Navistar, GMX add in gray; Dole quiet before pricing; Freeport down slightly; AMR drops

By Rebecca Melvin

New York, Oct. 22 - The secondary market was fairly busy with pockets of weakness Thursday, as stocks chopped along and ended higher on the day. Convertibles players were also weighing three new deals, which priced after the session's conclusion.

Navistar International Corp.'s upsized $550 million of five-year convertibles, which priced at 3%, with an initial conversion premium of 35%, was seen cheap and bid at about 103 in the gray market even after it was re-priced early in the day. The Navistar deal priced at the rich end of revised talk.

GMX Resources Inc.'s $75 million of six-year convertibles, which priced at a 4.5% coupon with an initial conversion premium of 25%, were bid up 1.25 points in the gray market ahead of final terms. The GMX deal priced at the rich end of talk.

But Dole Food Co. Inc., which priced $300 million of trust-issued mandatory exchangeables after the close, was not heard in the gray market.

"I've seen absolutely nothing in Dole," a New York-based sellside analyst said at the close.

Back in established issues, mining concern Freeport-McMoRan Copper & Gold Inc. was in trade and down slightly even as its shares jumped amid an upgrade to "buy" from "hold" at Deutsche Bank, which lifted its price target for the shares to $100 from $72.

Another mining company, Vale SA was also noticed in trade. The Vale Capital 5.5% convertible mandatories due 2010 changed hands at 51.30 versus $26.95, according to a New York-based sellside desk analyst.

Several airline names were also changing hands at lower prices. AMR Corp.'s recently priced 6.25% convertibles traded way down at 94.75, versus a share price of $6.70. That paper had been over par previously. Airline shares, which slipped in early trade, came back to notch mostly gains by the end of the session.

Early weakness in stocks spurred by mixed earnings and disappointing jobs data gave way to strength especially among financials and blue chip names.

The Dow Jones Industrial Average gained 132 points, or 1.3%, to 10,081.31; the S&P 500 Index gained 11.5 points, or 1%, to 1,092.91; and the Nasdaq Stock Market added 15 points, or 0.7%, to 2.165.29.

The Labor Department said workers filing for unemployment benefits for the first time rose more than expected last week. New unemployment benefits claims rose to 531,000 from 520,000. Economists had expected only a slight increase.

Freeport-McMoRan eases

Freeport-McMoRan's 6.75% mandatory convertible preferreds due May 2010 traded at 117.25 versus a stock price of $82.10, which was off a little from 118.25, which is where they would have traded on a dollar neutral basis.

On Oct. 12, the Freeport-McMoRan paper traded at 110.75 versus $75.87.

The Vale 5.5% mandatories traded at 51.20 versus $26.95 and settled at 51.26 versus $27.20. Shares of Phoenix, Ariz.-based Freeport added 4% on the day and Brazilian mining company Vale saw its shares gain 1%.

Freeport posted strong third-quarter earnings on Wednesday, with Gimme Credit analyst Carl Blake citing "pay dirt" struck at its Grasberg mine in Indonesia for the good performance.

"Strong performance at that mine contributed to third-quarter results that were well ahead of the company's guidance and our expectations," Blake wrote in research published Thursday.

Sales of copper, gold, and molybdenum all came in above guidance, even though prices for copper and molybdenum are still down from year-earlier levels.

Moreover, consolidated revenue fell 11% to $4.1 billion versus the 2008 third quarter. But adjusted EBITDA rose 40% to $2.3 billion as operating margins expanded to 51% from 25% in the year-ago quarter.

Driving this expansion were a 31% reduction in unit site production and delivery costs, lower input costs (primarily energy), and greater efficiencies in Freeport's North American operations, Blake said.

At today's copper prices, Freeport believes it can generate upwards of $6.5 billion in EBITDA and $4.5 billion in operating cash flows in 2010.

"We think the prospects for a recovery are good, but we note that the prices of both copper and gold have historically been very volatile, and the pace of recovery in mature economies around the world remains uncertain," Blake said.

"Notwithstanding the company's decision to reinstate a quarterly dividend on its common stock, we believe Freeport is committed to maintaining a strong balance sheet and will opportunistically look to pay down debt," Blake said.

Gimme Credit pointed out that Freeport's leverage and interest coverage improved to 1.3x and 8.6x, respectively. But it maintained its rating of "underperform" on Freeport bonds since they are already trading in line with investment-grade rated Newmont Mining.

Navistar seen 4% cheap

Navistar's upsized $550 million of five-year convertibles traded at plus 1 to plus 3 points in the gray market on Thursday.

One Connecticut-based sellside analyst saw the paper 4% cheap at the midpoint of talk, using revised talk of 3.125% as the midpoint, with an initial conversion premium of 32.5%.

"Given the straights that priced at 8.25% [for the coupon] -- when people were expecting 9% -- which were priced with a yield to maturity of 8.75%, it was easy to triangulate and come up with a value on the subordinated but shorter-dated paper," the Connecticut-based analyst said.

Before the revised talk, the analyst would have said the deal was 7% cheap.

The five-year bullets have 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.

GMX Resources seen as cheap

GMX Resources priced $75 million of six-year convertibles after the close of markets at the rich end of talk, to yield 4.5% with an initial conversion premium of 25%, according to a syndicate source.

The deal was originally talked at $70 million.

The GMX deal was up a point in the gray market, but an analyst said he saw them as cheap.

"It was easy to value give where I saw the old bonds. They are going to take out all their secured debt with the issuance because they are doing equity too. And then you have nothing in front except the three-year and the five-year convertibles," the sellsider said.

GMX also priced an offering of 5.75 million shares of common stock at $15 a share.

Both offerings were sold via joint bookrunners Credit Suisse Securities LLC and Jefferies & Co.

Proceeds will be used to repay a portion of outstanding indebtedness under its revolving bank credit facility, to repay all of the company's outstanding senior secured notes, and for general corporate purposes.

The convertible senior unsecured notes will be non-callable for three years with no puts. They will have standard dividend and takeover protection, and contingent conversion at a price trigger of 130%. The paper will rank pari passu with its 5% convertibles due 2013.

Oklahoma City-based GMX is an oil and gas exploration and development company

Dole Food prices $300 million mandatories

Dole Food priced $300 million of three-year mandatory convertibles at the expected 7% coupon and 20% premium level. The initial public offering of shares came at a lower than expected $12.50, and not the $13 to $15 per share seen earlier.

The convertibles came at the mids, but there was no gray market ahead of final terms for this Rule 144A deal.

It was unusual for the mandatories coming with an IPO to be Rule 144A instead of registered since the shares had to be registered, obviously, a New York-based syndicate source said.

The deal was also unusual given its trust-issued structure.

"It kind of surprised the market," the syndicate source said. "But I don't know how material that will be" in the end.

Dole Food is a Westlake Village, Calif.-based fruit and vegetables company.

Mentioned in this article:

AMR Corp. NYSE: AMR

Freeport-McMoRan Copper & Gold Inc. NYSE: FCX

GMX Resources Inc. Nasdaq: GMXR

Navistar International Group NYSE: NAV

Vale Capital Ltd. NYSE: VALE, CJA

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