Platinum debut has shine; Calpine trades mixed; XL Capital, Ceradyne launch new deals

By Rebecca Melvin

Princeton, N.J., Dec. 1 - Platinum Underwriters Holdings Ltd. was the name of the day in the convertibles market Thursday. Its $150.75 million issue of series A mandatory convertible preferred shares priced a day ahead of schedule and was released to the secondary market early in the session, traders said.

The issue priced at the rich end of talk for both the dividend and the initial conversion premium, at 6% and 27%, respectively. Talk was for a dividend of 6% to 6.5% and for an initial conversion premium of 23% to 27%.

"Platinum opened up with the stock and was active," a New York-based sellside trader said.

Elsewhere in the market Calpine Corp. convertibles continued to trade actively, and they were mixed, with better bids for the 4.75% bonds, but lower for the 6% bonds, traders said.

The convertibles of Invitrogen Corp. were also active, trading in line with their underlying shares, which closed 2.4% higher on the day, after the Carlsbad, Calif.-based biotechnology company announced a favorable decision in its patent infringement lawsuit against Clontech Laboratories, involving technology that helps improve the yield and quality of DNA used in research.

Also trading were a few convertible retail names on volatility inspired by same-store sales numbers. Several issues were better bid, but TJX Cos. Inc. was weaker by about 0.25 point on a dollar neutral basis, according to one trader.

Overall convertibles trading was light however as dealers and hedge funds seemed to pause as they look to year-end and what their final positions will be.

"We're in that bracketed holiday period between Thanksgiving and Christmas and people are beginning to position," a New York-based sellside trader said.

Only so-called "special situations" seemed to inspire activity. In the last few sessions there has been less activity in autos, health care and biotech, traders said. But the situation with Calpine spurred trades.

Even as the secondary market quieted, however, the primary market looked like it was building steam, sources said.

Two new deals were launched on Thursday with pricing seen in the next two weeks, and a new deal from Frontier Airlines Inc. was on deck to price late Thursday for trade on Friday.

XL Capital to offer new mandatories

If Platinum Underwriters' new convertibles which had their debut on Thursday were any indication of the potential reception for a deal from a Bermuda-based insurance company, then XL Capital Ltd.'s newly launched mandatory convertibles deal should fare well.

Like Platinum, XL Capital is an offshore insurance concern based in Hamilton, Bermuda. It plans to price $650 million of mandatory convertibles on Dec. 7, after the markets close, according to a syndicate source.

Goldman Sachs & Co. and Citigroup are joint bookrunners.

The $25 equity units were talked to yield 7% to 7.50% for the dividend, and 20% to 24% for the initial conversion premium. There is also a greenshoe of $97.5 million.

The mandatories will be priced concurrently with $2.15 billion in ordinary shares, but the offerings are not conditioned upon each other.

Not only does the new Platinum convertibles deal bode well for XL Capital, but the company's previous mandatory convertible is also a good indicator.

The company has existing 6.5% convertible mandatories that mature in May 2007. The units, a total of $825 million worth, were priced in 2004.

Proceeds of XL's new mandatory and share offerings will be used for general corporate purposes, including replenishment of subsidiary capital bases following third-quarter catastrophe losses, estimated losses relating to Hurricane Wilma and the recent adverse determination by the independent actuary in connection with XL's post-closing reserve seasoning process with Winterthur Swiss Insurance Co.

Ceradyne to bring a $100 million deal

Set to price six days later, Ceradyne Inc. launched a $100 million sale of 30-year convertibles to price on Dec. 13, according to a syndicate source.

The senior subordinated bonds were talked to yield 2.875% to 3.375% and 30% to 35% for the initial conversion premium, the source said.

Though an unfamiliar credit to one buysider, he eyed the deal enthusiastically and said it looks potentially interesting.

A substantial portion of the Costa Mesa, Calif.-based company's revenue comes from the sale of defense-related products, including primarily ceramic body armor, in U.S. government contracts.

In its filing with the Securities and Exchange Commission, Ceradyne said that a risk to its business is if demand for ceramic body armor goes down due to reduced federal budget appropriations or if it fails to obtain new government contracts.

The Ceradyne convertibles will be non-callable for five years, with puts in years seven, 10, 15, 20 and 25. There is a greenshoe of $10 million.

Concurrent with the convertible offering, the company plans to sell 1.8 million shares of common stock, with a greenshoe of 270,000 additional shares.

Citigroup Corporate and Investment Banking is bookrunner, with Wachovia Securities and Needham & Co., LLC acting as co-lead managers.

The company plans to use a portion of the proceeds from both offering to repay in full its credit facility, which was $110.9 million as of Sept. 30.

The rest of the proceeds will be used for working capital, capital expenditures and other general corporate purposes, including funding potential acquisitions of businesses, technologies or product lines.

Ceradyne develops and markets technical ceramic products for defense, industrial, automotive and commercial applications.

Platinum shines in trade debut

The new 6.5% mandatory convertibles of Platinum Underwriters moved up in active trade on Thursday, steady for most of the session and closing at 31.40 bid, 31.50 offered versus its share price of $30.50, according to a syndicate source.

There is an over-allotment option of up to an additional $22.5 million of shares.

Merrill Lynch & Co. was bookrunner for the mandatories and Goldman, Sachs & Co. was co-manager. The shares are expected to be listed on the New York Stock Exchange.

Concurrent with the mandatories, the company priced $219 million of common shares, of which the company offered 3.317 million shares, for proceeds of $96 million, and shareholder RenaissanceRe Holdings Ltd. offered 3.96 million shares.

The company is using proceeds from both offerings to make contributions to the capital and surplus of its reinsurance operating subsidiaries and for general corporate purposes.

Platinum Underwriters is a Hamilton, Bermuda-based reinsurance company.

Calpine convertibles still active

The convertibles of Calpine were mixed in active trade even as their underlying shares dropped another 22% to just $0.40 a share as the prospects for a bankruptcy filing from the troubled independent power producer looked more likely.

Calpine said itself on Thursday that bankruptcy is an option as it faces a cash crunch exacerbated by a court order to restore $313 million to bondholders that it already spent on natural gas supplies.

The San Jose, Calif.-based company asked the judge to allow it to pay just $199 million of the amount requested, plus 3.5% annual interest, and also requested the court to give it 90 days to make payments.

Calpine's 4.75% convertibles due 2023 traded at 25.75 on Thursday, slightly higher than on Wednesday. But its 6% convertibles due 2014 traded lower at 15.5.

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