Providian's new paper soars to 104.5; Elan gains on deal for King sale; new deals continue to flow

By Ronda Fears

Nashville, May 21 - New deals continued to stream into the market, although late Wednesday market sources said there was trouble abrew with the American Financial Group Inc. deal.

Still, for the most part, market sources said the heavy new issue calendar looks solid and a steady stream of new deals is anticipated for a few more days.

Traders said new issues were treading water in the face of declining stocks. Providian Financial Corp. was the positive stand-out, though, shooting up 4.5 points - as several market sources had anticipated.

American Financial launched its deal early Wednesday, but buyside sources said it was knocked off course on news from the company in the afternoon that it will post an after-tax loss of $20 million to $30 million due to an arbitration decision in a property fire and business interruption claim.

Price talk on the $150 million proceeds of 30-year discount cash-to-zero convertibles put the yield at 3.5% to 4.0% and initial conversion premium at 47.5% to 52.5%. Deutsche Bank Securities put the deal 4.345% cheap at the midpoint, using a credit spread of 225 basis points over Libor and a 30% stock volatility, plus accounting for the 2.18% common dividend yield.

The Rule 144A deal, via lead manager Merrill Lynch, was set to price after the close Wednesday. Market sources widely thought the deal was pulled, but a sellside source close to the deal said it was not officially canceled, but might just be temporarily shelved by the news and the market's reaction to it.

Cincinnati-based American Financial said proceeds would be used to repay outstanding debt under its existing bank line of credit and to provide capital to support operations. The company also said it has not yet received a copy of the written arbitration decision but, based on preliminary information, it would result in an after-tax loss, net of recorded reserves, of $20 and $30 million, or 29-43c per share.

American Financial shares closed down 77c, or 3.35%, to $22.20.

In another surprise for most players, ChipPAC Inc. was in the market late Wednesday pitching $125 million of five-year convertible notes talked to yield 2.5% with a 45% initial conversion premium via sole lead manager Lehman Brothers.

Chippac shares closed up 25c, or 4.71%, to $5.56.

AmerUs Group Co.'s $100 million mandatory and Connetics Inc.'s $75 million deal also were at bat Wednesday.

Deals from Regal Entertainment Group and Wilson Greatbatch Technologies Inc. also might be advanced to price after the close Wednesday, according to market buzz.

Wilson is selling $125 million of 10-year convertibles talked to yield 2.0% to 2.5% with a 27.5% to 32.5% initial conversion premium.

At the middle of guidance with Wilson stock at $33.91, Merrill Lynch put the deal 0.35% cheap, using a credit spread of 750 bps over Treasuries and a 35% stock volatility. Deutsche put it 3.2% rich to 1.8% cheap, using a credit spread of 475 bps over Libor and a 30% stock volatility, also at the midpoint.

Regal is selling $125 million of five-year convertibles talked at 3.75% to 4.25% yield and a 25% to 30% initial conversion premium.

At the midpoint of talk with Regal stock at $20.95, Merrill Lynch put it 0.5% cheap, using a credit spread of 750 bps over Treasuries and a 33% stock volatility. Deutsche put it 3.2% rich to 1.8% cheap, using a credit spread of 475 bps over Libor and a 30% stock volatility, also at the midpoint. Both valuations also factor in the 2.72% common dividend yield.

For Thursday, Massey Energy Co. added $100 million of 20-year converts to the calendar. The notes are talked to yield 4.25% to 4.75% with a 60% to 65% initial conversion premium.

On the international level, Alps Electric Co. Ltd., maker of Alpine sound systems and other electronics, was floating a ¥30 billion deal.

In addition to Providian, new paper from The Williams Cos. Inc. edged up but the new Sirius Satellite Radio Inc. 3.5% was quoted by Morgan Stanley, one of the lead banks, at 99.25 bid, 100 offered as the stock closed off 6c, or 5.31%, to $1.07.

Williams' new 5.5% convertible notes, sold at par of 50, were quoted by Lehman Brothers closing at 50.875 bid, 51.375 offered as the stock closed off 8c, or 1.07%, to $7.38.

Moreover, one buyside trader said the enthusiasm for Williams fell victim to turmoil among the power and utility names as a result of conflicting headlines.

"The Goldman report came out early and there were sellers, but then the S&P report flew in the face of that, so some buyers stepped in ," the trader said.

"There was a lot of two-way activity in several names, like Calpine."

In a report Wednesday, S&P equity analyst Craig Shere was very upbeat on energy merchants, specifically mentioning Williams and Calpine Corp. He noted favorable interest from creditors and investors for the sector, regulatory issues getting resolved, lenders refinancing debt at favorable terms and pending asset sales.

But Goldman Sachs equity analyst Jonathan Raleigh downgraded several power stocks, including convertible names Calpine and Duke Energy Corp., saying the recent run-up had them fully valued.

Calpine's 4% convertible due 2006 dropped 2.25 points to 78 bid, 79 offered. The stock lost 16c, or 3.23%, to $4.79. Calpine's 8.5% due 2011 junk bonds also dropped 2.25 point to 65.75 bid.

El Paso was also lower in sympathy, another trader said, along with a new headline about the dissention among its stockholders.

El Paso's 0% due 2021 dropped 0.25 point to 40.5 bid, 42.5 offered and the 9% mandatory lost 0.625 point to 28 bid, 28.375 offered. The stock closed up, however, by 30c, or 4.11%, to $7.60.

Selim K. Zilkha, one of the largest shareholders of El Paso, on Wednesday issued a press release stating he has sent a letter to fellow shareholders, urging them to oust the board of directors.

"I believe that the performance of the current board clearly demonstrates that fundamental change is needed," he wrote.

Among other things, Zilkha alleged "poor strategy, terrible execution," as a root cause for the company's "recent sad decline," and said the company needs a "fresh start." he has recommended a slate of new directors, including himself, but has waived his rights to receive any director fees.

Conversely, King Pharmaceuticals Inc. and Elan Corp. plc have patched up their differences with regard to their agreement for King to buy several assets from troubled Elan.

Originally, the price tag was $850 million but when King tried to back out of it, citing investigations into Elan's marketing practices, Elan sued. On Tuesday, the two companies announced a modified agreement that reduces the sale amount to $750 million, but King will pay a 5% royalty to Elan on one of the drugs involved through 2005.

King's 2.75% convertible due 2021 was quoted flat at 87.5 bid, while the stock closed up 38c, or 2.92%, to $13.40

Elan's converts, though, shot up 2.5 points on the news. The 0% due 2018 closed at 57.25 bid, 59.25 offered. The stock ended off 13c, or 2.69%, to $4.70.

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