AAR prices upsized deal cheap, trades lower; Disney, JDS Uniphase up on earnings; Micron down on sales worries

By Evan Weinberger

New York, Feb. 6 - AAR Corp. priced an upsized $225 million in convertible senior notes in two tranches Tuesday after the market close.

The first tranche of $125 million due 2014 carries a 1.625% coupon and a 27.5% initial conversion premium. The second tranche of notes due 2016 carries a 2.25% coupon and a 27.5% initial conversion premium.

By all accounts, the deal hit the tape, traded a bit early in the day and then disappeared.

AAR's existing convertible traded lower on the day as well.

Three small deals were set at the starting block Wednesday evening. Chiquita Brands International Inc., GMX Resources Inc. and RadiSys Corp. were all set to price deals topping out at Chiquita's $150 million after the close.

Qimonda AG is bringing a new deal Thursday night. A European-based analyst called the deal "attractively valued, especially at the best end," according to a research note.

Trading activity picked up from the doldrums Wednesday, although there were few big moves. "It was more active than Monday, that's for sure," a sellside analyst said.

Walt Disney Co. and JDS Uniphase Corp. convertibles moved higher on strong earnings and guidance.

Micron Technology Inc. convertibles slipped on fears that computer companies have overstocked their inventories of memory chips, which could hurt sales.

Stocks started strong early, but the rally fizzled after a Federal Reserve governor said the central bank shouldn't forget about the other part of its mission - minimizing inflation. That gave a signal that future rate cuts could be in peril.

After moving up more than 100 points early in the day, the Dow Jones Industrial Average finished Wednesday at 12,200.10, a drop of 65.03 points, or 0.53%.

The Nasdaq lost 30.82 points, or 1.33%, for a 2,278.75 close.

The Standard & Poor's 500 fell 10.19 points, or 0.76%, to 1,326.45.

AAR hits tape, disappears

AAR, the Wood Dale, Ill.-based defense and aerospace contractor, upsized its offering of convertible senior notes Tuesday when the deal priced.

The deal was originally announced at $175 million, divided evenly between two $87.5 million tranches.

When it came to market, the 2014 tranche was $125 million and the 2016 tranche was $100 million.

The greenshoe remained $25 million on the Rule 144A transaction.

The deal also came in cheap. Both tranches carry 27.5% initial conversion premiums. That had been talked at 27.5% to 32.5%. The coupon on the 2014 tranche is 1.625% - talk was set at 1.25% to 1.75% - and the 2016 tranche has a 2.25% coupon. Talk on the eight-year tranche was 1.75% to 2.25%. The settlement date is expected to be Feb. 11.

The conversion price on both tranches is set at $35.57, and the conversion ratio for both tranches is set at 28.1116, although a series of hedge transactions could alter both.

Settlement is expected on Feb. 11.

Several sources said there wasn't much activity on the deal. One trader said he saw no trades. An analyst said his desk didn't trade any. And a second trader said he didn't see any trades after 11 a.m. "They're trading a little under par to a little less than a point over," the second trader said.

That's where they closed, as well.

AAR's 1.625% convertible senior notes due 2014 closed Wednesday at 99.9 versus a closing stock price of $27.14.

AAR's 2.25% convertible senior notes due 2016 closed their first day on the market at 99.13 versus a stock price of $27.14.

AAR's 1.75% convertible senior notes due Feb. 1, 2026 closed the day lower. Those convertibles closed Wednesday at 113.565 versus a stock price of $27.14. They closed Tuesday at 116.324 versus a stock price of $27.90.

AAR stock (NYSE: AIR) fell 76 cents, or 2.72%, on the day.

Little buzz on Chiquita

Cincinnati-based fruit and vegetable distributor Chiquita was set to bring $150 million in convertible senior notes due 2016 Wednesday after the close. The deal is talked at a 4.5% to 5% coupon and a 25% to 30% initial conversion premium.

Credit issues were the prevailing theme on the Chiquita convertibles, and traders and analysts reported little attention to the deal. A trader reported hearing that the deal was coming right at the mids, with a 4.75% coupon and 27% initial conversion premium.

That might not be enough. "There are a lot of flipper types asking us if we've seen any quote. There is no quote," a second trader said late in the day. "The fact that all these guys are asking is not a positive."

