Millennium climbs to 107.375, other new paper sees no big price moves; Kulicke & Soffa emerges

By Ronda Fears

Nashville, Nov. 20 - Millennium Chemicals Inc. remained the sweetheart among convertible players Thursday. The healthy slate of deals that have hit the Street so far this month, more than a dozen so far, were all active in the session, traders said, but none showed the gain seen by Millennium's convertible - over 7 points from par - and several were slightly weaker.

"New paper is where all the action is right now from a trading perspective," said a dealer.

"The race is on for capital, right? No one knows really how long this is going to last; we hear the calendar for December doesn't amount to all that much, so every deal that comes people figure might be the last and they are chasing it like it is."

Indeed, Millennium and Yellow Corp. were both downgraded by at least one of the credit rating agencies on the day they brought their new deals, and the market paid no attention. Buyers instead were paying up for the new paper.

That said, Kulicke & Soffa Industries Inc.'s overnighter that was launched after Thursday's close was being reofferred by lead bank Deutsche Bank Securities at 98 to 99.5. Still, that will be the first convertible reoffered below par probably for a month or two.

Kulicke & Soffa launched $185 million of five-year convertible notes, non-callable for life, with price talk for a yield of 0.25% to 0.5% with a 27% to 32% initial conversion premium. The issue is expected to be rated Caa2/CCC+.

"The buyers for this have to like volatility and the longer call protection. Some arbs will take a chance," said a convertible manager in New York.

"Outright, it's a short maturity with at least some interest income, a hell of a lot less risky than the stock. Yet, it will capture a lot of the upside, and a lot of the downside."

"It's a good deal for the company," he added.

The Willow Grove, Pa.-based semiconductor equipment firm said proceeds would be used to redeem its 4.75% convertible notes due 2006. Remaining proceeds would go toward working capital and general corporate purposes.

Activity in the old Kulicke & Soffa converts had been mentioned by high yield convertible traders in recent sessions, with the securities moving higher, but traders had not mentioned any market speculation that the issue would be called.

Most of the positive force behind Kulicke & Soffa's 4.75% converts moving up was a nice earnings report earlier this week, traders said. The issue was pegged Thursday at 98.625, with the stock ending down 58c, or 3.49%, to $16.06.

On Monday, the firm reported that its fiscal fourth quarter ended Sept. 30 saw the net loss narrow to $28.4 million, or 57c a share, from $195 million, or $3.95 a share, a year before. Revenues grew 5.8% to $129.3 million and the company said its backlog, or unfilled orders, were up 23%.

A sellside source familiar with the new Kulicke & Soffa deal said the books were probably mostly filled with outright buyers, who would like the moderate premium - relative to what's come to market recently - so they would swallow the low coupon.

"It was a very competitive deal amongst the underwriters," the source said.

"Kulicke & Soffa has had two convertibles before, both by Morgan Stanley. They [the company] know the market and know how to approach the market."

They reduced interest expense tremendously - replacing the 4.75% notes with paper stamped somewhere between 0.25% and 0.5% - plus extended the maturity by two years.

Plus, the sellside source said buyers like the chip sector right now, noting that Kulicke & Soffa shares have had a great run this year. The stock, at $16.06 is close to the 52-week high of $17.20 and certainly near the high end of the 52-week range of $3.48 to $17.20.

"The deal is going to open up very well tomorrow," the source said.

Millennium opened very well.

The chemicals company sold the $125 million of 20-year convertible notes, with seven years of call protection, at par to yield 4.0% with a 42% initial conversion premium - at the aggressive end of revised price talk for 4.0% yield, up 40% to 42%. Original guidance was for 4.25% to 4.75%, up 35% to 40%.

It had been as high as 6 points over par in the gray market before the talk was amended Wednesday and still ended in the gray market at 4.4375 points over par on the bid side with an offer of 4.9375 points over.

And in the immediate aftermarket it climbed from there.

Joint bookrunner JPMorgan Securities closed the new Millennium convert Thursday at 107.375 bid, 107.625 offered. The underlying stock ended up 31c, or 3.23%, to $9.91.

General Cable Corp.'s small perpetual preferred - another rave in the convert market this week - faltered a bit on Thursday, but that enticed some buyers to make a bid.

The General Cable perpetual convertible, non-callable for five years, was printed with a 5.75% dividend, up 22% - at the aggressive end of the guidance range, which also had been tightened on the yield side. The manufacturer of copper, aluminum and fiber optic cable upsized the deal, though, to $90 million from $75 million.

Aggressive final terms irked a few potential buyers, but one said Thursday that if it cheapens up "a couple points, I'll revisit it."

Out of the gate, the new General Cable convert shot up 8.625 points from par, but on Thursday it slipped back slightly to 57.5 bid, 58 offered.

Yellow's new convert was up 3.3785 points from par, but was weaker from gray market levels.

The Kansas-based trucking firm's new 3.375%, up 50.7% convert, which priced aggressively, was closed by bookrunner Deutsche at 103.375 bid, 103.875 in its first day of trading Thursday.

Yellow's new convert was seen in the gray market at a bid for 3 points over par at Wednesday's closed and the bid was as high as 4 points over during Wednesday's session while the deal was being marketed.

Amerada Hess Corp. was another deal that the market response was so overwhelming that the size was boosted. The mandatory was bumped to $600 million from $500 million.

The New York-based oil firm sold the three-year mandatory convertibles at par of 50 to yield 7.0% with a 24% initial conversion premium - at the tight end of yield talk for 7.0% to 7.5% and aggressively outside premium guidance for 18% to 22%.

Bookrunner Goldman Sachs & Co. closed it right about even with where it was in the gray market before pricing, 50.5 bid, 50.75 offered. Amerada Hess shares closed Thursday down 93c, or 1.92%, to 47.62.

LandAmerica Financial Group Inc., a small cap property and casualty insurance firm based in Richmond, Va., also pitched another deal into the mix.

After the close Thursday, final terms put LandAmerica's $100 million of 30-year convertibles, non-callable for seven years, pricing at par to yield 3.125% with a 28.7% initial conversion premium - at the tighter end of yield talk for 3.0% to 3.5% but cheaply outside the premium range of 30% to 35%.

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