Convertibles mostly lower, but new issues move up; Ambac preferreds to price

By Rebecca Melvin

New York, March 5 - The convertible bond market was mostly lower again Wednesday, extending its state of malaise, despite better equities, a bounce in credits, and three new issues released for secondary market trading, market participants said.

Two of the new issues jumped higher at the open, including the 5% convertibles of Bill Barrett Corp. and the 3.5% convertibles of Central European Media Enterprises Ltd.

A third deal - an overnighter from Regal Entertainment Group - for 6.25% convertibles was seen holding steady at around par or a little better, although the issue was little traded, sources said.

"The tone was actually a little better," one New York-based convertibles trader said of the market Wednesday. "Equities were doing their part, credit bounced back, and some energy-services names were holding their own, dollar neutral."

But other players took no comfort from the session: "I just want to go home," another sellside trader said at the end of the day, characterizing the session as "sloppy."

News that troubled bond insurer Ambac Financial Group Inc. plans to price $500 million of mandatory convertible equity units after the close on Thursday was met with dubious optimism.

"They're modeling attractively relative to the stock," a New York-based buysider said, adding that investors needed to have a "bullish" view on Ambac to get involved in what was undeniably attractive pricing on the mandatory preferreds.

The Ambac mandatories were talked at 8% to 8.5% on the dividend, with an initial conversion premium of 18% to 22%.

Meanwhile, convertible bellwether EMC Corp. saw its convertible issues come in about ¼ to ½ point, one sellsider said.

PDL BioPharma Inc.'s convertibles dropped about 15 points as its common stock skidded 32% after the Redwood City, Calif.-based biotech company said it was no longer being sold.

Mylan Inc.'s 1.25% senior notes due 2012 closed at 85.2, versus a share price of $10.81, compared to a close of 86.1, versus a share price of $11.18 on Tuesday. On Monday, the 1.25s closed at 87.42.

Ambac mandatories

A buysider, who said he ignored most of the new convertibles offered in recent days due to volatile overall markets, said Ambac could potentially be interesting if one's outlook is optimistic for recovery.

There is a 3% indicated yield on the common stock, he said, so the mandatories offer a great advantage in promising to yield between 8% and 8.5%.

From the company's perspective, mandatory preferreds are good capital. The convertible portion of Ambac's fund raising is essentially a forward sale of equity. To please the rating agencies, the regulators and the clients, it is better than a bond, the buysider said. But for investors, bonds are better than mandatories as they provide better downside protection.

Ambac plans to price $500 million of 3.2 year mandatory convertible equity units, which will be sold at $50 per unit.

Concurrent with the mandatory preferreds, Ambac plans to offer at least $1 billion of common stock. Both offerings are being sold off the company's shelf registration.

Most of the net proceeds from the offerings will be contributed to the capital position of insurance company subsidiary Ambac Assurance Corp.

About $100 million of the proceeds will be retained by Ambac to provide incremental holding company liquidity to pay principal and interest on indebtedness, to pay operating expenses, and to pay dividends on capital stock.

Credit Suisse Securities, Citigroup Global Markets, UBS Securities and Banc of America Securities are joint bookrunners of the equity units offering.

New York-based Ambac is a bond insurer. Its shares (NYSE: ABK) plunged more than 20% to about $8.42 on Wednesday.

Bill Barrett, CETV gain in thin trade

The new Bill Barrett 5% convertibles didn't trade a lot, sources agreed. But the convertibles were bid at about 103.5 versus a share price of $44.22 when they were last seen.

By noon, the Central European Media's 3.5% convertibles had gained about 2.5 points to 102.5 bid, 103 offered, versus a share price of $84.

"At least they priced attractively; time will tell if they will hold at these levels," a sellsider said.

Central European priced at the cheap end of talk, which was for a yield of 3% to 3.5%, with an initial conversion premium of 25% to 30%.

The Bill Barrett notes priced at the midpoint of talk for the coupon, and at the cheap end for the initial conversion premium, which was talked at 50% to 55%.

Bill Barrett, a Denver-based oil and natural gas exploration and development company, priced an upsized $150 million of 20-year convertibles. Initially the deal was for $130 million.

Deutsche Bank Securities Inc., Banc of America Securities LLC and J.P. Morgan Securities Inc. were joint book-running managers, and the deal was sold off a shelf registration.

Proceeds will be used to reduce outstanding indebtedness under its revolving credit facility.

Bill Barrett shares (NYSE: BBG) closed higher by $2.14, or 5%, to $46.36.

Central European Media priced $425 million of five year convertibles. The Rule 144A deal also has an overallotment option of up to $50 million.

Lehman Brothers, JP Morgan and Deutsche Bank were joint lead bookrunners.

Proceeds are expected to be used to purchase additional ownership interests in CME's operations in Ukraine and for general corporate purposes.

Hamilton, Bermuda-based Central European Media invests in and operates national and commercial television channels and stations in central and Eastern Europe. Its shares (Nasdaq: CETV) closed up 80 cents, or almost 1%, at $84.80.

But new issues just aren't propping up the convertibles market because pricing isn't holding up.

"I'm not too excited in this volatile market. Almost all of the new issues, year to date, are available at less than the issue price," a buysider said.

A sellsider concurred saying, they "don't necessarily value up."

Regal stand at par

The 6.25% Regal Entertainment convertibles were seen at about par while its underlying shares closed up about 2%, sources said. But they weren't seen in trade.

The Knoxville, Tenn.-based movie theater operator was a true overnighter that got into the hands of people who held them, according to one buysider.

Regal priced $190 million of three-year bullet convertibles at the cheap end of talk, which was for a coupon of 5.75% to 6.25%, with an initial conversion premium of 18% to 22%.

Credit Suisse was bookrunner for the Rule 144A deal, and Lehman Brothers was co-manager.

Proceeds will be used for general corporate purposes, which Regal expects will include the repurchase of all or a portion of its outstanding 3.75% convertible senior notes due 2008 or the repayment of the principal amount of those notes at maturity.

Regal shares (NYSE: RGC) closed up 41 cents at $19.93.

Canadian Royalties not seen

The new Canadian Royalties Inc. 7% convertibles were offered under Rule 144A in the United States, but no trades were reported in the U.S. convertible market.

The Montreal-based mining concern priced C$125 million of seven-year convertible debentures to yield 7%, with an initial conversion premium of 20%.

The senior unsecured debentures were underwritten by BMO Capital Markets, with co-managers Raymond James Ltd. and Desjardins Securities Inc.

The debentures are non-callable for three years and provisionally callable at par from 2011 to 2013, subject to a 125% hurdle.

Proceeds are expected to be used to develop the Nunavik Nickel Project in northern Quebec, and for general corporate and administrative purposes.

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