Alpharma improves in trading start; JetBlue gains amid flight cancellations; Michelin prices deal

By Kenneth Lim

Boston, March 16 - Alpharma Inc. climbed in its secondary market debut Friday amid strong interest after its deal priced at the rich end of talk.

JetBlue Airways Corp. inched up slightly as its stock volatility picked up after storms in the northeast United States prompted the carrier to cancel flights.

In France, Compagnie Generale des Etablissements Michelin priced €610 million of 10-year zero-coupon convertible senior unsecured Oceane bonds near the rich end of talk, although critics saw the deal as slightly expensive.

The rest of the convertible market was notably quiet as the U.S. college basketball playoffs provided an end-of-week distraction.

"It was dead," a convertible trader said. "I think most guys were thinking about basketball."

Alpharma starts strong

Alpharma's new 2.125% convertible senior note due 2027 gained by almost a point on Friday after it priced at the rich end of talk amid strong bids in the gray market.

The convertible traded at 100.875 against a stock price of $23.90. The convertible was offered at par. Alpharma stock (NYSE: ALO) closed at $23.65, down by 2.07% or 50 cents.

"I heard it was well oversubscribed, obviously because they upsized it," a sellside convertible trader said.

Alpharma priced its upsized $300 million offering on Thursday after the market closed at an initial conversion premium of 35%. The deal was talked at a coupon of 2.125% to 2.625% and an initial conversion premium of 30% to 35%. Bids in the gray market reached as high as 103 on Thursday.

The size of the deal was originally $200 million with an over-allotment option for a further $30 million. There is no longer any over-allotment option.

Banc of America was the bookrunner of the registered offering.

Alpharma, a Fort Lee, N.J.-based specialty pharmaceutical company, plans to use the proceeds of the deal to fund future business development transactions and general purposes.

"I like it," the trader said. "I thought it was a decent company, just not as much as what they were pricing in terms of credit assumption."

The trader said the deal probably deserved a credit spread around 300 basis points over Libor, wider than the 200 bps over Libor the underwriters were believed to have used.

"Just looking at the size of the company," the trader said. "But it did really well, so I guess the underwriters were right and I was wrong. That's what the market's thinking right now."

A sellside convertible bond analyst said the deal appeared fair where they priced.

"Just based on the kind of demand they were getting yesterday, I was expecting them to price at the rich end," the analyst said. "It was modeling out about 1.5% to 2% cheap at the mids, where they priced it's about fair, maybe slightly cheap."

"I think the coupon was high enough, the conversion premium was low enough, basically it was just priced right," the analyst said. "Obviously if they'd priced it nearer to the mids guys would have been a lot happier, but as it is I think they left enough on the table for everyone."

"A lot of the new deals this year have been pretty ugly in terms of pricing," the analyst said. "Although some of the newest ones have been sort of interesting, so hopefully we'll see more of these."

JetBlue gains on volatility

JetBlue's 3.75% convertible due 2035 eked out a slight gain outright even though the stock slipped on Friday after the airline canceled more than 200 flights because of snowstorms.

The JetBlue convertible traded at 101.875 against a stock price of $11.90. JetBlue stock (Nasdaq: JBLU) eased 1.76% or 21 cents to close at $11.69.

"They were a little better this morning," a sellsider said. "Guys think the drop in the stock today was overdone, but nothing's changed for the credit. The bonds are holding up well."

A winter storm that struck the northeastern United States on Friday prompted mass flight cancellations at airports in the region. Forest Hills, N.Y.-based JetBlue, which also experienced similar disruptions a month ago, canceled more than 200 flights.

"I think the market's reacting to all the flight cancellations that we've seen today, which is why the airline stocks are all down today," a convertible analyst said.

But the analyst said the sell-offs may have been a little too much.

"Flights get canceled all the time in the winter," the analyst said. "There's always a chance that you're going to get a snowstorm and some airlines won't be able to operate. But these are risks that already should have been factored into the prices.

"JetBlue looked like it may have been caught a little flatfooted the last time, but all of that is already old news," the analyst added. "I'd be surprised if the bonds fell significantly because of this."

Michelin deal seen as rich

Michelin priced its €610 million offering of 10-year zero-coupon convertible senior unsecured Oceane bonds on Friday near the rich end of talk, to yield 3.07% with an initial conversion premium of 40%.

"The issue has been a great success and oversubscribed many times by investors," the company said in a statement.

The Oceanes were talked at a yield of 10-year euro swaps minus 110 basis points to 10-year euro swaps minus 60 bps and an initial conversion premium of 35% to 40%. They were offered at par of €103.82.

There is an over-allotment option for a further €90 million.

BNP Paribas and Calyon were the bookrunners of the Regulation S offering.

Michelin, a Clermont-Ferrand-based tire maker, said the proceeds of the deal will be used for general purposes.

The deal is "the first sizable French new issue since the Artemis exchangeable into PPR launched in July 2006," wrote Barclays convertible analysts Heather Beattie, Haidje Rustau and Luke Olsen in a research note.

The analysts noted that the deal had traded up a point in the gray market ahead of pricing. Using a credit spread of 47 basis points over swaps, a 28% volatility, a 2.5% dividend yield and a 37.5% stock borrow, the deal modeled at 98.7 on the rich end and at 103 on the cheap end.

"Thus, we find the new issue slightly expensive on worst indicated terms and attractive on mids or better," the analysts wrote. "Given the paucity of sizable new convertibles in France, its relatively vanilla structure and the protection features (dividends and takeovers), we expect this new issue to be of particular interest to outright investors and to be well received."

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