Chiquita announced the coming convertibles issue in late January as part of a refinancing plan. The deal parameters were announced Monday.

Chiquita stock (NYSE: CQB) fell 49 cents, or 2.81%, to $16.94 on Wednesday.

What a difference a month makes

Two other new deals were set to hit price Wednesday after the close.

Oklahoma City-based oil driller GMX Resources was talking its $100 million in convertible senior notes due 2013 at a 4.5% to 5% coupon and a 37.5% to 42.5% initial conversion premium.

Hillsboro, Ore.-based computer system designer RadiSys was set to bring $50 million in convertible senior notes due 2013. That deal was talked at a 2.75% to 3.25% coupon and a 23% to 27% initial conversion premium.

An analyst pointed out the vast change from January, when Bank of America Corp. and Citigroup Inc. were among financial services companies to bring mega-deals. "The guys coming now, they've sort of been the bread and butter of the convert market for a long time," the analyst said, companies that had nowhere else to turn other than the convertibles market or common stock offerings to raise capital.

A trader was less charitable. "There's really been a lot of yawners," the trader said. "You look at the deals that are coming; there are either small deals or really large deals. There's nothing in between."

The lack of mid-sized deals may be part of what is constricting trading, the trader said. Few people make moves on the small deal, and the big deals are priced so efficiently it's tough to make a play, he said. "The stuff in the middle is the most fun," he said.

Qimonda attractive at best terms

Munich, Germany-based chip maker Qimonda is bringing $250 million in convertible bonds due 2013 to market Thursday after the close. The deal is talked at a 5% to 6% coupon and a 30% to 35% initial conversion premium.

If the deal comes out at the cheap end, it looks good to a European-based analyst. "We believe Qimonda's new issue is attractively valued, especially at the best end of the indicated range for investors," the analyst said in a note to clients.

Using a 30% vol and a credit spread of 8% to 11.25%, the analyst said the deal has theoretical deltas ranging from 69% to 76%.

The coming offering blasted Qimonda stock (NYSE: QI) Wednesday. The stock lost $1.60, or 23.63%, to close at $5.17.

Parade for Disney

Record attendance at Disney World in Orlando, Fla., and popular television programs helped Burbank, Calif.-based Disney beat Wall Street estimates for its fiscal first quarter, the company announced Tuesday night.

That sent its stock and convertibles higher.

Disney posted a profit of $1.25 billion, or 63 cents per share, in the last three months of 2007. While that was a fall from the profit of $1.7 billion, or 79 cents per share, from the same period in 2006, it beat Wall Street's estimate of 52 cents per share.

Disney's first-quarter revenue was up 9% to $10.5 billion.

Disney executives also said they were optimistic about their profits for the coming year.

As a result, Disney's 2.125% convertible senior notes due 2023 closed Wednesday at 110.64 versus a closing stock price of $31.50. They closed Tuesday at 108.134 versus a stock price of $30.07.

Disney stock (NYSE: DIS) jumped $1.43, or 4.76%.

JDS Uniphase passes test

Milpitas, Calif.-based fiber-optic network components and communications test equipment producer JDS Uniphase surged past Wall Street estimates for the fiscal second quarter.

The company announced profits of $50.2 million, or 22 cents per share, for the last three months of 2007.

JDS Uniphase, much like Disney, beat the Street, but by a wider margin. According to the Associated Press, a poll of analysts by Thomson Financial expected the company's profits to come in at 12 cents per share.

JDS Uniphase's 1% convertible senior notes due 2026 closed Wednesday at 80.485 versus a closing stock price of $12.80. They closed Tuesday at 76.774 versus a stock price of $10.16.

JDS Uniphase stock (Nasdaq: JDSU) leaped $2.64, or 25.98%, on the day.

Micron down on sales warning

A Bear Stearns analyst said in a note to clients Wednesday that Boise, Idaho-based memory chip maker Micron Technology faced shrinking sales due to computer companies overstocking on the chips.

That sent Micron tumbling, although more in stock than in convertibles.

Micron's 1.875% convertible senior notes due 2014 closed Wednesday at 80.27 versus a closing stock price of $6.99. They closed Tuesday at 81.646 versus a stock price of $7.84.

Micron stock (NYSE: MU) fell 85 cents, or 10.84%, on Wednesday.

© 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.