Level 3, Volcano, AngloGold rise in secondary; Tower up but quiet; NextEra comes discounted

By Rebecca Melvin

New York, Sept. 15 - Four of five new issues released for secondary dealings in the convertible bond market Wednesday moved up in the after-market after pricing late Tuesday, sources said. Trading in these issues made up the bulk of activity in convertibles Wednesday.

Level 3 Communications Inc. gained smartly to 106.625 bid, 107.125 offered, along with a rise in the underlying shares, after the communications services company priced $175 million of six-year convertible senior notes to yield 6.5%.

Volcano Corp. gained about 5 points to 105 bid, 105.25 offered after the Rancho Cordova, Calif. -based vascular measuring company priced $100 million of five-year convertibles, which came to market beyond the rich end of talk for a 2.875% coupon.

AngloGold Ashanti Holdings Finance plc, a subsidiary of AngloGold Ashanti Ltd., which launched an offering of mandatory convertibles after Tuesday's market close, saw that paper move up to about 52 from 50 par on Wednesday.

Tower Group Inc. was quieter in secondary market action than the first three new issues, but one sellsider reported a trade in that name at 104.75 versus a share price of $21.55.

Tower priced $135 million of four-year convertible senior notes at the midpoint of talk for a 5% coupon.

The only issue that didn't look like it improved was NextEra Energy Inc.'s newly priced 7% mandatory convertible equity units. The $350 million deal priced at a discount to its 50 par at 49.25, and traded down to 49 before moving back up to 49.125 bid.

After the market close, American Investment Life Holding Co. launched an offering of $150 million of five-year convertible notes that were talked to yield 3.25% to 3.75%, with an initial conversion premium of 22.5% to 27.5%, and were seen pricing after the close on Thursday.

Also during the trading session, BRE Properties Inc.'s 4.125% convertibles lifted to 104 from about 101.75 after the real estate investment company launched a cash tender offer for the $356.3 million outstanding of the 4.125% convertibles.

Level 3 jumps on debut

Level 3's newly priced 6.5% convertibles traded early Wednesday at 103 bid, 104 offered, and moved even higher to 106.625 bid, 107.25 offered by mid-afternoon.

Shares of the Broomfield, Colo.-based internet backbone services provider regained ground, adding 9 cents, or nearly 9%, to $1.035, after plunging 21 cents, or 18%, on Tuesday.

The company's positive equity performance was seen as the reason for the move higher in the new convertibles.

"The stock moved that [the new paper] up. It's a stock proxy; it's an option," a New York-based sellside trader said.

The trader said that demand was strong and it pulled just about everything up.

As for whether the windfall of new issues bodes well for the convertible market going forward, he was less sanguine.

"We've had flurries in the past. The issuers have to want to do convertibles. The demand has been there. That hasn't changed," he said.

'Prudent' move to take down debt

Proceeds are for Level 3's general corporate purposes, including working capital, capital expenditures and potential repurchase or redemption of its 5.25% convertible senior notes due 2011 and other existing debt from time to time.

The $175 million in proceeds aren't large proceeds to take out the entire 5.25% convertible issue, but the company has another $432 million in cash on its books, a Connecticut-based convertibles analyst said.

Level 3 is looking at a horizon with multiple maturities. It has $196 million in debt maturities coming due in 2011, $294 million due in 2012, and a hefty $695 million due in 2013, including a 15% convertible issue.

Even further out, "there's a ton of debt due in 2014. Everybody who can is trying to position themselves for the 2014 wall. The entire world is trying to get ready for that," the analyst said.

As for Level 3 itself, the analyst said that its business didn't hold much appeal for him, but "to their credit, they have done a good job of streamlining the business," he said.

Level 3 is primarily a reseller of wireline communications services. But the core wireline business is overbuilt, and the company competes with the likes of Global Crossing, which filed for bankruptcy.

For its part, Level 3's second quarter earnings report showed lower revenue but higher EBITDA.

"You don't know where it's going to go 100%, but it's a prudent move to be out in front of these maturities. It gets pretty ugly if you wait," the analyst said.

Bank of America Merrill Lynch was bookrunner of the registered Level 3 deal, with Citigroup Global Markets Inc. the lead manager. Co-managers were Deutsche Bank Securities Inc. and Morgan Stanley & Co. Inc.

There is a greenshoe for a further $26.25 million.

The convertibles will be non-callable for three years and then provisionally callable if the stock exceeds 150% of the conversion price.

Volcano erupts on debut

Volcano's newly priced 2.875% convertibles were seen as high as 105.5, after having started the day out of the chute at 104 bid, 105 offered.

Shares of the Rancho Cordova, Calif.-based maker of vascular measurement products gained $1.03, or 4.4%, to $24.28, retracing about half of a $2.40, or 9% fall to $23.25 on Tuesday.

The registered, off-the-shelf deal of $100 million plus a 15% greenshoe was sold via bookrunner J.P. Morgan Securities.

Proceeds may also be used to expand Volcano's manufacturing capabilities and invest in complementary products, technologies or businesses. The balance of the net proceeds is expected to be used for working capital and general corporate purposes.

Tower higher, mostly quiet

Tower Group's newly-priced 5% convertibles due 2014 traded at 104.75 versus a share price of $21.55, according to one pricing source. But others hadn't heard the issue in trade.

"There was nothing [on Tower]. The first time I saw it was at 10:30 a.m. [ET.} It was 103 to 103.25 versus a share price of $21.56. Everything moved up. There was so much demand," a New York-based trader said.

The Rule 144A deal priced at the midpoint of talk, which was for a coupon of 4.75% to 5.25% and a premium of 25% to 30%.

Shares of the New York-based insurance products and services company gained 94 cents, or 4.4%, to $22.50 in heavy volume, more than regaining a 60 cent loss Tuesday.

Bank of America Merrill Lynch, JPMorgan and FBR Capital Markets were joint bookrunners of the deal, the proceeds of which will be used to repurchase common stock, to purchase a call spread, to repay debt and for general corporate purposes.

AngloGold adds

AngloGold's newly priced 6% convertibles traded early in the session at 51.75 bid, 52.25 offered, according to one sellsider. A second pricing source said the new issue traded at 51.95 versus a share price of $44.70.

The American Depositary Shares of the Johannesburg-based gold producer fell Wednesday, ending lower $2.22, or 4.8%, at $44.50.

The global offering is registered in the United States and was sold via joint bookrunners UBS Securities LLC and Morgan Stanley.

Mentioned in this article:

American Investment Life Holding Co. NYSE: AEL

AngloGold Ashanti Holdings Finance plc NYSE ADS: AU

BRE Properties Inc. NYSE: BRE

Level 3 Communications Inc. Nasdaq: LVLT

NextEra Energy Inc. NYSE: NEE

Tower Group Inc. Nasdaq: TWGP

Volcano Corp. Nasdaq: VOLC

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