Ventas flat on debut; AGCO higher in gray; MannKind quiet as stock borrow a concern

By Kenneth Lim

Boston, Nov. 28 - New deals provided most of the activity Tuesday as the convertible bond market otherwise had another sluggish session.

Ventas Inc. opened flat after its reoffered deal priced at the cheap end of talk, with most of the trades attributed to stabilizing transactions by the underwriters.

AGCO Corp.'s planned offering was bid slightly higher in the gray market, but the deal was also seen as only fairly priced at the midpoint of talk.

MannKind Corp.'s coming deal was quiet in the gray, but market sources said a poor stock borrow was likely to limit interest in the name.

Outside of the new deals, the convertible bond market was quiet as the year-end holiday season approaches.

"It's deathly quiet," a buyside convertible bond trader said. "There really wasn't anything going on all day. I'll be curious to see how the new deals do tomorrow."

A sellside convertible bond trader paused before commenting: "It's slow here. Not much of anything. Sorry it took me so long to respond, but I was yawning."

Ventas flat on debut

Ventas' new 3.875% convertible senior unsecured note due 2011 opened flat and saw little action on Tuesday after it priced at the cheap end of talk amid a lack of interest.

The convertible was 98.375 bid, 98.75 offered against a stock price of $37.56 early in the morning. The convertible was reoffered at 98.5. Ventas stock (NYSE: VTR) closed at $38.57, up by 2.69% or $1.01.

"The new Ventas...there wasn't too much activity in them," a buysider said. "Banc of America were the only ones trading them all day. They were the ones who brought them, doing the stabilization."

Ventas on Monday priced its $200 million offering at the cheap end of talk, with an initial conversion premium of 20%.

The convertibles were talked at a coupon of 3.375% to 3.875% and an initial conversion premium of 20% to 25%, and reoffered at 98.5.

There is an over-allotment option for a further $30 million.

JP Morgan and Banc of America were the bookrunners of the Rule 144A offering.

Ventas, a Louisville, Ky.-based healthcare real estate investment trust, said the proceeds of the deal will be used to repay a revolving loan and for general purposes.

A sellside convertible bond analyst said the deal looked like it had to come at the cheap end simply because of the glut of REIT paper.

"It's another REIT," the analyst said. "We've had so many REITs lately that I think people are getting sick of them."

The analyst said that even at the reoffered price, the deal was just reasonable.

"At 98.5 it seems like a fair price to me," the analyst said. "Even sitting around here I haven't heard too much about it. Nobody seems to be too excited about it."

AGCO up in the gray

AGCO's planned $175 million offering of 30-year convertible senior subordinated notes was bid slightly higher in the gray market on Tuesday, with the deal seen as just slightly attractive.

The deal was 100.25 bid, 101 offered in the gray market on Tuesday, ahead of pricing expected after the market closed. AGCO stock (NYSE: AG) fell 3.6% or $1.17 to close at $31.33.

"There was a little activity in the gray market for the AGCOs," a buyside convertible bond trader said.

AGCO's deal was talked at a coupon of 1.125% to 1.625% and an initial conversion premium of 27.5% to 32.5%. The convertibles were offered at par.

There is an over-allotment option for a further $26.25 million.

Morgan Stanley and Goldman Sachs are the bookrunners of the registered off-the-shelf offering.

AGCO, a Duluth, Ga.-based agricultural equipment maker, said the proceeds of the deal will be used to pay part of its outstanding Libor plus 175 basis points bank loans due June 2009.

A sellside convertible bond trader said the offering could be interesting if it came at the cheap end of talk.

"They're pretty aggressive for at the midpoint," the trader said. "The coupon isn't great, and it's a seven-year paper...if it came at the cheaps it might make sense, but otherwise it's pretty aggressive."

A sellside convertible bond analyst said the deal modeled "modestly cheap" at the midpoint of talk.

"It seems like it's an uninteresting agricultural equipment company, but it's an OK credit," the analyst said, adding that the premium appeared a little too high.

The offering appears more attractive to arb investors, the analyst said.

"It looks like it's more of a hedge offer," the analyst said.

MannKind seeing poor borrow

MannKind's planned $100 million offering of seven-year convertible senior notes could see limited interest with talk of a poor stock borrow.

The deal, which is expected to price Dec. 6, did not see any gray market bids or offers on Tuesday. MannKind stock (Nasdaq: MNKD) closed at $15.93, down by 7.38% or $1.27.

Mannkind's deal is talked at a coupon of 3.75% to 4.25% and an initial conversion premium of 22% to 28%. The convertibles will be offered at par.

There is an over-allotment option for a further $15 million.

Merrill Lynch and JP Morgan are the bookrunners of the registered off-the-shelf offering.

Mannkind, a drug developer whose lead diabetes treatment is currently in phase 3 clinical trials, earlier in November filed a registration statement to sell up to $500 million of securities. The proceeds of the offerings were earmarked for clinical trial costs, research and development and for general purposes. Mannkind also announced Monday that it has received approval to begin early-stage clinical trials for an experimental cancer treatment.

A buysider said the deal did not appear as attractive for hedge investors as AGCO's $175 million offering because of the tough borrow rebate.

While AGCO's offering was not exciting, "unlike the MannKinds, you can borrow the stock," the buysider said. "That's why MannKind, I think it's coming on swaps."

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