Celanese seen getting upsized; Fortis/Assurant issue bid well; Alexion, Antigenics trip out of chute

By Ronda Fears

Nashville, Jan.20 - New convertible paper breaking out of the gate early Thursday from Alexion Pharmaceuticals Inc. and Antigenics Inc. was having a tough go of it in the immediate aftermarket, but the Celanese Corp. and Fortis NV deals at bat after the closing bell were high-flyers.

Celanese was expected to get upsized to $240 million from $200 million, and final terms were anticipated by buyside sources at the mid-point of yield talk and aggressively outside premium guidance due to strong demand for the issue. Disinterested sources on the buyside, however, noted that the Celanese initial public offering by majority owner Blackstone Group was not going well as the Blackstone involvement was viewed basically as a blemish to the story.

Fortis was getting a strong reaction, too, for its mandatory exchangeable into Assurant Inc., as it was bid sharply higher in the gray market and due to price off Thursday's closing prices.

Calpine Corp. was marketing $260 million of six-month non-convertible preferreds for its Saltend Energy Centre project to loan investors, bank loan market sources told Prospect News. That event raised issues of risk in the name, along with a writedown of natural gas reserves and earnings warnings from the company earlier Thursday. Combined, the news sent Calpine's convertibles tumbling.

Elsewhere in the secondary market, one of the most notable issues trading was Tower Automotive Inc. The converts crashed on an update from the company that outlined dwindling liquidity resources.

Convertibles easier, not tempting

Convertible prices were getting ever-so-slightly easier as stocks faltered again Thursday, but traders on both sides of the market were not seeing a stampede of buyers on the weakness.

"Earnings probably aren't that bad," said a buyside trader. "It's just that people started believing the happy talk on CNBC and bid up the market and now this is the result."

Yet, he quickly added that he's not seeing enough markdowns to entice him as a buyer.

"I'm looking for some watershed event, but I don't know when that will come along," he said. "Long rates are stubbornly low, so there's no trust right now.

"We have to get back to some normalcy. A couple of things I can think of that would help are for rates to rise and some of the volatility guys to get flushed out of the market. Meanwhile, I'm content to be holding a lot of cash, standing ready to put it to work."

A sellside convertible trader remarked that prices overall are not drastically lower, particularly on a hedged basis, and many onlookers aren't expecting much relief through the first half of 2005.

"I recall that in 1999, Warren Buffet stated that the next bull market wouldn't start for six more years. He was right. 2005 so far is looking like it will be the turnaround year," the trader said, "but we're thinking that the low spot, the time to buy into the market, will come around October."

Meanwhile, the sellside trader said most players are hoping to stay busy with new issues.

Fortis/Assurant up 1.625 pts

Fortis was pitching roughly $775 million of three-year mandatory exchangeable bonds, convertible into Assurant shares, with guidance for a yield of 7.75% to 8.25% and 18% to 22% initial conversion premium. With final terms expected before Friday's open, the issue was well bid at 1.625 points over issue price in the gray market, and buyside sources were "halfway expecting terms to be tightened."

No change in the indicative terms was confirmed, however.

The European banking and financial services concern Fortis is essentially disposing of its stake in New York City-based Assurant with the convertible, which was pricing concurrently with its remaining 27.2 million shares of common stock. Earlier this month when announce the plans, Fortis estimated the share offering would fetch $822.8 million at $30.25 each.

Assurant shares closed Thursday at $30.60, up 9 cents on the day, or 0.29%. In after-hours trading, the stock was off 7 cents, or 0.23%.

In February 2004, Fortis sold about half its stake in Assurant with an initial public offering that brought it $1.8 billion. At that time, the Belgian-Dutch financial services firm had said it planned to dispose of its remaining stake in Assurant over time.

Celanese seen pricing tight

The Celanese convertible was doing very well in the gray market, bid up by at least 0.375 points, with orders running well over-booked. Then, as word the deal would likely get upsized and terms squeezed, gray market levels eased back at the close to a bid of 0.125 point over issue price with the offer at 0.25 points over.

In early afternoon, buyside sources said the deal was expected to be upsized to $240 million from $200 million and price with a 4.25% dividend - smack in the middle of price talk - but with a 25% initial conversion premium - aggressively outside original guidance of 18% to 22%.

Celanese was pricing the perpetual convertible preferred concurrently with its initial public offering, which originally was estimated at $19 to $21 a share in the company's registration statement filed at the Securities and Exchange Commission earlier this month.

Celanese also plans a new $1.5 billion senior credit facility.

Proceeds are earmarked to partially redeem $207 million of 10% senior discount notes, partially redeem $566 million of 10.3675% senior subordinated notes, repay the existing $611 million of its senior credit facility, repay a $350 million floating-rate term loan and make a $952 million dividend to series B common stock holders, Blackstone Group.

Celanese IPO troubled, though

Buyside sources said, though, that the Celanese IPO apparently was having trouble at anticipated prices, and some added that buzz about the story had scared them off the convertible.

"I had been considering the preferred, then I heard there was a pretty good dividend being proposed on the common and I saw the Barron's article," one convertible hedge fund manager said. "I just put it on the shelf after that. I'm not here to make Blackstone rich."

