ArvinMeritor starts strong; Conceptus bid higher on debut; Suntech higher in gray; REITs gain on M&A

By Kenneth Lim

Boston, Feb. 7 - ArvinMeritor Inc.'s new convertible jumped higher on its secondary market debut after pricing within talk, and sparked gains in an older series of notes.

Conceptus Inc. was bid slightly higher, but trading was limited with tight allocations as a result of the deal's small size.

Suntech Power Holdings Co. Ltd. gained in the gray market amid strong interest, with investors describing the deal as cheap but potentially hampered by borrow concerns.

Beyond the new deals, Boston Properties Inc. and Duke Realty Corp. saw better buy interest, sparked by merger and acquisition speculation in the real estate investment trust sector following the successful buyout of Equity Office Properties Trust.

Meanwhile, Calpine Corp. rose across the board, getting a boost from the company's plans to reduce debt through the $120 million sale of a power plant. The company's 7.75% convertible due 2014 rose about 4 points outright to trade at 88 against a stock price of $1.40. Calpine's 4.75% convertible due 2023 rose about 2 points to 88 versus $1.42. Calpine stock (CPNLQ) rose 4.41% or $1.42 on Wednesday to close at $1.42.

"They're selling some of their assets to pay off their debt," a sellside convertible trader said. "I think it's something like $120 million. They've still got a lot of debt, but it's better than nothing."

ArvinMeritor gains on debut

ArvinMeritor's new 4% convertible senior unsecured note due 2027 rose about 2 points on Wednesday and sparked renewed interest in the older 4.625% convertible due 2026.

The new 4% convertible was quoted at 101.75 bid, 102.125 offered against a stock price of $19.24 on Wednesday. It was offered at par.

The 4.625% convertible gained about 1/8 point to 119.75 bid, 120.25 offered versus a stock price of $19.45. ArvinMeritor stock (NYSE: ARM) closed at $19.39, down by 0.26% or 5 cents.

"People seem to be happy with all the new issues," a sellside convertible strategist said.

ArvinMeritor's $175 million deal priced Tuesday after the market closed, with an initial conversion premium of 37.5%. It was talked at a coupon of 3.875% to 4.375% and an initial conversion premium of 35% to 40%.

JP Morgan was the bookrunner of the Rule 144A offering.

ArvinMeritor, a Troy, Mich.-based auto components maker, said it expects to use the proceeds of the deal to fully repay its $169.5 million term loan due 2012. If it decides not to repay that loan, it will use the proceeds for general purposes, including retiring other debt or funding certain pension or other long-term liabilities.

The convertible strategist said the older series appeared to be more attractive than the new notes.

"The new ones are trading on a tighter spread, and the old ones are shorter," the strategist said. "That's where the value is relatively in the capital structure...They're even tighter than where the old ones opened up, and I'd rather be shorter. I'm not really sure why people like the new ones so much. Maybe it's irrational exuberance toward the new deal."

A sellside trader agreed that the older notes appeared to be slightly more interesting, but said investors liked the volatility in the name and were willing to pay for it.

"You're talking about a vol around 40%, and guys have been willing to pay for good vol," the trader said.

Conceptus bid higher to start

Conceptus's new 2.25% convertible senior note due 2027 was bid about 1 point higher outright on Wednesday, but few significant trades were seen with tight allocations for the relatively small deal.

The convertible, which was offered at par, was bid at 100.875 against a stock price of $21.45 on Wednesday. Conceptus stock (Nasdaq: CPTS) gained 3.08% or 66 cents on an afternoon rally to close at $22.11.

The $75 million deal priced Tuesday after the market closed, with an initial conversion premium of 30%. It was talked at a coupon of 2.25% to 2.75% and an initial conversion premium of 25% to 30%.

There is an over-allotment option for a further $11.25 million.

UBS Investment Bank was the bookrunner of the registered off-the-shelf offering.

Conceptus, a Mountain View, Calif.-based maker of birth control devices, said it will use the proceeds of the deal for general purposes and to fund convertible note hedge and warrant transactions.

"It looked like it would do well, but I haven't really seen any of it trading," a sellside convertible trader said. "I think not many people got a lot of it because it wasn't a very big deal, and they priced it on the rich end, which kind of took away some of the attractiveness."

Suntech sees strong demand

Suntech's planned $300 million offering of five-year convertible senior unsecured notes was bid higher in the gray market on Wednesday, but investors said the deal appeared attractive, although the stock borrow could be an issue.

The convertible was bid at 101.5 in the gray market. The convertibles will be offered at par. The offering, which is expected to price Thursday after the market closes, was talked at a coupon of 0.25% to 0.75% and an initial conversion premium of 25% to 30%.

Suntech stock (NYSE: STP) closed at $37.51, down by 5.23% or $2.07 on Wednesday.

There is an over-allotment option for a further $60 million.

Goldman Sachs (Asia), UBS Investment Bank and ABN Amro Rothschild are the bookrunners of the Rule 144A offering.

Suntech, a Wuxi, China-based maker of solar cells whose American depository shares trade on the New York Stock Exchange, said it will use $100 million of the proceeds to expand its manufacturing lines, $50 million to buy raw materials, $100 million to repay a bridge loan used to pay for its acquisition of MSK Corp. and up to $50 million for other general purposes.

"We're hoping for allocation," a buysider said. "It sounds like it will be pretty well subscribed for. I'm guessing it's going to be priced on the rich end just because it's so well subscribed."

The buysider said the deal looked "fairly attractive."

"It's a small coupon, but the premium's fairly low as well," the buysider said. "People are generally using Treasuries plus 300 basis points to Treasuries plus 350 basis points for the spread and a volatility around the 40s...I think borrow might be an issue, but it's a decent deal overall."

REITs gain buy interest

Duke Realty and Boston Properties gained slightly outright on Wednesday, after the successful buyout of Equity Office put the spotlight on merger and acquisition possibilities in the real estate investment trust sector.

Duke's 3.75% convertible due 2011 was about ¼ point higher at 197 bid, 107.25 offered against a stock price of $48.20 on Wednesday. Duke stock (NYSE: DRE) closed at $48.21, up by 2.73% or $1.28.

Boston Properties' new 2.875% convertible due 2037 also gained about ¼ point, marked at 101.875 bid, 102.125 offered against a stock price of $130.75. Boston Properties stock (NYSE: BXP) gained 1.85% or $2.37 and finished at $130.75.

A sellsider said the interest in the REITs was sparked by recent merger and acquisition activity in the sector. The latest was private equity firm Blackstone Group's successful buyout of Equity Office for $23 billion, a deal approved by Equity Office shareholders on Wednesday.

"There's a lot of interest in REITs," the sellsider said. "Maybe it's just all the things going on with M&A in the space and people wanting to position themselves better. We're seeing better buyers across the board."

© 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.