Hornbeck, Inland's upsized deals climb on debut; Novell gains on pact's payoff; General Cable plans deal

By Kenneth Lim

Boston, Nov. 8 - The convertible bond market had a quiet session on Wednesday, with most of the action coming out of new issues.

Hornbeck Offshore Services Inc.'s new 1.625% convertible due 2026 had the strongest debut, gaining about 2 points after the deal was upsized amid strong investor interest.

Inland Real Estate Corp.'s 4.625% convertible due 2026 also had its first day of trading on Wednesday, but the offering had a lackluster session with most eyes turned to the other new paper.

Novell Inc. continued to gain, as the company said it will receive $348 million from Microsoft Corp. under a new alliance between the companies. That news came a day after Novell amended and extended its consent solicitation offer on its convertibles.

Meanwhile, General Cable Corp. announced a $315 million offering of seven-year convertibles, while Baldor Electric Co. said it may issue $350 million of equity or equity-linked securities to help fund an acquisition.

Hornbeck rises on strong interest

Hornbeck's upsized 1.625% convertible senior note due 2026 gained 2 points outright on its debut Wednesday, as it received a warm reception despite pricing at the rich end of talk.

The convertible traded at 102 against a stock price of $36.85. Hornbeck stock (NYSE: HOS) gained 4.91% or $1.73 to close at $36.99 on Wednesday.

"Those did well," a sellside convertible bond trader said. "The stock was strong, so it got good support."

Hornbeck priced the upsized $220 million offering at a coupon of 1.625% and an initial conversion premium of 37.5%.

The deal amount was originally $200 million, and price talk was for a coupon of 1.625% to 2.125% and an initial conversion premium of 32.5% to 37.5%.

The coupon will decline to 1.375% from the seventh-year.

The notes will be offered at par.

There is a greenshoe option for a further $30 million.

Jefferies & Co. and Bear Stearns were the bookrunners of the Rule 144A offering.

Hornbeck, a Covington, La.-based provider of offshore supply vessels to the oil and gas industry, said part of the proceeds will be used to fund convertible note hedge and warrant transactions. The company also earmarked 30% of the proceeds to buy back its common stock, and for general purposes that could include acquisitions.

"Looks like it came slightly cheap," a sellside analyst said. "It's a good credit and there's good volatility. Outright, there's been some concern about supply and softening in the sector, but Hornbeck seems to be holding pretty well."

The analyst said main wildcard was the possibility that Hornbeck will be spending some cash on acquisitions.

"It looks like they may just be acquiring new vessels, but if they're going to be acquiring companies it might be more of a concern," the analyst said.

Inland quiet on debut

Inland Real Estate's 4.625% convertible senior note due 2026 had a dull start on the secondary market, but rose even as traders noted a quieter session compared to Hornbeck's debut.

"I didn't do any," a sellside convertible trader said. "Didn't look that interesting."

Inland priced the upsized $170 million of 20-year convertible senior notes at the cheap end of talk, at a coupon of 4.625% and an initial conversion premium of 15%. Inland stock (NYSE: IRC) closed at $18.08, up by 0.44% or 8 cents.

The convertibles were offered at par, and price talked guided for a coupon of 4.125% to 4.625% and an initial conversion premium of 15% to 20%.

The size of the deal was originally $150 million. The over-allotment option, however, was reduced to $10 million from $22.5 million.

Wachovia Securities was the bookrunner of the Rule 144A deal.

Inland Real Estate is an Oak Brook, Ill.-based real estate investment trust that owns and operates neighborhood retail centers and community centers primarily in Oak Brook. It will use the proceeds of the deal to buy back up to $50 million of its own common stock, pay back an existing loan and for general purposes.

General sentiment seemed to suggest that the deal was received as a run-of-the-mill REIT deal.

"I don't have any real strong feelings about it," a convertible bond trader said. "If anything, there's some REIT fatigue going on. There's just so many REIT deals and credit-wise this is just not as strong as some of the earlier ones. There's some hair on it."

The analyst explained that while Inland was a good credit, it was not investment grade unlike some of its peers.

"It shouldn't be viewed as investment-grade, and it will not trade at the same credit spread," the analyst said.

The deal was upsized, but it also arrived at the cheap end, the analyst noted.

"If they wanted to upsize it the concession they'd have to make is to price it at the cheap," the analyst said. "At the mid-point of price talk yesterday [Tuesday] it would have made them about 2.5% cheap. They were upsized, came at the cheap end, so probably everybody's OK with it, but to the extent that there's already been a lot of REIT paper to soak up, investors may not be as exciting about this."

Novell gains on cash, new offer

Novell's 0.5% convertible due 2024 improved about 1.5 points outright on Wednesday, as the stock rallied on news that it will receive $348 million in cash from Microsoft under a new alliance.

The convertible changed hands at 97.25 versus a stock price of $6.85. Novell stock (Nasdaq: NOVL) gained 3.69% or 24 cents and closed at $6.74.

Waltham, Mass.-based Novell said it will receive $240 million from Microsoft, as subscription fees that will let Microsoft use Novell's Linux software. Microsoft will also pay another $108 million upfront to use patents. Those payments are part of a new deal between the two software developers that will let Novell's open-source Linux programs work with Microsoft's Windows.

Novell will also pay Microsoft at least $40 million over five years to use Microsoft's patents.

"That's a nice bonus from Novell's point of view," a sellside convertible bond analyst said. "But keep in mind that this is a one-off payment, so you're not going to get it the same time next year. But for now it does relieve some of the pressure on Novell with its consent solicitation."

Novell on Tuesday extended its consent solicitation deadline to 5 p.m. Thursday, and amended the terms of its offer. The new offer now gives consenting holders of the convertible an additional 7.33% special interest for one year, in lieu of a now-removed $57.50 per note consent fee originally proposed. Novell, which has delayed its financial reports amid investigations into its stock-options granting practices, is asking for its reporting deadline to be pushed to May 2007.

General Cable, Baldor plan deals

General Cable plans to price Thursday after the market closes $315 million of seven-year convertible senior notes, talked at a coupon of 0.75% to 1.25% and an initial conversion premium of 22.5% to 27.5%.

The notes are being offered at par, and there is a greenshoe option for a further $45 million.

Merrill Lynch and Credit Suisse are the bookrunners of the registered off-the-shelf offering.

General Cable, a Highland Heights, Ky.-based maker of electrical and electronic wires and cables, said about $61.4 million of the proceeds will be used to repay an outstanding senior secured debt that matures in 2010. It will also use the proceeds to fund convertible note hedge and warrant transactions.

Meanwhile, Baldor Automation said it plans to issue about $350 million of equity or equity-linked securities to help finance the cash portion of a planned acquisition of the Rockwell Automation Inc. power businesses.

Baldor on Wednesday offered $1.75 billion in cash and 1.6 million of its common stock for Rockwell's power systems businesses, which includes products sold under the Reliance Electric and Dodge brands.

UBS Investment Bank is Baldor's financial adviser for the deal, which is expected to close in the first quarter of 2007.

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