Lockheed sweetens yield talk; Artesyn prints coupon wide of guidance; DST trades up

By Ronda Fears

Nashville, Aug. 7 - Convertible buyers continue to push back regarding terms on new deals, as Lockheed Martin Corp. followed the widening trend of several recent issues. DST Systems Inc. priced its offering at the cheapest end of backed out price talk, and Artesyn Technologies Inc. priced wide of yield guidance.

In the secondary arena, traders said it was a mixed bag Thursday as credit spreads widened and bond floors began to flex, and volatility took a dive by more than 6%.

"There was a Salomon [Citigroup] chart showing that bond floors fell 2 points on average in July, and they are still falling," one dealer said.

"Vol is still killing some guys too. We just can't seem to get much past the low 20s, and there are some people who say we will just hang out here for a while."

The volatility index dropped 6.05% to 21.89 on Thursday, compared to the mid-30s in first quarter and the spike to nearly 50 last fall.

With interest rates rising, buyside sources said it should be no surprise to issuers that they will have to pony up more to investors. The tough part to swallow, as one buyside trader put it, is that issuers were getting such fantastic terms throughout the first half of 2003.

Market chatter had Lockheed stepping out the yield on its $850 million cash-to-zero floater by as much as 70 basis points, but it was officially revised to add just 25-60 bps.

The last price talk on Lockheed's convert put the yield at the three-month Libor minus 20 to 30 bps, versus original guidance for the three-month Libor minus 45 to 90 bps, with the premium range remaining at 52.5% to 57.5%.

At the middle of original guidance, sellside analyst had put the Lockheed deal anywhere from 2% rich to a little cheaper than fair value, whereas new deal terms over the past two to three weeks have averaged around 3% cheap.

Lockheed shares closed Thursday down $1.20, or 2.36%, to $49.70.

DST priced its deal late Wednesday 25 bps wider than original price talk and at the cheapest end of revised guidance, plus boosted the delta, and Artesyn also bumped up the yield on its small deal by 25 bps from the cheapest end of price talk at the pricing late Thursday.

DST sold $700 million of 20-year cash-to-zero convertible notes in two parts at the wide end of revised price talk. Series A sold at par to yield 4.125% with a 40% initial conversion premium. Series B sold at par to yield 3.625% with a 40% initial conversion premium. Both have a 40% initial conversion premium.

Revised talk had put the series A yielding 3.625% to 4.125% versus original guidance for 3.375% to 3.875%, with the series B yielding 3.125% to 3.625% versus original guidance for 2.875% to 3.375%. The premium on both tranches had been revised to 40% to 45% versus original talk of 43% to 48%.

As observers expected, the tranche with the fatter coupon found the most interest among buyer. Series A came to $450 million with a $90 million greenshoe while series B totaled $250 million with a $50 million greenshoe.

Both DST tranches gained out of the gate, while traders said there had been no bids on the deal in the gray market and the last offer before pricing was just 0.25 point over issue price.

Joint bookrunner Citigroup closed the 4.125s at 103.25 bid, 104 offered and the 3.625s at 101 bid, 101.5 offered. DST shares ended up 92c, or 2.62%, to $35.98.

After the close Thursday, Artesyn set the final terms on its $75 million of 10-year convertible notes. The issue sold at par to yield 5.5% with a 28% initial conversion premium - wider than guidance that put the yield at 4.75% to 5.25%, and at the cheap end of premium talk of 28% to 32%. Artesyn shares ended down 81c, or 11.39%, to $6.30.

Alongside Lockheed, Ptek Holdings Inc. is set to price a small $75 million deal after Thursday's closing bell. Ptek shares ended down 74c, or 12.4%, to $5.23.

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