He said Celanese, formerly a publicly traded unit of Hoechst AG, was bought out in late 2003 by Blackstone "at a fire sale price." European reports put the deal value at €3.2 billion. With the IPO offering, he said Blackstone stands to make nearly $1 billion and still keep a majority interest in the German chemical concern.

Following the IPO for series A shares, Blackstone and affiliates as a group will own around 58.2% of Celanese, assuming the greenshoe on the stock offer is exercised, or 62.6% if not.

Another buyside source, a convertible trader at a New York hedge fund, said reports suggested institutional buyers participating in the IPO were bidding the Celanese stock at about $14 to $15, versus a range of $19 to $21 targeted in the SEC registration.

Calpine convertibles lose 3-5 points

Calpine paper was weaker pretty much across the board on its warning of a net loss as a result of a sharp reduction in its gas reserves. Plus, some onlookers were skeptical of the risk concern raised by its latest financing effort.

The new Calpine 6% convertible bonds due 2014 fell 5.25 points to 98.25 bid, 99.25 offered, and the older 4.75% convertible bonds due 2023 lost 3.5 points to 74 bid, 74.5 offered on Thursday. The Calpine 8.5% junk bonds due 2011 dropped by 2.5 points to 68.25 bid, 69.25 offered.

Calpine shares fell 19 cents on the day, or 5.54%, to close at $3.24.

On Thursday, Calpine launched a private placement of $260 million of six-month junior redeemable preferred shares for its Saltend Energy Centre that was being marketed to loan investors with an interest rate of Libor plus 850 basis points. Chiefly, participating buyers were hedge funds, sources said.

"The company is issuing the preferred so they can buy back the public shorter term bonds at a discount in advance of them selling off their Saltend plant. Because the bonds will rise once the plant is sold, doing it this way creates more value for the company," said a buyside convertible source.

"Once the plant sale closes, which is expected in six months, they will pay down the preferred. The risk is obviously that they spend the money and the plant sale doesn't close."

Also Thursday, the San Jose, Calif.-based independent power producer said it would take a $200 million pretax, non-cash gas reserve impairment charge in fourth quarter, resulting in an anticipated net loss of 48 to 56 cents per share for the period.

For 2004, the company expects a net loss of 69 to 78 cents a share, including charges, worse than the First Call analyst consensus for a 2004 net loss of 66 cents a share.

Calpine is scheduled to release fourth-quarter and year-end results on Feb. 24.

Alexion fades in aftermarket

Although the new Alexion convertible had traded 2 points over par in the gray market Wednesday, it broke out of the gate Thursday underwater at a bid of 99.375 and it did not improve much throughout the session.

Alexion sold the $125 million of seven-year non-callable convertible notes, which will refinance its 5.75% converts due 2007, to yield 1.375% with a 35% initial conversion premium - at the middle of yield guidance for a 1.125% to 1.625% coupon and at the aggressive end of premium guidance of 30% to 35%.

"ALXN was poorly priced for the risk," one buyside source complained.

Sellside analysts had modeled the new Alexion convertible at about 1.7% cheap.

The new issue was last seen at about par, with the underlying stock losing another 24 cents, or 1.03%, to end at $23.06.

Antigenics cut to $50 million

Antigenics sold a downsized deal and printed it with final terms at the cheap end of sweetened price talk, and still buyside traders said it slipped to around 95 in the immediate aftermarket.

The biotech firm sold $50 million of 20-year convertible notes at par to yield 5.25% with a 20% initial conversion premium - at the cheap end of revised price talk for a 5.25% coupon and 20% to 25% initial conversion premium. The deal was originally pitched at $60 million with guidance for a 4.75% to 5.25% coupon and premium of 35% to 40%.

Buyside sources had said resistance to the deal centered on trouble the New York-based company has had since the fall of 2003 in getting Food and Drug Administration approval for Phase III trials in its Oncophage product as a treatment in renal cell carcinoma and in melanoma.

Tower 5.75s fall 15-20 points

Tower Automotive's convertibles crashed on the dwindling liquidity update from the company Thursday, with the 5.75% bonds plummeting 15 to 20 points to 50 bid, 52 offered while the 6.75% preferreds plunged 3.5 points to 7.25.

The Novi, Mich.-based auto parts maker's 12% junk bonds due 2013 also skidded on the news, losing nearly 12 points to 67 bid, 68 offered.

Tower Automotive shares lost 64 cents on the day, or 27.12%, to close at $1.72.

Tower announced Thursday that its ongoing initiatives to improve liquidity were adversely impacted by the length of customer shutdowns over the holiday season. While the holiday shutdowns were planned, the length of the shutdowns were longer than anticipated and, cumulatively, would adversely impact liquidity by about $40 million in first quarter.

Despite efforts and the continuing cooperation of customers and suppliers, Tower Automotive said it continues to face significant challenges in meeting its ongoing liquidity requirements.

But the company said it is continuing to work with customers and suppliers to address the liquidity issues, and is pursuing the possible sale of assets to relieve liquidity pressures.

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