Shares of planned Cenveo plunge ahead of pricing; Amgen, Vornado, A123 Systems edge lower

By Rebecca Melvin

New York, March 22 - Cenveo Inc.'s planned $75 million convertible was expected to price after the market close on Thursday, according to a syndicate source. But the new issue was looking a little shaky given a 19% plunge in the underlying shares, spurred by market players shorting the stock or shareholders selling on potential dilution concerns. In addition the convertible deal is contingent on $225 million of straight bonds getting done.

"It's tough to get enthusiastic about a company that is as highly levered as they are despite breakeven pricing in 2.4 years at midpoint [of talk]," a sellsider said about the $75 million convertibles offering.

Back in established issues, the market was called little changed in quiet trading as a general holding pattern continued. But the overall recent trend has been slightly to the downside with the market looking down about 0.5 point over the last week or two, a New York-based sellsider said.

On Thursday, equities posted a decline amid concerns about slowing global growth in China and weak economic signals from the euro zone.

Amgen Inc.'s convertibles were for sale on Thursday and Vornado Realty Trust was also active again and continued to move a little lower, a New York-based trader said.

A123 Systems Inc. looked a little lower but not significantly trading at 40.5 while the underlying shares of the rechargeable battery maker edged higher in a down market.

Alcatel-Lucent SA was a little higher by about 0.125 point to 0.25 point, at 98 bid, 99 offered, on the back of the company's announcement in February that it was buying back bonds, a New York-based trader said.

Rite Aid Corp.'s bonds were not heard in trade, a sellsider said, and the about $60 million face remaining outstanding was seen at 108 bid 110 offered, with the underlying shares down 4.3% at $1.78 in heavy volume.

Cenveo to price

The planned $75 million Cenveo convertible deal was seen extremely cheap at about 16% cheap using a credit spread of 1,200 basis points over Libor and a 45% vol. at the midpoint of talk, according to a Connecticut-based analyst.

But the cheapness is not the whole story with this issue, which is contingent on $225 million of straight notes getting done.

And shares of the Stamford, Conn.-based business to business print company ended the session down 19%, which was up from the lows of the session.

"It was down 20% and there's a 20% premium on a new convertible," the analyst noted.

The planned convertible is small from the convertibles market's perspective, but large from the company's perspective, which has a market capitalization of just over $200 million and $1.2 billion of net debt.

"So it's essentially a micro-cap and it's highly leveraged....Relative to equity market cap, it's as though Microsoft issued a $130 billion convertible!" a New York-based buysider said, noting that the Microsoft convertible is actually only $1.25 billion in size.

But the company, which sells printing and other products like labels, has had decent EBITDA and "is not in a death spiral from a revenue standpoint," a Connecticut-based analyst said.

Even so, the company has well under 2x interest coverage even with the refinancing, the analyst said.

Cenveo has been trying to issue straight debt to tender for three outstanding issues since an original tender offer came out Feb. 29.

It was tendering for $459 million in total debt, all at a premium and was attempting to sell $450 million of straight notes, the analyst said, describing the company's activity in early March.

Now the company is attempting to take out $233 million in existing debt with $225 million of straight notes and $75 million of convertibles, the analyst said.

Price talk on the convertible issue was for a coupon of 6.75% to 7.25% and an initial conversion premium of 17.5% to 22.5%.

The deal, with an $11.25 million greenshoe, was being sold by Bank of America Merrill Lynch and Morgan Stanley & Co. LLC as joint bookrunners.

The deal is being issued by a Cenveo subsidiary, Cenveo Corp.

A123 trades at 40.5

A123 Systems' 3.75% convertibles due 2016 traded down at 40.5, which wasn't seen as significantly different from previous trades. But as recently as mid-February, the convertibles were in the high 40s and last summer the bonds were in the 80s.

"Some think they will survive and others don't," a New York-based trader said.

Shares of the electric car battery maker added 3 cents, or 1.8%, on the day.

"AONE is a new technology company that's burning a lot of cash," a Connecticut-based analyst said, adding that the bond was not much weaker than before. "It's been in trouble since the summer."

Mentioned in this article:

Alcatel-Lucent SA NYSE: ALU

Amgen Inc. Nasdaq: AMGN

A123 Systems Inc. Nasdaq: AONE

Cenveo Inc. NYSE: CVO

Vornado Realty Trust NYSE: VNO

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