Market attention drawn to new issues as Delta and Juniper get reoffered at lower prices

By Sara Rosenberg

New York, May 28 - A lot of attention was awarded to the three new deals that hit the market, especially since various pricing adjustments were made on two of them.

Delta Air Lines Inc.'s offering was originally issued at par and then repriced at 96, while Juniper Networks Inc.'s offering was originally issued at par and then reoffered at 991/4, according to market sources. American Financial Group Inc.'s convertible, however, was left unscathed, managing to get done at original levels.

Delta Air Lines priced its $300 million convertible senior notes due 2023 to yield 8% with an initial conversion premium of 99.57%. The conversion price was $28.00.

The deal came at the cheap end of yield talk of 7.5% to 8% while the initial conversion premium was, as expected, 99.57%.

The new convertibles were said to be trading around 96 bid, 97 offered on Wednesday, according to an analyst. The stock closed at $12.89, down $1.15 or 8.2% on the day.

There was some confusion surrounding this deal early in the day since it was expected to price prior to market open. "I think it priced this morning after the open but we didn't get the terms till close to lunch time," an analyst said. "We had heard it was being repriced downwards."

According to another source, rumors had been flying around the marketplace throughout the morning that the deal was either going to be reoffered or the company was going to come out with new terms since the deal seemed to be a little too aggressive based on initial terms.

Using 55% volatility and a spread of 1,200 basis points over Treasury, the convertible is 1½% to 1¾% rich, based on Tuesday night's close, the source explained. And, it's even richer based on Wednesday's stock performance, he added. Delta stock closed at $12.88 Wednesday, down $1.15.

"If you're going to get people to buy this thing you have to do better than that," the source said. Plus, as an airline industry deal it faces even more scrutiny since the sector has been troubled, he concluded.

Using the middle of price talk, Tatyana Hube, analyst at Merrill Lynch & Co., valued the deal 3.2% cheap, based on a spread of 900 basis points over the five-year Treasury and 40% volatility against Tuesday's closing stock price of $14.03 (and 0.71% common yield). However, Hube warned that at Wednesday' opening stock price the valuation would look less rosy.

JPMorgan led the Rule 144A deal.

There is hard call protection for the first five years and puts in years 5, 10 and 15.

There is a $50 million greenshoe on the Atlanta air carrier's deal.

Juniper Networks Inc.'s new deal was relatively quiet in the secondary market on Wednesday, although according to a source, a small amount of it did trade. The new convertible closed at 100.75 bid, 101 offered, according to a trader. The stock closed at $13.90, up $0.01 or 0.07% on the day.

The $350 million five-year non-callable convertibles priced at par in an overnight deal to yield 0% with an initial conversion premium of 45%. The deal was then reoffered at 991/4, according to a number of market sources. "Using last night's close, it's slightly cheap," a market professional added.

Original price talk had the deal yielding 0% with an initial conversion premium of 45% to 50%.

Goldman Sachs & Co. was lead manager for the Rule 144A offering.

There is a $50 million greenshoe.

Proceeds will be used by the Sunnyvale, Calif. provider of network infrastructure solutions for general corporate purposes, which may include acquisitions and repurchases of outstanding subordinated notes or common stock.

As for American Financial Group Inc.'s new deal, it is the only offering that got done as is, according to one analyst. "I haven't heard a thing. But, that one was okay," another source said. "They priced it at the cheap end. It had some cheapness to it."

The company sold $175 million in proceeds, $471 million principal at maturity, of 30-year cash-to-zero convertibles to pay cash coupon for five years, then becoming a 0% accreting bond. The deal priced with a yield-to-maturity of 4% and with a 47.5% initial conversion premium.

That was at the cheap end of price talk which was for a 3.5 to 4.0% yield with an initial conversion premium of 47.5-52.5%.

On Wednesday, the stock closed at $21.86, down $0.04 or 0.18% on the day.

Merrill Lynch and UBS Warburg are joint lead managers on the Rule 144A deal.

There is a $25 million greenshoe in proceeds, $67.3 million principal at maturity.

The Cincinnati-based firm intends to use proceeds to repay outstanding debt under its existing bank line of credit and provide capital for operations.

The deal had been pushed back from May 21 after an adverse legal judgment.

With the addition of these three new deals, this month has surpassed the previous record of most amounts of deals to price, according to an analyst. Currently, during this month there have been 40 new deals, excluding synthetics. The previous record was in May 2001 when 39 issues came to market.

And, things don't seem to be slowing down as five new deals were announced after close on Wednesday.

Lucent Technologies is scheduled to price $1.3 billion convertible senior debt in two parts after market close on Thursday, according to sources. Price talk on the tranche A due in 2023 is for a 2.375% to 2.875% yield with an initial conversion premium of 42% to 46%. Price talk on the tranche B due in 2025 is for a 2.375% to 2.875% yield with an initial conversion premium of 32% to 36%.

Each tranche is expected to be sized at a minimum of $500 million.

Citigroup Global Markets and JPMorgan joint book-running managers for the registered offering, and HSBC is a joint-lead manager.

The Murray Hill, N.J. network provider will use the proceeds towards the repayment or possible repurchase of certain short- and medium-term obligations over time, as well as for general corporate purposes.

Ask Jeeves Inc. is scheduled to price $100 million five-year convertibles on Thursday after market close. Price talk is 0% yield-to-maturity, with an initial conversion premium of 24% to 30%.

Credit Suisse First Boston is leading the Rule 144A deal.

The Emeryville, Calif. provider of web search technologies intends to use the proceeds for general corporate purposes, including potential acquisitions and investments.

Celgene Corp. is scheduled to price $300 million five-year convertibles Thursday morning before market open. Price talk is for a 1.75% to 2.25 yield with an initial conversion premium of 45% to 50%.

Morgan Stanley is leading the Warren, N.J. biopharmaceutical company's Rule 144A deal.

Cypress Semiconductor Corp. is expected to price $500 million convertible subordinated notes due 2008 with talk at a 0.75% to 1.25% yield-to-maturity. Price talk on the initial conversion premium was not available.

Piper Jaffray is leading the Rule 144A deal.

The San Jose, Calif. manufacturer of digital and mixed-signal integrated circuits intends to use proceeds to redeem at least $400 million of its outstanding 4% and 3.75% convertible subordinated notes, to repurchase shares of its common stock and for other general corporate purposes, which may include other debt repayment. The company also intends to use a portion of the proceeds to purchase issuer call spread options with respect to its common stock.

Electronics For Imaging Inc. plans to offer approximately $200 million principal amount of convertible debentures due 2023 through a private placement.

The Foster City, Calif. provider of printing and imaging solutions and services intends to use up to $80 million of the net proceeds to purchase shares of its common stock. The remaining net proceeds will be used for general corporate purposes, which may include the purchase of additional shares of common stock and acquisitions of complementary businesses and technologies.

In terms of proceeds, this month is does not seem like it will be hitting any new levels, according to the analyst. The 40 deals have brought $11.3 billion in proceeds, while the 39 deals in May 2001 brought $19.6 billion in proceeds.

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