Flotek, GMX Resources price deals cheap; Vertex coming next; Financials mixed on mortgage deal

By Evan Weinberger

New York, Feb. 12 - Citigroup Inc., Bank of America Inc., Washington Mutual Inc., Wells Fargo & Co. and Countrywide Financial Corp. ended the day mixed on a big day for news surrounding the mortgage and financial sectors.

Along with an offer to help out troubled bond insurers from a certain big name in the Midwest, the five big financial names in mortgage lending and JPMorgan Chase & Co. agreed to a 30-day halt on mortgage foreclosures.

Schering-Plough Corp. convertible preferreds had a strong day on earnings that pleased Wall Street.

It was a similar story for Nuance Communications Inc.'s convertible debentures.

Convertibles trading remained relatively light, traders reported.

In the new deal space, GMX Resources Inc. priced an upsized $105 million in 5% convertible senior notes due 2013 with a 30% initial conversion premium Monday after the market close. The deal came in cheap, and then traders reported not hearing of it again.

Flotek Industries Inc. priced its $100 million in convertible senior notes due 2028 a lot cheaper than talk. The deal came in with a 5.25% coupon and a 30% initial conversion premium. Talk had the deal with a 3.75% to 4.25% coupon and a 35% to 40% initial conversion premium.

They traded higher, boosted by a surge in Flotek stock.

And the market prepared for Vertex Pharmaceuticals Inc. to price $250 million in convertible senior notes due 2013 after the close Tuesday. Those convertibles are talked at a 4.75% to 5.25% coupon and a 27.5% to 32.5% initial conversion premium.

Stock markets opened the day with a bang on news that Warren Buffett offered to back the more stable municipal bonds already insured by MBIA Inc., Ambac Financial Group Inc. and Guaranty Financial Group Inc. Buffett said he wasn't interested in getting involved with the more exotic, mortgage-backed securities the bond insurers back.

The rally petered out at the end of the day, however.

After being up more than 200 points, the Dow Jones Industrial Average closed the day with a gain of 133.40 points, or 1.09%, for a 12,373.41 close.

The Nasdaq closed the day essentially unchanged at 2,320.04, only slipping 0.02 point. The tech-heavy index had been up significantly earlier in the day, however.

The Standard & Poor's 500 picked up 9.73 points, or 0.73%, to close at 1,348.86.

Financials mixed on newsy day

Along with Warren Buffett's move on the bond insurers - at least one of the bond insurers declined his offer - the top six mortgage lenders in the United States agreed to a federal plan called Project Lifeline.

Under the plan, six large financial institutions have 90 days to contact homeowners that are 90 days delinquent on their mortgages to offer a 30-day reprieve from foreclosure. In return, the homeowners will have to work with the financial institutions to refinance their homes.

Of the six financial institutions that agreed to the plan, five have outstanding convertible bonds, debentures or preferred stock outstanding. They moved in different directions.

New York-based Citigroup's 6.5% perpetual non-cumulative convertible preferred stock closed Tuesday at 52.75 versus a closing stock price of $26.21. They closed Monday at 52.45 versus a closing stock price of $25.81.

Citigroup (NYSE: C) moved up 40 cents, or 1.55%.

Charlotte, N.C.-based Bank of America's series L 7.25% non-cumulative perpetual convertible preferred stock closed Tuesday at 1,097.8 versus a closing stock price of $42.82. They closed Monday at 1,089.14 versus a closing stock price of $42.14.

Bank of America (NYSE: BAC) gained 68 cents, or 1.61%.

Seattle-based savings and loan Washington Mutual's 7.75% series R non-cumulative perpetual convertible preferred stock closed Tuesday at 1,030 versus a closing stock price of $16.62. They closed Monday at 1,040 versus a closing stock price of $16.80.

Washington Mutual (NYSE: WM) stock slipped 18 cents, or 1.07%.

San Francisco-based Wells Fargo's Libor minus 25 basis point convertible senior floating-rate notes due May 1, 2033 closed Tuesday at 99.6704 versus a stock price of $29.92 after closing Tuesday at 99.716 versus a closing stock price of $29.54.

Wells Fargo (NYSE: WFC) added 38 cents, or 1.29%.

And Calabasas, Calif.-based Countrywide's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Tuesday at 87.8442 versus a closing stock price of $6.90. They closed Monday at 88.3514 versus a stock price of $6.65.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 14, 2037 closed Tuesday at 85.3253 versus a closing stock price of $6.90 after finishing Monday at 85.3311 versus a closing stock price of $6.65.

Countrywide (NYSE: CFC) gained 25 cents, or 3.76%.

Flotek moves beyond talk

Flotek priced its $100 million in convertible senior notes due Feb. 15, 2028 far beyond talk Tuesday before the market open.

The deal came with a 5.25% coupon and a 30% initial conversion premium. Talk was set at a 3.75% to 4.25% coupon and a 35% to 40% initial conversion premium when the convertibles were launched.

There is a $15 million over-allotment option on the Securities and Exchange Commission-registered transaction.

Settlement is expected on Thursday.

The conversion price is set at $22.75 and the conversion ratio at 43.9560.

The Houston-based oil and gas driller can call the convertibles beginning Feb. 15, 2013. They are putable on Feb. 15 in each of 2013, 2018 and 2023.

