Trico Marine drops on acquisition news; Financials mixed, Legg Mason firm, but AIG eases

By Rebecca Melvin

New York, May 16 - Trico Marine Services Inc.'s convertibles fell more than 6 points on Friday after the Houston-based oil-services marine support company said its DeepOcean ASA acquisition will include financing via a private placement of 6.5% convertibles, market players said.

"These will be in the money sooner at a lower stock price than the old ones, so they're much more attractive," a Connecticut-based sellside analyst said of the new Trico convertible issue.

American International Group Inc.'s 8.5% mandatory convertible preferred shares, which debuted May 13, weakened slightly Friday, amid general weakness in the financial sector. But the mandatory convertible units of Legg Mason Inc., which priced a week earlier, strengthened slightly.

Huntington Bancshares Inc. convertibles were higher, however; while the convertible bonds of National City Corp. held mostly steady despite a nearly 4% decline in its underlying shares

"Banking names are better," a Boston-based buyside trader said Friday.

While energy and financial names have dominated the convertibles scene of late, players are beginning to expand their repertoire and taking another look at the technology sector.

"It looks like everyone wants to buy tech, but there aren't that many interesting names in the space. That's the problem: you've got EMC and Symantec, but there aren't that many," a West Coast-based buysider said.

ON Semiconductor Corp., particularly the ON Semi 2.625% convertibles, is interesting, he said. The ON Semi 2.625% convertibles traded at 120.6, up 4 points on the day.

In the primary arena, Health Management Associates Inc.'s new 3.75% convertibles jumped 5 points on their secondary market debut. The hospital operator priced $225 million of 20-year convertible senior subordinated notes with an initial conversion premium of 60%.

Trico 3% convertibles pushed lower

The Trico 3% convertibles fell to about 93.5 versus a stock price of $33.01 on Friday, compared to 102 versus a stock price of $35.44 on Thursday.

The decline appeared to match the underlying shares' (Nasdaq: TRMA) $2.43, or 7%, slide, but convertibles players said the news that Trico is helping to fund its DeepOcean acquisition with privately placed convertibles at 6.5% with a 14% initial conversion premium represents more attractive terms than the old ones.

The Houston-based oilfield marine concern issued $150 million of 3% convertibles in February 2007.

"They really whacked their 3% holders," the Connecticut-based sellside trader said, adding that the company hurt its credit by taking on so much more debt versus EBITDA.

Trico has agreed to buy a majority stake in Norwegian subsea service company DeepOcean at a 28% premium to the closing price on the Oslo Stock Exchange. The value of the deal is $682 million excluding debt.

"The deal will essentially double the company," the analyst said.

A buysider said "the private placement completely screwed anybody that had a public position."

Financials mixed, banking names up

"Nobody can decide what inning we're in in this bubble. People keep wanting to rotate from energy to financials. If you're in both, you've covered a lot of the index as far as return," the buysider said of financial convertibles.

"It's hard to ignore all the preferreds with the big dividends. The carry is great. A name like AIG pays 8.5% and SBAC came at 1.875," the buysider said.

SBA Communications Corp. priced $500 million of five-year convertible senior notes to yield 1.875% on Monday.

The Legg Mason 7% mandatory convertible equity notes due June 2011 traded at 50.75 versus a share price of $56.50 on Friday, compared with a trade at 50.5 versus a share price of $56.10 on Wednesday.

Shares of the Baltimore-based asset management company (NYSE: LM) shed 33 cents, or 0.58%, to $56.61 on Friday.

AIG's 8.5% mandatory convertible equity units due 2011 traded at 78.75 versus a share price of $39.50 on Friday, compared to a close of 79 versus the same share price, $39.50, on Wednesday.

Shares of the New York-based insurance giant (NYSE: AIG) shed 23 cents, or 0.58%, at $39.34, on Friday.

But Huntington Bancshares 8.5% perpetual convertible preferreds closed at 983.53 versus a share price of $9.40 on Friday, compared to 975.975 versus the same share price on Thursday.

Shares of the Columbus, Ohio-based bank (Nasdaq: HBAN) closed unchanged at $9.40.

Meanwhile National City's 4% convertibles due 2011 closed little changed to slightly stronger at 86.25 versus a share price of $5.50. Shares of the Cleveland-based bank (NYSE: NCC) closed down 23 cents, or nearly 4%, at $5.58.

ON Semi adds

The ON Semi 2.625% convertibles are "reasonably balanced. They have six years of call protection and 55% investment value. The problem is everybody either wants it or wants to sell it," the West Coast buysider said.

The 2.625% paper closed at 120.53 versus a stock price of $10.39, compared to a close of 116.5 versus a share price of $10.00 on Thursday.

Shares of the Phoenix-based semiconductor company (Nasdaq: ONNN) closed up 39 cents, or 3.9%.

Health Management rises 5 points

The 3.75% convertibles of Health Management jumped 5 points at the open to trade at 105 and stayed there pretty much all day, a Boston-based buyside source said.

Health Management priced $225 million of 20-year convertible senior subordinated notes with an initial conversion premium of 60%.

The high premium meant that investors are rewarded with warrants worth 0.5 share if the price of the stock climbs above the conversion price.

"I bought a few," a buysider said. "It was a relatively small issue."

The notes priced beyond the rich end of talk for the coupon, which was 4% to 4.75%, and at the midpoint of talk for the premium, which was 57.5% to 62.5%.

The notes had traded up strongly in the gray, and that may have resulted in the repricing on the coupon, the buysider said.

The Rule 144A deal, sold via joint bookrunners Banc of America Securities LLC, J.P. Morgan Securities Inc. and Wachovia, includes a greenshoe of $25 million.

The notes will be non-callable for six years, with puts in years six, 10 and 15.

They have takeover and dividend protection, and because they are high-premium convertibles, there is an embedded warrant feature worth 0.5 share that is exercisable if the company's common stock exceeds the base conversion price.

Proceeds from the offering will be used to repurchase a portion of existing Health Management 1.5% convertible senior subordinated notes due 2023. These large, $550 million plus of notes priced in 2003 and are putable on Aug. 1.

Health Management is a Naples, Fla.-based hospital owner and operator with about 57 hospitals in non-urban U.S. communities.

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