Popular convertibles, stock rise; Intel, Linear strengthen on earnings; MGM Mirage on tap

By Rebecca Melvin

New York, April 14 -Trading volume improved in the convertible bond market on Wednesday, with investment-grade names trading en force and accounting for about 40% of the Trace volume on the day, according to a New York-based sellsider trader.

Convertible players watched with interest, but there were not many who were involved, in the performance of Popular Inc.'s new convertible preferred, which is a common share equivalent. The preferreds ran up with the issuer's shares in good volume.

Speculation about the possibility of consolidation of the banking industry in Puerto Rico fanned interest, a syndicate source said.

However, the base of participation was indistinguishable from regular shareholders, the syndicate source said.

Intel Inc. was higher in trade one day after the Santa Clara, Calif.-based chip giant posted strong earnings.

There was a lot of noise in General Growth Properties Inc.'s bonds, but no real action, after Simon Property Group made a fresh offer for the smaller, bankrupt mall operator.

Meanwhile, BioMed Realty Trust Inc. was a focus after the real estate investment trust was able to bring a new stock deal to market successfully.

"I think BioMed bringing stock and getting the rating is bigger for the REIT market [than the GGP news]. REITs are still able to raise money whenever they need or want it," a New York-based sellside trader said.

Linear Technology Corp.'s convertibles moved up to near par after the Milpitas, Calif.-based maker of linear integrated circuits posted strong earnings after the market close on Tuesday. On Wednesday, Barclays Capital upgraded the company's shares.

Trico Marine Services Inc.'s 8.125% convertibles were higher on positive contract and asset sale news.

Actuant Inc. was higher in line with a jump in its shares. The diversified industrial manufacturer is acquiring Team Hydrotec of Singapore and Dutch firm Hydrospex, which will expand its Enerpac business.

In the primary market, MGM Mirage announced after the market close that it planned to price up to $750 million of five-year convertible notes in a Rule 144A offering after the close of markets on Thursday.

Beni Stabili prices

Beni Stabili SpA priced €200 million of five-year equity-linked bonds Wednesday at par of €1,000 to yield 3.875% with an initial conversion premium of 30%, according to a news release.

Bank of America Merrill Lynch, BNP Paribas and Mediobanca-Banca di Credito Finanziario SpA were the bookrunners of the Regulation S offering.

There is a two-step greenshoe: first for an additional €25 million, then for a further €25 million if the initial over-allotment option is fully exercised before settlement.

Proceeds will be used to repay the Italian real estate company's existing 2.5% convertibles due 2011 when they mature.

Prior to the sale, the planned five-year convertible notes saw tepid response from the market on Wednesday, with the new debt seen as offering little above existing paper.

"We decided to pass," one buysider said.

Beni Stabili was initially offering €175 million of five-year convertibles talked at a coupon of 3.5% to 4.25% and an initial conversion premium of 27.5% to 32.5%.

Prior to the sale, Barclays Capital analyst Angus Allison valued the new convertible at 98 to 102.2 using price talk indications and a credit assumption of 350 bps, a 22% volatility, 3% dividend rate and 1.5% stock borrow, according to a research note.

Allison wrote that his credit assumption was based on the existing 2011 convertible, which was indicated at 98.9 before the new deal was announced. That level implied a credit spread of 200 bps to 250 bps, and the new five-year convertible should be wider than that.

But the analyst stressed that real estate convertibles have been cheapening lately because of strong issuance in the sector, and felt that the Beni Stabili deal would be attractive "only toward the best end of the indicated terms."

"Our main concern with the new convertible is what it offers investors above and beyond these existing convertibles: possessing neither significant income pick-up over the stock, an investment grade rating, a superior balance sheet, nor excess realised volatility," Allison wrote. "As such, we believe that better value may be available elsewhere."

Popular active, higher

Popular's new convertible preferreds surged upward to $31.25 bid last heard, from a par price of $25. The move was in tandem with a 12.6% climb in the San Juan, Puerto Rico-based financial service company's common equity.

Shareholder approval is required to convert the preferreds to common stock, and a shareholder meeting is set for May 4. Popular is required to hold a shareholder vote by Sept. 15, 2010.

On Wednesday, the common stock extended gains notched Tuesday, the day after the company's offering of preferreds was announced.

In its offering prospectus, the company said that it was considering a strategic transaction involving its merchant banking and technology unit Evertec and some other businesses which could result in a sale.

The company received a number of non-binding indications of interest for the unit, which suggest an average sale price for Evertec and other businesses of about $1 billion, the company said.

There is rising speculation that the Federal Deposit Insurance Corp. may take over the operations of at least three of Puerto Rico's largest banks, which are already under cease and desist orders.

Strong Puerto Rican banks, of which Popular is one, stand to benefit from the FDIC's efforts.

Investors are attempting to participate in this transaction and there is a bit of a halo surrounding FDIC-assisted deals, a syndicate source said.

Popular shares, which hit a 52-week low of $1.00 last July, ended the session Wednesday at $3.94, up 44 cents, or 12.6%, on the day.

Actuant higher, in line

Actuant's 2% convertibles due 2023 traded in line with their underlying shares at 113.4 versus a share price of $21.77, which compares to 110.152 on Monday with the shares between $20.22 and $21.10.

Even though the Actuant bonds were actually in about half a point on Tuesday, the stock and convertibles have been generally ramping up.

The convertibles have a call and put in November.

The convertibles have options expiring Nov. 20, which are five days after the put but right on the call date.

The company shows only $15.7 million in cash on the books as of the last quarter versus the $117.8 million remaining on this issue. However it does have a revolver with more than $300 million untapped, a New York-based sellside trader pointed out recently.

On Wednesday, the company said it paid $20 million to acquire the businesses with the deal financed through Actuant's revolving credit facility. The combined businesses generate about $30 million in annual revenue. Team Hyrotec, which has its U.S. headquarters in Union City, Calif., provides engineering and integrated solutions systems to the Asian energy, ship building, mining and other industries. Hydrospex is a provider of heavy-lift technologies, including strand jacks and gantries for the global infrastructure, power generation and other industrial markets.

MGM to price

MGM plans to price up to $750 million of five-year senior unsecured convertibles that were talked to yield 4.25% to 4.75% with an initial conversion premium of 22.5% to 27.5%.

The convertibles were expected to price after the close of markets on Thursday, according to a syndicate source.

J.P. Morgan Securities Inc. and Bank of America Merrill Lynch are joint bookrunners, with Deutsche Bank Securities Inc. and Barclays Capital Inc. as passive bookrunners.

Proceeds are expected to be used for capped call transactions and to repay debt.

Las Vegas-based MGM is a casino resort owner and operator.

Mentioned in this article:

Actuant Inc. NYSE: ATU

Beni Stabili SpA taly: BNS

BioMed Realty Trust Inc. NYSE: BMR

Intel Inc. Nasdaq: INTC

General Growth Properties Inc. Pink Sheets: GGWGQ

Linear Technology Corp. Nasdaq: LLTC

MGM Mirage NYSE: MGM

Popular Inc. Nasdaq: BPOP

Trico Marine Services Inc. Nasdq: TRMA

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