Kulicke & Soffa bid at 97; Per-Se issue zooms to 103; AFR idle, marked at 98 bid

By Ronda Fears

Nashville, June 25 - Convertible issues from Kulicke & Soffa Inc. and American Financial Realty Trust, both reoffered by the underwriters at 98, were not seen trading Friday as players held fast to a buyers strike of sorts, sources said. Meanwhile, the new Per-Se Technologies Inc. deal shot up more than 3 points after it broke to trade.

Aside from aggressive terms, buyside sources were enraged with the takeover language in Kulicke & Soffa's tiny $65 million convertible. Hedge fund players recalled too freshly getting slammed with losses in the neighborhood of a whopping 17 points on each of the Kroll Inc. and Mandalay Resort Group cash takeover situations recently.

Another tiny convert was injected into the market, a $60 million deal from Infocrossing Inc., but it was said to be sitting in the hands of a few buyers and would likely stay there. In fact, market sources said it was not even pitched to any hedge fund accounts. The 4%, up 21% issue priced in the middle of yield talk for a 3.75% to 4.25% coupon and at the cheaper end of premium guidance of 20% to 25%.

Buyers balk at rich issues

Despite discounting from the underwriters, market sources said there was little to no action in the new Kulicke & Soffa and American Financial Realty convertibles. Both were said to be reoffered at 98.

"We didn't see anything at all in AFR [American Financial Realty]," said a convert trader at a huge hedge fund. "There were some low bids on KLIC, [Kulicke & Soffa] but I didn't hear of any trades."

Numerous market sources said nothing was seen in American Financial Realty in terms of a real market for the convertibles, although several said at least some of the deal was placed by bookrunners Deutsche Bank Securities and Banc of America Securities.

Neither of the banks has commented on the deal, however, but one of them had the American Financial Realty 4.375% convert marked at 98 bid, 98.25 offered. American Financial Realty shares ended Friday up a dime, or 0.71%, to $14.15.

Kulicke & Soffa's new 1% convertible was seen at 97 bid, according to a buyside trader, but a sellside trader said he later saw it at 98.25 bid, 98.75 offered with the stock at $10.25, adding, "it could have gone to par" on more gains in the stock. Kulicke & Soffa shares ended Friday up 16 cents, or 1.53%, to $10.60.

Merrill Lynch, underwriter for the Kulicke & Soffa deal, has not commented on the issue, particularly the takeover language.

A sellside source said the new Kulicke & Soffa convertible was not necessarily discounted, even though it was reoffered at 98, because it modeled out to be worth about 96.

Per-Se, Priceline seen cheaper

Relative to what was priced this week, the market saw the Per-Se Technologies and Priceline.com Inc. convertibles as cheap.

Per-Se Technologies' small $100 million deal was bid 1.5 points over issue price with an offer at 2.25 points over in the gray market and shot up farther in the immediate aftermarket. It was printed with a 3.25% coupon, up 42% - at the middle of yield talk for 3.0% to 3.5% but at the aggressive end of premium guidance of 38% to 43%.

Sellside analysts said the Per-Se Technologies convert looked about 2.5% to 3% cheap, and a buyside convertible trader said it was bid 103 with an offer at 103.625 for most of the afternoon when the market died down. It had broken at the open, he said, with a 102 bid, 102.75 offer. Per-Se shares closed up 31 cents, or 2.47%, to $12.88.

Priceline's chunky $300 million - chunky among this week's fare of new issues - was viewed at about fair value at par where it was sold, and it has not ticked up much from there, but traders said it has been actively trading. It settled out the week at 100.75, according to a buyside trader, while the stock closed Friday off 14 cents, or down 0.51%, at $27.05.

Preferred traffic up this week

Trading flow in general seemed to be healthier this week, sellside traders said, at least until the typical market death on Friday afternoons. But a couple of sellside traders also remarked that there was more traffic in convertible preferreds and/or mandatory issues this week than in the recent past.

"This week, people came in ready to trade," one said.

Another said, "Most of the activity we saw this week was in preferreds, and I'm not exactly sure why. There was stuff to sell and stuff to buy."

Washington Mutual Inc., Conseco Inc. and New York Bancorp were mentioned by traders specifically.

On Friday, even, the Washington Mutual and Conseco converts saw heavy volume.

Washington Mutual's 5.375% issue was quoted up 0.25 point to 55.69 bid, 56.19 offered by a dealer; it closed on the New York Stock Exchange up 0.24, or 0.43%, to 56 with 225,313 shares changing hands versus the three-month running average of 73,586.

Conseco's 5.5% issue ended up 0.75 point, or 2.88%, to 27.13 on the NYSE, with 1 million shares moving.

Crown Castle adds 8 points

On confirmation that Crown Castle International Corp. is in talks with National Grid Transco plc to possibly sell its U.K. operations for a reported $2 billion price tag, the Crown Castle convertible bonds shot up 8 points outright, dealers said.

Crown Castle's 4% convertible notes ended Friday at 171 bid, 172 offered with the stock at $16.25, a sellside trader said, with the issue moving up from the 163 area earlier in the week.

Crown Castle's 6.25% convertible preferred caught a low bid of 45.5 early in the day, a dealer said, but he closed the issue unchanged at 45.25 bid, 45.75 offered. On the NYSE, the Crown Castle convertible preferred ended up 0.25 point to 46, but with very low volume of 150 shares versus the average 15,727.

Crown Castle stock ended down 15 cents, or 0.92%, to $16.08.

In response to news reports about the sale negotiations, National Grid confirmed it had entered discussions with Crown Castle but did not mention any terms like price. Crown Castle did not comment on the reports.

The Financial Times in London and the Wall Street Journal reported the negotiations were focused on a price of up to £1.1 billion, or roughly $2 billion.

Crown Castle sale bittersweet

One holder of the Crown Castle convertibles said his reaction to the sale news was bittersweet and tempered with caution until a deal is struck and the tower operator reveals what its plans are for any proceeds.

"It will be a good thing if they use the proceeds to pay down debt, but we don't know for sure that's what would happen," he said. "And, I'm not sure what they are giving up for $2 billion, like how much revenues are connected to the U.K. business. In my opinion, there isn't enough to become real bullish on this name yet."

Moody's on May 28 raised the outlook for Crown Castle debt to stable from negative, citing improved cash flow and its expectation that the company will be able to achieve its 2004 free cash flow target of $150 to $160 million. Still, Moody's noted high leverage with projected free cash flow only 4.2% of total debt and preferreds at March 31.

For first quarter, Crown Castle reported total site rental and broadcast transmission revenues rose $34.4 million, or 18.6%, to $219.4 million from first quarter 2003. Of the increase, $19.3 million was attributed to the U.K. operations. The company also noted in its 10-Q filing that higher business costs in the United Kingdom, versus the United States, had pressured its operating margins.

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