ProLogis trades actively; Ciena extends gains; Health Care REIT, International Coal price

By Rebecca Melvin

New York, March 10 - ProLogis' newly priced 3.25% convertibles traded actively at 101 bid, 101.25 offered versus a share price of $13.40 early on their debut Wednesday. Late in the session, the new bonds were a little better at 101.625 bid, 101.875 offered, according to market sources.

"They did OK," a New York-based sellside trader said of the new bond issue. Concurrently with the convertibles, the Denver-based real estate investment trust priced more than $1 billion in straight bonds, and between the straight debt, the credit-default swaps, established capital structure and the fact that the investment-grade paper gets favorable treatment in terms of leverage, it was "a pretty popular, virtually riskless trade," the sellsider said.

ProLogis, which was upsized to $400 million from $350 million, was a primary focus of trade Wednesday.

Also in the primary market, Health Care REIT Inc. surprised the market ahead of the open with a $342.4 million issue of 20-year convertible senior notes priced to yield 3% with a 17.5% initial conversion premium.

The "buy and sell" deal, sold via UBS Investment Bank and J.P. Morgan Securities Inc., is being used to buy back a portion of the company's existing 4.75% convertibles senior notes due 2026 and 2027. The issue wasn't actively traded on its debut, but it ended higher at 102.5, according to a New York-based sellsider said, citing Trace data.

Rovi launched

After the close, Rovi Corp. launched a $400 million offering of 30-year convertibles via bookrunners JPMorgan, Goldman Sachs & Co. and Morgan Stanley & Co. Inc. That deal was expected to price after the close of markets on Thursday.

Ciena Corp.'s new 4% convertibles continued to trade actively and moved up a little bit with their underlying shares after the company priced an upsized $375 million of convertible bonds ahead of the market open Tuesday.

Meanwhile, International Coal Group Inc., which was expected to price after Wednesday's market close, upsized and put out revised price talk. Later, a syndicate source said the deal priced with a 4% yield and an initial conversion premium of 30%.

The International Coal deal size was bumped up to $100 million from $75 million, and coupon talk tightened to 4% from 4% to 4.5%, while the premium was raised to 25% to 30% up from 20% to 25%.

Aside from the new paper, which certainly had the market humming after a drought of new issuance in recent weeks, Micron Technology Inc.'s 1.875% convertibles were active and marked at 93.875 versus a share price of $9.90 at the close, according to one New York-based sellside source.

In addition, the Life Technologies Corp. convertibles, which are the old Invitrogen convertibles, were active, trading around plus 0.5 point.

Europe largely quiet

European markets remained quiet on Wednesday as investors continue to be put off by the richness in the market, a Zurich-based trader said.

"I guess maybe they're waiting for a correction that hasn't come," the trader said.

Recent deals this week have not garnered much interest. Spain's Pescanova SA had a €110 million offering that saw some demand from investors, but the small size of the issuance limited activity, the trader said.

The Pescanova five-year convertibles priced at par of €50,000 to yield 6.75% with an initial conversion premium of 25%.

"There is almost no liquidity in the market because it was a small issue," the trader said. "We couldn't find supply. There was demand for the name but no supply."

Pescanova is a Vigo, Spain-based fishing company.

In Asia, Indonesia's PT Bakrieland Development Tbk., was reported to be in the market with a $150 million offering of convertibles, but again the small size of deal put a damper on investor interest.

"There's no gray market price or any specific trading," the trader said. "It's also a small deal...so we're not really that interested."

Bakrieland looks attractive at the mids

The Bakrieland deal was talked to yield 7.875% to 8.625% with an initial conversion premium of 20% to 25%. The pending Regulation S issue was valued at 97.9 to 102.3, according to U.K.-based Barclays Capital research analysts, assuming a credit spread of 1,500 basis points over Libor, 28% volatility and 5% borrow.

"Hence, we find the bond attractive only if it prices on mids or better," the analysts Heather Beattie, Luke Olsen and Angus Allison wrote in a note published Wednesday.

The analysts went on to say that the new deal provides exposure to Indonesian real estate and any potential upside from new government regulations governing foreigners' ownership of Indonesian property, which is expected to be completed by May or June.

Bakrieland aims to construct infrastructure projects such as trans Java toll roads, which could add to recurring income. Also in December 2009, the company bought back 8.25 million and 5 million shares at IDR 181 and IDR 199 per share, respectively, the analysts wrote.

On the negative side, the coupon on the new deal is significantly lower than those of Bakrieland's domestic bonds, which range between 11.9% and 16.0%. The corporate governance issues relating to the Bakrie Group may deter some investors and given its size, liquidity in the deal may be an issue.

Bakrieland is an Indonesian property firm based in Jakarta. Its market cap is IDR 5.1 trillion.

ProLogis trades actively

ProLogis' newly priced 3.25% convertibles traded last at 101.625 bid, 101.875 offered against a closing share price for the Denver-based REIT of $13.80, which was up 40 cents, or 3%.

