Lehman extends gains, National City drops; SVB, Alpha add on debut; Alaska Communications upsizes

By Rebecca Melvin

New York, April 2 - Activity in the convertibles market on Wednesday centered around big, liquid financial names, including Lehman Brothers Holding Inc.'s new 7.25% perpetual preferred shares, which extended gains, market players said.

The Lehman 7.25% perpetual convertible preferred shares, which were released for secondary trade on Tuesday, changed hands Wednesday at 1,122, according to one trader, before retracing some of their gains to close at 1,118 bid, 1,119 offered, a syndicate source said.

"The focus was on big, liquid financial names like Bank of America, Citigroup and Lehman," a New York-based sellside trader said, adding that people were "taking stock, and also looking at things that were cheap."

Not much traded besides Lehman and California-based SVB Financial Group's new 3.875% convertibles, a West Coast-based trader said of the day.

The new SVB 3.875% paper, which was released for secondary trading on Wednesday, was indicated up at about 101 early, and then moved higher to about 102 later in the day, in tandem with a 2% rise in its underlying shares.

But regional financial player National City Corp. saw its 4% convertibles due 2011 swing down to the 80 mark, from about the mid to upper 80s level, as its underlying shares dropped almost 8%.

Another gainer was Alpha Natural Resources Inc., which priced the larger of the two new issues on Wednesday, and saw its new 2.375% convertibles jump to more than 103 during the day. The coal company priced $250 million of seven-year convertible senior notes at the rich end of talk for the coupon and the middle for the conversion premium.

Meanwhile in the primary market, Alaska Communications Systems Group Inc. which was expected to price up to $100 million of convertibles after the markets closed, actually priced an upsized $110 million, with a 5.75% coupon and an initial conversion premium of 10%.

The deal priced at the cheap end of talk, and was seen cheap, according to one sellside analyst said. But the relatively small size of the issue and the company diminished interest, sources said, and no gray market was seen in the name ahead of pricing.

Financial preferreds lead the day

Financial convertible paper was firmer, despite mixed results in their underlying shares, and as the bulk of the day's trading was done against the backdrop of testimony on Capital Hill by Federal Reserve chairman Ben Bernanke, who said the near-term economic outlook has weakened.

The Fed chairman said no growth is expected in the first half of 2008, and the U.S. economy could contract before potential strength in the second half.

Nevertheless, Bank of America Corp.'s 7.75% non-cumulative perpetual convertible preferred stock, series L closed slightly higher at 1,077, versus a stock price of $40.30 on Wednesday, compared to 1,073.04, versus a share price of $40.86 on Tuesday.

After trading up briefly in the morning, the Charlotte, N.C.-based bank's shares (NYSE: BAC) trended downward through much of the session, closing down 1.27%.

New York-based Citigroup Inc.'s 6.5% perpetual non-cumulative convertible preferred stock closed Wednesday at 49.99, versus a closing stock price of $24.02. They closed Tuesday at 50.05 versus a stock price of $23.84. But Citigroup shares (NYSE: C) gained 0.76%.

National City drops again

The 4% convertibles of National City dropped on Wednesday in heavy volume, continuing their zig-zag pattern of recent weeks in the convertibles market.

A heavy 150 million of bonds changed hands on Wednesday, according to a New York-based sellsider, after a Wall Street Journal report, supporting recent speculation, stated that National City is considering selling itself to rival KeyCorp.

The 4% convertibles dropped to 80, versus a closing share price of $9.22 Wednesday, compared to a trade at 86.75, versus a share price of $10.625 earlier in the day.

The 4% convertibles have routinely risen and fallen by increments of 5 points or more in recent weeks. Shares of the Cleveland-based regional bank (NYSE: NCC) fell almost 8%.

Although the transaction isn't certain, the newspaper reported; if it does occur it could also receive capital backing from private-equity firm Kohlberg Kravis Roberts & Co.

Alpha Natural, SVB gain on debut

The new 2.375% convertibles of Abingdon, Va.-based coal company Alpha Natural Resources received a warm market reception, with trades at 102 and 102.325 early, and quotes at 102.5 bid, 103.5 offered at the end of the day.

The seven-year convertible senior notes priced at the rich end of talk for the coupon, which was 2.375% to 2.875%, and at the midpoint of talk for the premium, which was 30% to 35%.

There was a concurrent offering of $150 million of common stock that priced at $41.25 a share.

UBS Investment Bank and Citigroup Global Markets Inc. were bookrunners of both offerings.

The convertibles are non-callable with no puts. There is a contingent conversion trigger at 130% of the stock price.

Also released for trade in the secondary Wednesday was Santa Clara, Calif.-based financial services company SVB's 3.875% notes, which priced at the cheap end of talk for the coupon, which was 3.375% to 3.875% and toward the cheap end of talk for the initial conversion premium, which was between 22.5% and 27.5%.

The Rule 144A deal was sold via bookrunner J.P. Morgan. The three-year notes are also non-callable with no puts.

SVB has entered into convertible note hedge transactions and warrant transactions that increase the effective conversion price of the notes from the company's perspective to over $64.43 per share, or a 50% premium.

Alaska comes near the cheaps

Alaska Communications Systems' 5.75% convertibles came toward the cheap end of talk for the coupon which was 5.35% to 5.85% and at the cheap end for the initial conversion premium which was 10% to 15%.

Oppenheimer and Banc of America Securities are joint bookrunners of the Rule144A deal.

The Anchorage-based communications company plans to use proceeds to complete financing of its Akorn fiber construction project and other capital expenditures.

The company also plans to enter into convertible note hedge transactions and warrant transactions with certain counterparties.

Using a credit spread of 700 basis points over Treasuries and a volatility of 28%, the deal looked 3.6% cheap at the midpoints of talk, according to a sellside analyst.

Meanwhile, Globalstar Inc., a Milpitas, Calif.-based provider of satellite voice and data services, was expected to price $135 million of 20-year convertibles next Wednesday, April 9, according to a syndicate source, not April 2 as Prospect News erroneously reported on Tuesday.

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