There is a contingent interest payment subject to a 120% hurdle beginning Feb. 15, 2013.

At the same time, Flotek loaned 3.8 million shares of common stock, which will be lent to an affiliate of Bear Stearns to facilitate hedged transactions.

Flotek plans to use the proceeds to purchase wireless survey and measurement tools maker Teledrift Inc. and for other general corporate purposes.

The convertibles came in cheaper than expected, and they ended up moving higher. One trader reported seeing the Flotek convertibles trading as high as 108, before the close. The pricing helped. "Stock running up there doesn't hurt," the trader said.

They didn't close quite that high, however, finishing the day at around 103.5 versus a closing stock price of $19.94.

Flotek (NYSE: FTK) jumped $2.23, or 12.59%, on the day.

GMX upsizes, comes cheap

GMX Resources priced its upsized $105 million in convertible senior notes due 2013 with a 5% coupon and a 30% initial conversion premium Monday after the market close.

The coupon came in at the cheap end of talk, which was 4.5% to 5%, and far below the cheap end of initial conversion premium talk, which was 37.5% to 42.5%.

The Rule 144A transaction has an upsized $20 million over-allotment option. The greenshoe was originally announced at $15 million.

Jefferies & Co. is the bookrunner.

Settlement is expected on Friday.

The conversion price is $32.50, and the conversion ratio is 30.7692.

The Oklahoma City-based oil driller entered into a concurrent offering of 2.14 million shares of common stock priced at $25 per share, which will be lent to an affiliate of Jefferies. The stock was sold to facilitate hedged transactions.

The company plans to use the proceeds to repay debt under its bank credit facility.

The convertibles disappeared on their first day of trading. Several traders reported not hearing of them after the initial pricing. "I assume Jefferies kept that to themselves," one trader said.

GMX (Nasdaq: GMXR) was flat on the day, gaining 2 cents, or 0.08%, to close at $25.92.

Vertex bringing deal

Vertex Pharmaceuticals, a Cambridge, Mass.-based drug maker, was set to bring $250 million in convertible senior notes Tuesday after the market close.

The deal is talked at a 4.75% to 5.25% coupon with a 27.5% to 32.5% initial conversion premium.

"Our health care analyst has always been a fan of the company," a buyside source said. "[We are] waiting to hear how the book is building and where it's likely to price before we dive in."

The buysider said that using a Libor plus 725 bps credit spread and a 45 vol, the deal modeled out to 100.5 if terms come in at the rich end, 102.25 at the mids and 103.875 at the cheap end of talk.

A second buyside source said he saw the Vertex deal trading between 101 and 102 in the gray market. "What else do we need to know?" the second buysider said.

A trader said he heard no buzz on the deal late in the day, something he's seen with most of the recent new deals.

The Vertex convertibles carry a $37.5 million over-allotment option on the SEC-registered transaction.

The convertibles have two years of call protection.

Vertex launched a concurrent offering of 6 million shares of common stock. There is a 900,000 share greenshoe on the common stock offering. The two offerings are separate and not contingent upon each other.

Vertex plans to use the proceeds for general corporate purposes, which include the marketing and development of its drug telaprevir.

Vertex (Nasdaq: VRTX) tumbled Tuesday after posting a wider-than-expected fourth-quarter loss Monday. The stock lost $1.07, or 5.88%, on the day to close at $17.14.

Schering-Plough up on earnings

Kenilworth, N.J.-based drug maker Schering-Plough did not disappoint investors expecting a good earnings report Tuesday.

Schering-Plough posted a $3.36 billion fourth-quarter loss. After accounting adjustments and taking into account Schering-Plough's acquisition of Dutch pharmaceutical company Organon in November, the company posted a profit of 27 cents per share for the quarter.

Wall Street, according to Thomson Financial and the Associated Press, expected profits at 24 cents per share.

Schering-Plough saw solid rises in both revenues and sales.

Schering-Plough's 6% mandatory convertible preferred stock due Aug. 10, 2013 closed Tuesday at 206.98 versus a closing stock price of $21.83. The preferreds closed Monday at 199.44 versus a closing stock price of $20.62.

Schering-Plough (NYSE: SGP) added $1.21, or 5.87%, on the day.

Nuance earnings raise convertibles

Burlington, Mass.-based speech and communications software maker Nuance posted a steep fiscal first-quarter loss Tuesday. Take out some big one-time charges, though, and the company's earnings beat Wall Street estimates.

The company lost $15.4 million, or 8 cents per share, in the last three months of 2007 after posting a loss of $1.2 million, or 1 cent per share, in the same period of 2006.

Much of that lost came from three acquisitions last year.

Taking those charges out, Nuance posted earnings of 18 cents per share for the quarter, beating Thomson Financial's estimates of 17 cents per share.

The coming year is looking strong, Nuance said.

The bulls came out for Nuance Tuesday.

The company's 2.75% senior convertible debentures due Aug. 15, 2027 closed Tuesday at 115.69 versus a closing stock price of $18.19. They closed Monday at 111.76 versus a closing stock price of $16.25.

Nuance (Nasdaq: NUAN) jumped $1.94, or 11.94%.

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