"If you're a big bank or someone that has a low cost of funds, you can set these things up and hedge everything out and get the cash flow in. You short some stock against it and purchase the CDS and you end up with an almost riskless trade," a sellsider said.

There were definitely different kinds of buyers however. Another sellsider said that the yield wasn't as good as with the ProLogis existing bonds or with the stock.

"I still like the ProLogis 2.625% convertibles or the 1.875% convertibles because of the yield, and given where the premium is [29%], the equity is not worthwhile," the second sellsider said.

ProLogis launched and priced an upsized $400 million of convertibles on Tuesday, near the midpoint of talk. During the session, the issue, which was launched ahead of the market open, was seen in the gray market at as high as 101.

ProLogis' existing 2.25% convertibles due 2037 traded at 97.25, which was down 0.125 point from 97.125 on Tuesday; while the ProLogis 1.875% convertibles due 2037 traded at 94.437, which was up 0.137 point.

The ProLogis 2.625% convertibles due 2038 were not heard in trade.

ProLogis sold $1.1 billion of senior notes (Baa2/BBB-/BBB) late in the day in two tranches after it was originally announced in a single tranche of 10-year notes, a source away from the sale said.

The $300 million of 6.25% seven-year notes were sold at a spread of Treasuries plus 320 bps.

An $800 million tranche of 6.875% 10-year notes was also priced at Treasuries plus 320 bps.

The deal had about $3 billion on the books, the source said.

Health Care REIT prices

Health Care REIT's newly priced 3% convertibles were seen at the end of the session at 102.5 versus a share price of $44.04, which was up 41 cents, or nearly a percentage point, on the day.

Health Care REIT is a Toledo, Ohio-based self-administered, equity real estate investment trust.

The Health Care REIT paper came stealthily, without a publicized launch ahead of pricing. Its premium was a much lower 17.5% compared to the ProLogis 29% premium.

"That's more reasonable. Why would you own PLD when you could own HCN with a high teens premium and a better credit," a sellsider said.

In fact, Health Care REIT's new convertibles were assigned a BBB- rating by Standard & Poor's, which was the same rating that the rating agency assigned to the ProLogis notes, including the $300 million 6.25% straight notes, the $800 million 6.875% straight notes due 2020 and the $400 million 3.25% convertible notes.

On the Health Care REIT deal, S&P said it believes "senior housing, particularly more discretionary independent living and high-end entrance fee facilities, will continue to experience some pressure as a result of the sluggish economy and housing market."

Proceeds are going to be used to buy back a portion of Health Care REIT's existing 4.75% convertibles senior notes due 2026 and 2027.

The new notes will be convertible at an initial rate of 19.5064 shares per bond, which represents an initial conversion price of about $51.27 per share.

UBS Investment Bank and JPMorgan were joint bookrunners for the offering, which was made under a shelf registration statement on file with the Securities and Exchange Commission.

The notes will be non-callable until Dec. 1, 2014, except to maintain the company's status as a real estate investment trust.

Holders can put the notes on Dec. 1, 2014, Dec. 1, 2019 and Dec. 1, 2024.

There is contingent conversion after the quarter ending June 30, 2010, if the closing sale price of Health Care REIT shares exceeds 120% of the conversion price for 20 out of 30 trading days.

There is also dividend and takeover protection.

Ciena extends gains

Ciena's 4% convertibles due 2015 ended up at 104.81 bid, 105.19 offered versus a stock price of $15.42, which was up from 104.5 versus a share price of $15.35.

Shares of the Linthicum, Md.-based communications networking company added 7 cents, or 0.45%, on the day to settle at $15.49.

"It continued to trade actively. There was pretty heavy volume," a sellsider said.

The new Ciena convertibles were repriced for a coupon of 4% and an initial conversion premium of 35%. That compared to original talk of 4.25% to 4.75%, with a 25% to 30% premium.

Rovi to price

Rovi planned to price $400 million of 30-year convertibles after the close of markets on Thursday that were talked to yield 2.5% to 3% with an initial conversion premium of 25% to 30%.

JPMorgan, Goldman Sachs and Morgan Stanley are joint bookrunners of the deal, with co-managers UBS and Piper Jaffray & Co.

The bonds will be non-callable for five years, with puts in years five, 10, 15, 20 and 25. There is dividend and takeover protection.

Proceeds of the Santa Clara, Calif.-based digital entertainment solutions company's notes will be used to pay down the $159.6 million remainder of a term loan, to repurchase up to $100 million of common stock concurrently with the offering, to repurchase $75 million of existing 2.625% convertible debt and for general corporate purposes.

Mentioned in this article:

Ciena Corp. Nasdaq: CIEN

Health Care REIT Inc. NYSE: HCN

International Coal Group Inc. NYSE: ICO

Life Technologies Corp. Nasdaq: LIFE

Micron Technology Inc. NYSE: NU

Pescanova SA Madrid: PVA

ProLogis NYSE: PLD

PT Bakrieland Development Tbk. Jakarta: ELTY

Rovi Corp. Nasdaq: ROVI

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