Alexandria gains with stock on debut; JetBlue, AMR, Continental gain with sector; Goodyear in spotlight

By Kenneth Lim

Boston, Jan. 11 - The first new convertible of the year opened up on Thursday, as Alexandria Real Estate Equities Inc.'s stock rally gave its offering an early boost.

Meanwhile, airlines JetBlue Airways Corp., AMR Corp. and Continental Airlines Inc. got a lift from soft oil prices and an optimistic report by Lehman Brothers.

The convertible bond market in general had a busy session, fueled by an active equity market that climbed to a record close.

The Dow Jones Industrial Average rose 72.82 points, or 0.59%, to 12,514.98 on Thursday on the back of lower oil prices and fewer jobless claims.

"It's been a really busy day," a sellsider said.

Goodyear Tire & Rubber Co.'s 4% convertible due 2034 has seen better interest the past week after a three-month strike ended and sent the stock climbing.

The Goodyear convertible did not trade on Thursday, but was marked at 209.75 bid, 210.25 offered against a stock price of $24.50.

"Here's a company that escaped a near-death experience, and now they have newly created wealth [in the stock]," a sellside convertible bond trader said. "Goodyear has been moving straight up the past couple of months. The discussion on Goodyear Tire is people think they will use the newly created wealth in the stock to maybe flush the bonds, to buy some of the debt back."

Akron, Ohio-based Goodyear, a maker of rubber tires, has been trying to turn around since it faced the threat of bankruptcy in 2003. The company turned a profit in 2006, and a week ago reached an agreement with its union to end the strike. The new agreement with the union could save the company $610 million over three years, the company said.

Moody's Investors Service on Wednesday improved its outlook for Goodyear's credit rating to stable from negative. Goodyear's senior debt is currently rated B3 by the ratings agency.

Alexandria starts with gain

Alexandria's new 3.7% convertible due 2027 rose at least a point outright on Thursday, getting a boost from its stock after its upsized deal was reoffered below par and priced within talk.

The convertible was active mostly in the morning, trading at 100.65 against a stock price of $99.90 early Thursday. The note was reoffered at 99.5. Alexandria stock (NYSE: ARE) closed at $99.95, up by 1.68% or $1.65.

"We saw some markets early in the day, but it's not trading that much," a sellside convertible trader said. "It's just one more REIT."

The $400 million offering of convertible senior unsecured notes was talked at a coupon of 3.5% to 3.75% and an initial conversion premium of 20%. The initial conversion premium was set at 20%.

The size of the deal was initially $350 million, with an over-allotment option for a further $52.5 million. The greenshoe was increased to $60 million.

UBS Investment Bank, Citigroup and Merrill Lynch were the bookrunners of the Rule 144A deal.

Alexandria is a Pasadena, Calif.-based real estate investment trust that focuses on offices and laboratories that are leased to research entities and government agencies. It will use the proceeds of the offering to reduce the outstanding balance on an unsecured credit line, which will free up the credit line for working capital and other corporate purposes that includes acquisitions and property development.

A buyside convertible bond analyst said the deal modeled about a point cheap where it priced.

"I think it's OK," the analyst said. "I think it's definitely more interesting, at least interesting enough to take a closer look, after they reoffered it. It's a decent company, and they've got a little bit of a niche with their focus on research space."

But the analyst said the deal was arriving just after a wave of REIT-issued convertibles hit the market in 2006, which may have affected demand for the paper.

"Guys who wanted exposure to REITs probably found what they wanted last year," the analyst said. "This deal is decent, but there's nothing here that makes you want to run out and get it."

Airlines fly with stocks

Airlines JetBlue, AMR and Continental gained altitude on Thursday, pulled higher as lower fuel prices and an upbeat report by Lehman brothers rallied their stocks.

JetBlue's 3.5% convertible due 2033 rose by a point to change hands at 97.25 versus a stock price of $15.875. JetBlue stock (Nasdaq: JBLU) gained 1.39% or 22 cents to close at $16.09.

Meanwhile, American Airlines parent AMR's 4.5% convertible due 2024 jumped about 18 points outright from week-ago levels, to 182.75 against a stock price of $38. Shares of AMR (NYSE: AMR) climbed 5.39% or $1.94 on Thursday and ended at $37.94.

Continental's 5% convertible due 2023 also surged 12 points outright, to 254.5 against a stock price of $48.50 on Thursday. Continental stock (NYSE: CAL) finished the day at $49.36, a 4.03% or $1.91 improvement.

Forest Hills, N.Y.-based JetBlue, Fort Worth, Texas-based AMR and Houston-based Continental are air carriers.

"The airlines were all higher today," a buyside convertible bond trader said. "Airlines have been pretty strong the past couple of months. Oil prices are falling, and there's a lot of speculation about mergers in the industry. They're raising prices, and if oil prices don't climb again like last year, it'll probably be a better year for the airlines."

The price of oil, a major cost for airlines, slid $1.85 per barrel to $52.17 on Thursday. Lehman Brothers equity analyst Gary Chase cited the falling price of fuel and the benefits of consolidation in a research note, and raised his 2007 earnings estimates for several airlines.

Chase now has a target price of $18.50 for JetBlue's common stock, from his previous $18 target. He raised his stock target for AMR to $33.50 from $30, and for Continental to $28.50 from $26.

Meanwhile, talk of consolidation in the industry continues to rage. AirTran Holdings Inc. on Thursday raised its offer for rival Midwest Air Group Inc., to $345 million in stock and cash, equivalent to about $13.25 per Midwest share. The earlier offer was valued at $11.25 per Midwest share.

US Airways Group Inc. earlier in the week also raised its offer for Delta Air Lines Inc. to $10.3 billion, from $8 billion previously. Delta, which is trying to fend off US Airways' bid, has also been reported to have discussed possible mergers with Northwest Airlines and United Airlines.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.