Nuance makes strong debut; Priceline moves higher; Calpine convertibles 'crushed'; Chesapeake adds on

By Evan Weinberger

New York, Aug. 8 - A well-received new issue from Nuance Communications Inc. highlighted trading on the convertibles market Wednesday.

Meanwhile, Priceline.com convertibles also moved up on what analysts and traders called an above-average trading day, although not at the same levels as seen toward the end of July. On the flip side, convertibles issued by Calpine Corp. were "crushed," according to one trader, as a result of the company's bankruptcy agreement.

Convertibles in Luminent Mortgage Capital Inc. stayed at their low levels from Tuesday as the stock stopped trading on the New York Stock Exchange, although non-registered brokers kept the price of the stock moving still further down after Tuesday's steep decline.

The equity markets had another one of the up-and-down days that investors have become accustomed to. After rising by well over 100 points, then slouching briefly into negative territory, the Dow Jones Industrial Average ended the day up 153.56 points, or 1.14%, closing at 13,657.86.

The Nasdaq followed a similar, but less drastic, pattern. The technology-heavy stock index finished the day up 51.38 points, or 2.01%, closing at 2,612.98.

In new issue news, frequent contributor to the convertibles market Chesapeake Energy Corp. announced the offering of $500 million in 2.5% contingent convertible senior notes due May 15, 2037. The deal is an addition to the May 10 offering of $1.15 billion in 2.5% contingent convertibles. There is a $75 million greenshoe.

The new convertibles will have a one-penny lower strike price - $51.58 versus $51.59 - and a slightly higher conversion ratio - 19.3868 for the addition versus 19.3855 for the existing convertibles.

The new contingent convertibles will have the same structure as the previously issued convertibles but will not be fungible and will trade under a different CUSIP.

That means that the call structure - non callable for the first 10 years - the put structure - puts in years 10, 15, 20 and 25 - will remain the same. So will the contingent conversion hurdle of 125% and the contingent payment of 120%.

The convertibles are set to price Wednesday night, and the proceeds will go toward repaying debt under its existing revolving credit facility.

Nuance has strong debut

In a time with few other new issues, Nuance Communications was able to garner positive vibes on its first day of trading. The Burlington, Mass.-based speech and imaging innovations company that does a lot of work in dictation software priced its upsized $220 million in unsecured senior convertible debentures at a 2.75% coupon and a 22.5% initial conversion premium.

The debentures came in cheaper than talk, which called for a coupon of 2% to 2.5% and an initial conversion premium of 22.5% to 27.5%.

But while the debentures were priced to move, the size of the issue moved up from an originally announced $150 million. There is still a $30 million greenshoe.

"It was definitely priced attractively," one analyst said.

A trader said he saw the debentures, which were priced at par Wednesday, close at a bid of 105 versus a closing stock price of $16.76.

The stock (Nasdaq: NUAN) climbed 87 cents, or 5.48%, Wednesday.

"There haven't been a lot of deals recently," another analyst said. "This one seemed to be a reasonably solid company. [There are] no huge problems, and it's a pretty high delta. The hedge guys will be able to put a pretty high hedge on them. It's about cash-flow neutral on them, so they'll be able to trade the volatility."

Priceline convertibles move higher

A strong earnings report sent all four of Priceline.com's convertible issues higher on Wednesday. The Norwalk, Conn.-based online travel company announced that its second-quarter profits in 2007 were nearly triple the profits from 2006.

The company earned $34.6 million in the second quarter of 2007 versus 2006 second-quarter earnings of $12.5 million.

While all four of the company's convertibles traded higher, if not particularly actively, the two most notable were the 2.25% convertible senior notes due 2025 and the 0.5% convertible senior notes due 2011.

The 2.25% convertibles closed the day at 208.25 versus a closing stock price of $79.56. They finished Tuesday at 175 versus a $65.09 stock price.

The 0.5% convertibles closed the trading day at 195.25 versus a stock price of $79.56. They closed on Tuesday at 165.25 versus a stock price of $65.09.

Priceline stock closed up $14.47, or 22.23%, Wednesday.

An analyst said that because Priceline.com isn't a terribly credit-sensitive issue, the convertibles were sensitive to the steep stock rise. "They had good earnings, the stock is up," the analyst said.

Calpine convertibles 'crushed'

Calpine, an alternative energy producer based in San Jose, Calif., saw its convertible bonds tumble on news of a settlement between second-lien noteholders represented by Wilmington Trust Co. One trader said the convertibles were "crushed." Calpine filed for Chapter 11 bankruptcy in 2005.

The company's 6% convertible senior notes dropped between 4 and 5 points, according to one trader, who saw them at a bid of 102 versus an offer of 104.

Other Calpine convertibles were also down, traders said.

Calpine stock (Pink Sheets: CPNLQ) traded up 18 cents, or 6.21%. The shares closed at $3.08.

Under the settlement agreement, approved by a federal bankruptcy court Wednesday, convertible holders are allowed a $60 million secured claim and a $40 million unsecured claim. The claims cover "make whole premiums" and damages the convertible holders say they are owed due to the company's early retirement of the second-lien debt.

"The convertible feature that they were hoping to have is not going to be allowed," a trader explained, which means less recovery for convertible holders.

Luminent Mortgage stays down

A day after its convertibles dropped into the 20s and the stock plunged nearly 80%, Luminent Mortgage convertibles stayed flat and the stock continued its fall despite trading at the New York Stock Exchange being halted.

The convertibles didn't budge Wednesday as the San Francisco-based mortgage security real estate investment trust announced that two of its creditors claimed it was in default.

While the convertibles didn't move from Tuesday's low point in the 20s, the REIT's stock (NYSE: LUM) continued its descent. The stock lost 13 cents, or 12.04%, on Wednesday to close at 95 cents.

The stock was trading lower in after-hours trading with Luminent set to announce earnings Thursday.

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