Aon $200 million convertibles talked at 3.50% yield, up 22-26%

By Sara Rosenberg

New York, Nov. 4 - Aon Corp. is expected to sell $200 million of 10-year convertible senior unsecured notes after market hours on Monday.

Price talk puts the coupon and yield to maturity at 3.50% and the initial conversion premium at 22% to 26%, according to a syndicate source.

Morgan Stanley Dean Witter is leading the Rule 144A deal.

There is a $30 million greenshoe.

The deal is non-callable for five years and can then be redeemed at par. There is a put at par after seven years.

There is a contingent conversion threshold of 120% and contingent payment with a 120% trigger.

Proceeds will be used to repay short-term debt.

Using the mid-point of talk, the deal is 1.83% cheap to theoretical value, according to Wachovia Securities, inc. analyst Kimberlee Brody. Her calculation was based on a stock price of $16.64, a volatility assumption of 45%, a credit spread assumption of 484 basis points and a stock dividend of 60 cents.

Moody's Investors Service is expected to rate the deal Baa2 and Standard & Poor's is expected to rate the deal A-.

Aon is also selling $500 million of stock, also via Morgan Stanley and with proceeds also going to repay short-term debt.

Aon is a Chicago, Ill. holding company whose subsidiaries provide insurance brokerage, consulting and insurance underwriting services.

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