By Ronda Fears
Nashville, Tenn., Sept. 10 - Legal & General Group plc's rights offering is a positive event for holders of its euro convertible, said Deutsche Bank Securities convertible analysts Michael O'Conner and Clodagh Muldoon.
"We believe that the rights issue is beneficial from a bondholders' perspective as it should strengthen Legal & General's balance sheet, it adds 2.4% to free asset ratio and we should see an improvement in the credit on the back of this," O'Conner and Muldoon said in a report.
"The bondholders are protected against dilution by the adjustment to the conversion price."
Legal & General on Monday announced a rights issue of 13 new shares for 50 existing shares to raise £786 million. Legal & General is effectively offering these shares at 60 pence per share, a 46.78% discount to Monday's close of 112.75p.
Holders of the 2.75% convertible due 2006 are protected against dilution by an adjustment to the conversion price, the analysts noted. The analysts calculate that the new conversion price should be 184p, versus the original conversion price of 204p.
The analysts noted that in the event of a takeover bondholders are well protected by the average premium methodology. Also, they added, in the event of a takeover, bondholders have the option of putting the bonds back to the company at their principal amount plus accrued interest.
Legal & General Group plc 2.75% due 2006
Price: 91.125
Parity: 52.94
| Premium: | 71.7%
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| Bond floor: | 88.06
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| Yield to maturity: | 5.07%
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| Credit default swap ask: | 130 bps over Libor
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| Moody's: | Aa3
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| S&P: | AA
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| Call: | Non-callable to January 2005, 120% hurdle thereafter
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