General Growth struggles; Manor Care climbs on buyout hopes; TriZetto bid up; RAIT, Franklin plan deals

By Kenneth Lim

Boston, April 11 - General Growth Properties Inc. fell below its reoffered price Wednesday as a weak stock and a poor demand for real estate investment trust offerings weighed on the deal.

Manor Care Inc. climbed after the company hired JPMorgan Chase & Co. to explore strategic options, a move that fueled speculation of a possible buyout.

The TriZetto Group Inc. rose slightly in the gray market with investors describing its planned $200 million deal as interesting.

Meanwhile, another two new deals were announced after the market closed that will raise $375 million altogether. The offerings by RAIT Financial Trust and Franklin Bank Corp. are expected to price Thursday after the close.

General Growth struggles

General Growth's overnight $1.55 billion offering of 20-year exchangeable senior notes traded half a point below its reoffered price on Wednesday as a weak stock and a glut of real estate investment trust offerings dampened demand.

"The GGP's are kind of quiet," a sellsider said. "The underwriter kind of choked on a lot of these. They were reoffered at 98, it got pretty ugly overnight."

The convertible was 97.5 bid, 97.75 offered against a stock price of $64.05 on Wednesday. The deal was reoffered at 98 with a coupon of 3.98% and an initial exchange premium of 35%. General Growth stock (NYSE: GGP) closed at $63.25, down by 3.76% or $2.47.

The deal was talked at a reoffered price of 98.5 to 98.75 with the same coupon and initial exchange premium.

Citigroup was the bookrunner of the Rule 144A offering.

The notes were issued by General Growth operating partnership GGP LP and are exchangeable into General Growth common stock. There is an over-allotment option for a further $200 million.

General Growth, a Chicago-based real estate investment trust that focuses on shopping centers and community development projects, said the proceeds of the deal will be used to repay outstanding debt that currently bears an interest rate of 6.57% and to fund general corporate purposes.

A sellside convertible analyst said pushing the deal out the door overnight probably put pressure on the underwriters to price the deal cheap.

"I don't see how a huge REIT overnight like this could do well in the market right now," a sellside convertible analyst said. "This one isn't particularly a great credit compared to the other REITs we've seen. Moody's rates them Ba1. It's a huge deal to do overnight, and there's a lot of stock flippage, which is probably why they had to reoffer it."

The deal modeled just below 98, and with the way the stock moved on Wednesday the offering hardly stood a chance.

"The stock's down today and they priced if off of last night's close," the analyst said. "It doesn't look like a good deal to me...and also there's plenty of REIT paper to go around for everybody."

Another convertible analyst thought that the deal modeled fair. Although the convertible had a historical volatility around 30%, most investors would have used a volatility assumption that was lower because the issuer is a REIT, the second analyst said.

"It was a lot of bonds and it didn't look like it was priced to be particularly exciting," the analyst said. "And they just may not have been any appetite for another REIT."

"It makes me wonder why they tried to do this," the analyst said. "Why they were trying to jam this down people's throats. Maybe it was to move up the league tables. It's a big deal. I guess if they have to sit on it for a while they could do it."

Manor Care climbs on buyout hopes

Manor Care's 2% convertible due 2036 improved about 7 points outright on Wednesday after the company hired JPMorgan to explore strategic options.

The convertible traded at 127.5 against a stock price of $60.625, while Manor Care stock (NYSE: HCR) climbed 10.64% or $5.93 to close at $61.68.

"We saw some Manor Care, they were up after they said they were looking at strategic options," a sellside convertible strategist said.

Toledo, Ohio-based Manor Care, an operator of nursing homes, said Wednesday that it is exploring opportunities to boost shareholder value. JPMorgan was hired as an adviser.

A sellside convertible analyst said Manor Care's decision on the matter could take many forms.

"It's not necessary that they will end up with a buyout," the analyst said. "First of all they've got to find a buyer willing to pay the right price, and these things don't always end up with a sale. The stock's climbed a lot this year so it's not exactly cheap right now. So a stock buyback may not be certain as well. I think it remains to be seen what they will do."

A buyout will likely benefit convertible holders, but not because of a change of control put, the analyst said.

"The converts are already in the money, so you won't gain from putting them back to the company," the analyst said. "But you'll still enjoy any premium over the stock if there's a buyout and you'll still collect your coupon in the meantime."

TriZetto up in gray

TriZetto's planned $200 million of five-year convertible senior notes were bid up around 100.5 in the gray market on Wednesday with the deal seen as fairly interesting.

The deal was expected to price after the market closed, and was talked at a coupon of 1.125% to 1.625% and an initial conversion premium of 15% to 20%. TriZetto stock (Nasdaq: TZIX) closed at $18.70, down by 0.43% or 8 cents.

The convertibles were offered at par.

There is an over-allotment option for a further $30 million.

Deutsche Bank, Goldman Sachs and UBS Investment Bank are the bookrunners of the Rule 144A offering.

Trizetto, a Newport Beach, Calif.-based provider of information technology solutions for the healthcare and insurance sectors, said it will use the proceeds of the deal to fund convertible note hedge and warrant transactions and to fund general purposes, which include debt repayment, stock buybacks or acquisitions.

"They looked interesting in my opinion," a convertible trader said. "I don't think there will be any problem with this deal. The stock is holding up well, which is a very good sign."

A sellside convertible analyst said the deal looked "pretty cheap" at just over 1% cheap using a credit spread assumption around 400 basis points over Libor and a volatility in the mid 30% range.

Another convertible analyst had the deal modeling almost a point cheap using a tighter spread and a lower volatility.

"I think the credit is improving," the analyst said. "If you look at the cash flow metrics over the last 12 months, pro forma leverage is almost eight times, but if you believe that the acquisitions they've done should start to hit the bottom line next year, leverage could hit three to four times in the next two years...It's not a bad pairing. If you don't necessarily like the credit, you might be wider on the credit but higher on the vol."

More deals launched

Another two new convertible deals launched Wednesday evening with pricing slated for Thursday after the market closes.

RAIT's $275 million offering of 20-year convertible senior unsecured notes is talked at a coupon of 6.75% to 7.25% and an initial conversion premium of 25% to 30%.

There is an over-allotment option for a further $50 million.

Bear, Stearns & Co. is the bookrunner of the Rule 144A offering.

RAIT, a Philadelphia-based real estate investment trust that provides debt financing options to the real estate industry, said it will use the proceeds of the deal to concurrently buy back up to $75 million of its common shares and to fund general purposes.

Franklin's $100 million offering of 20-year convertible senior notes is talked at a coupon of 3.5% to 4% and an initial conversion premium of 40% to 45%.

RBC Capital Markets is the bookrunner of the registered offering.

Franklin, a Houston-based bank, said it will use the proceeds of the deal to pay part of the purchase price of the First National Bank of Bryan in Bryan, Texas.

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