texas-based home furnishings retailer, said Tuesday it will discontinue its quarterly dividend of 10 cents per share to improve near-term liquidity. The company, which has reported losses for six straight quarters, also said it has liquidity to meet its cash requirements for the next fiscal year.

A sellside convertible bond trader said the move would probably improve the company's credit quality.

"They won't be paying out as much cash as before, which is good for bondholders," the trader said. "But the fact that they need to cut their dividends isn't a very good sign. It seems to suggest management doesn't think they're going to be doing so well going forward."

Symantec Corp. also improved slightly outright on Tuesday, with its 0.75% convertible due 2011 marked at 119.375 bid, 119.875 offered versus a stock price of $20.72. Its 1% convertible due 2013 was marked at 120.375 bid, 120.875 offered against the same stock price. Symantec stock (Nasdaq: SYMC) closed at $21.14, up by 2.03% or 42 cents.

"The Symantecs were a little better bid," the convertible bond strategist said. "I think people were willing to pay a little more for volatility."

World Acceptance draws excitement

World Acceptance's planned $100 million of five-year convertible senior subordinated notes saw price talk tightened toward the rich end of original guidance, to a coupon between 3% and 3.125% and an initial conversion premium of 35%.

"It looks interesting, I think it's going to trade OK," a buyside convertible bond trader said. "They changed the talk, but I still think it's interesting at the new pricing."

The deal was originally talked at a coupon of 3% to 3.5% and an initial conversion premium of 30% to 35%. Analysts on Tuesday modeled the convertible from 1.5 points cheap to about 2.5 points cheap at the mid-point of initial price talk. World Acceptance stock (Nasdaq: WRLD) rose 4.05% or $1.80 on Tuesday to close at $46.23.

"But they're pricing it at the aggressive end of price talk, that takes most of the cheapness out," a sellsider said.

The notes will be offered at par, and there is a greenshoe option for a further $10 million.

Jefferies and BMO are the bookrunners of the Rule 144A offering.

The notes will be non-callable for life, and with no puts.

World Acceptance, a Greenville, S.C.-based consumer finance company, plans to use $8.7 million of the proceeds to enter into convertible note hedge and warrant transactions, and to buy back up to $50 million of its common stock. It will also repay part of its existing senior secured revolving loan.

The deal was not active in the gray market, and the stock borrow appeared to be off top rate, the convertible bond trader said. But demand appeared strong for the paper and the borrow could improve, the trader added.

"It's off top, but I think there's plenty of supply, it may actually go back to top rate," the trader said.

A convertible bond analyst said the convertible sets up "reasonably well on a hedged basis," but for outrights "it's not going to give you very much downside protection."

World Acceptance's focus on sub-prime consumer credit means that it is riskier than some recent finance-sector convertibles, such as AmeriCredit, but the company extracts a healthy margin from its higher-risk loan portfolio, the analyst said.

"Their assets...are riskier than the other company, but the income that they pull off of this credit, they have a better margin than other lenders," the analyst said.

Another convertible bond analyst said the deal appeared

LeCroy flat in the gray

LeCroy's planned $60 million of 20-year convertible senior notes was seen bid around par in the gray market on Tuesday, as observers noted potential problems with the borrow despite attractive pricing.

The deal, which is expected to price Thursday after the market closes, is talked at a coupon of 4% to 4.5% and an initial conversion premium of 20% to 25%.

LeCroy stock (Nasdaq: LCRY) fell 10.01% or $1.39 to close at $12.49.

There is a greenshoe option for a further $9 million.

Cowen & Co. is the bookrunner of the Rule 144A offering.

LeCroy, a Chestnut Ridge, N.Y.-based communications test equipment, said it will use the proceeds of the deal to repay $32 million of term debt, to buy back up to $10 million of its own stock and partially repay a revolving loan that was drawn down to fund its acquisition of Catalyst Enterprises Inc.

LeCroy said Tuesday that it bought Catalyst, a maker of communications analysis tools, for $30 million in cash and a $3.5 million note.

"That's another one that looks interesting," a buyside convertible bond trader said. "But it's a small deal, so it's not going to be very liquid."

A sellsider reported hearing that the stock borrow could be a problem for the deal.

"I heard that the borrow's terrible, so I'm not to sure about this deal," the sellsider said. "But these smaller deals, they can do well if they're priced cheap enough."

Forest City plans $250 million deal

Forest City on Tuesday said it will sell $250 million of five-year putable equity-linked senior notes, talked at a coupon of 3.125% to 3.625% and an initial conversion premium of 25% to 30%.

The deal is expected to price Wednesday after the market closes, and each note will be offered at par.

There is a greenshoe option for a further $37.5 million.

Goldman Sachs is the bookrunner of the Rule 144A deal.

Forest City, a Cleveland-based real estate developer, said it will use the proceeds of the deal to fund note hedge and warrant transactions and to buy back up to $25 million of its class A common stock. It will also repay recourse debt outstanding under its $600 million revolving loan, and for general corporate purposes.

Forest City's class A stock (NYSE: FCE-A) closed at $54.49 on Tuesday, slipping 0.33% or 18 cents before the deal was announced.

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