CMS ponies up more yield; MedImmune repriced at 95; buzz emerges of Charter deal

By Ronda Fears

Nashville, July 10 - New issues remain the most active area of convertibles, but the attitudes were less than enthusiastic about the newest paper injected into the market by CMS Energy Corp., TXU Corp. and MedImmune Inc.

Meanwhile, around noon buzz began circulating that Charter Communications Inc. was prepping a $1 billion convert. Nothing solidified with regard to Charter revisiting the convert market, but the chatter pushed the existing converts up another 2-3 points.

JetBlue Airways Corp. had a firm deal that zoomed across convertible desks. It was launched after the close with the books closing at 5.15 p.m. ET.

"Actually, we're calling it [the JetBlue deal] a Happy Hour deal, but we haven't been offered cheap drinks," said a convertible fund manager in New York.

The discount airline, based at New York's John F. Kennedy International Airport, was pitching $115 million of 30-year convertibles talked to yield 3.25% to 3.75% yield with a 45% to 50% initial conversion premium. JetBlue shares closed Thursday down 78c, or 1.78%, to $42.80.

Deutsche Bank Securities analysts put the deal between 2.13% rich and 1.22% cheap, at the midpoint of price talk, using a credit spread of 550 basis points over Libor and a 35% stock volatility.

JetBlue was the only concrete new deal in the market after the close Thursday, but there was plenty of buzz during the afternoon about a jumbo deal from Charter Communications.

Charter's converts, which have been on a tear this week, shot up another 2-3 points as a result of the chatter. The 5.75s were the most active, gaining to 78 bid, 79.5 offered. Charter shares, however, dropped 23c, or 5.46%, to $3.98.

"It could be just a test balloon, the bankers putting out the possibility of a deal to see how it might fly," said one buyside trader.

"Certainly, the Charter converts have had a good week, anyway."

Meanwhile buyside sources said interest had to be drummed up on CMS's new convertible even though the terms were not considered rich.

CMS sweetened the terms of its deal again - they had already been improved from the levels at which the deal was first announced - boosting the yield by 25 bps. But it still lingered around par in the immediate aftermarket. Also quoted around par was TXU's new floater, which priced at the wide end of guidance.

MedImmune's overnighter priced at the cheap end of talk as well but it was reoffered by the underwriters at 95 - a new low for repriced bought deals. It was closed by one of the lead managers at 95.5 bid, 95.75 offered with the stock adding 14c, or 0.36%, to $38.99.

The next lowest below-par remarketing levels were 97.5, for both the Lattice Semiconductor Corp. and Credence Systems Corp. deals. The Credence 1.5% due 2008, sold in late May, has zoomed past par, ending Thursday up 0.375 point to 109.875 bid, 110.875 offered. Lattice's 0% due 2010, sold in mid-June, however, is still underwater, closing Thursday down 1 point to 97.25 bid, 97.75 offered.

Outside of activity in the new deals, which was described as "fairly active," traders said there was not a lot going on in converts.

"It was really sort of boring today," said a convertible trader at a shop in Connecticut.

"A lot of people got murdered in this market. Anything with a year of call protection or less is not safe; there is incredible refi concern. The premiums have evaporated; everything came in to within the cash flow range. The market is still very, very rich, though."

While distressed energy paper has been a hot item, amidst the reach for yield, CMS and TXU did not get an overly warm reception to their new convert deals.

CMS sold a revived $150 million offering of 20-year convertible notes and had already sweetened the yield range by 25 bps but ended up printing it with another 25 bps tacked on.

The deal sold at par to yield 3.375%. The notes were talked to yield 2.625% to 3.125%, versus original price talk the week of June 23 that put the coupon between 2.375% and 2.875%. On June 25, CMS put the deal off until it had filed, as planned, a restated 10-K for 2001 with the Securities and Exchange Commission.

The issue carries a 48% initial conversion premium, set at the cheapest end of price talk.

Even with the sweetening, the new CMS convert flagged in the immediate aftermarket. A buyside trader said it opened at 98.75 bid, 99.75 offered. It was closed at 100.125 bid, 100.375 offered by Citigroup, the bookrunner on the deal. CMS shares ended up 7c, or 0.97%, to $7.28.

TXU's floater languished, as well.

The Houston-based utility sold $475 million of 30-year floating rate convertibles at par to yield three-month Libor plus 150 bps and with a 65% initial conversion premium - at the cheap end of guidance.

A buyside trader said the new TXU opened at 99.5 bid, 99.75 offered, and that was where the underwriters closed it. The stock dropped 21c, or 1%, to $20.74.

TXU's mandatories, however, picked up some interest, at least the 8.75s, which shot up 1.625 points on the day to 33.25 bid, 33.5 offered. The 8.125s, though, slipped another 0.25 point to 32.875 bid, 33 offered.

MedImmune, though, apparently had the most trouble finding willing buyers. The biotech concern sold $500 million of 20-year convertible notes at par to yield 1.0% with a 75% initial conversion premium - at the cheap end of price talk. But underwriters Merrill Lynch and UBS Investment Bank reoffered it at 95, a new low for remarketed bought deals.

"It's ridiculous to think that anyone would be willing to buy a biotech issue with these terms, now or ever," said a convertible trader at a hedge fund in New York.

The new MedImmune convert was closed by one of the underwriters at 95.5 bid, 95.75 offered while the stock added 14c, or 0.36%, to $38.99.

Lehman Brothers put the new MedImmune convert 2.5% rich, at final terms, using a credit spread of 250 bps over Treasuries and a 40% stock volatility.

Deutsche Bank Securities put it 3.5% rich, at final terms, using a spread of 175 bps over Libor and a 32% volatility.

MedImmune's existing 5.25% convertible due 2008 was down 1.75 points to 104 bid, 105 offered. The $200 million issue, sold in February 2001, is callable in February 2004 at 103.

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