Bank of America removes the juice; National City opens flat; Kinross Gold sparkles

By Evan Weinberger

New York, Jan. 24 - The talk of the convertibles universe Thursday was Bank of America Corp.'s potential $6 billion perpetual non-cumulative preferred stock that was set to price after the close.

Speculation centered on whether Bank of America would upsize the deal, especially with gray market trading hovering around 102.

By early afternoon, talk spread that the deal had been upsized, with a Bloomberg headline putting the deal at $13 billion. A trader said the gray market bidding on the deal slipped on the rumor. An analyst said he heard terms were coming in rich.

National City Corp. priced an upsized $1.25 billion in convertible senior notes due 2011 Thursday. Market watchers reported little action in that issue.

Kinross Gold Corp. priced an upsized $420 million in 1.75% convertible senior notes due 2028 that came in rich and moved higher in active trading. The upward momentum continued throughout the day.

One other deal priced Thursday. Solarfun Power Holdings Co. Ltd. priced $150 million in 3.5% convertible senior notes due Jan. 15, 2018 with a 27.5% initial conversion premium before the market open.

The Rule 144A transaction has a $22.5 million greenshoe and is expected to close Jan. 29.

The conversion price is set at $19.13, and the conversion ratio is set at 52.2876.

The convertibles have call protection for the first seven years. They are callable subject to a 130% hurdle in the last three years. There is a put in year seven.

Solarfun is a Shanghai-based solar power components maker. The company plans to use the proceeds to purchase raw materials, for capital expenditures, to pay down debt and for general corporate purposes.

Market watchers said they never saw Solarfun's 3.5% convertible senior notes due 2018 cross their screens on the day.

Solarfun stock (Nasdaq: SOLF) fell 66 cents, or 3.93%, to close at $16.15 on the day.

In secondary trading, Symantec Corp. and Lockheed Martin Corp. were up on positive earnings.

Amgen Inc. convertibles were little changed during the day, but a positive earnings statement at the end of the day set the stage for upward movement in after-hours trading.

Stock markets rose for a second straight day Thursday as investors took heart from a Labor Department report documenting a fourth consecutive week of falling new joblessness claims.

The Dow Jones Industrial Average gained 108.44, or 0.88%, to close at 12,378.61.

The Nasdaq jumped 44.51 points, or 1.92%, for a 2,360.92 close.

And the Standard & Poor's 500 added 13.47, or 1.01%, for a close at 1,352.07.

BofA upsizing?

While some speculation Wednesday revolved around whether a welcoming reception for its straight preferred stock offering would lead Bank of America to abandon the convertible preferred portion of the deal, the talk Thursday moved to whether the deal would be upsized.

"Arbs should be all over this one. Outrights cannot ignore it, due to its size and investment-grade rating," a fund manager said in an early morning e-mail. "It's priced only a little cheap in my humble view. [I] see them bid up in the grey - so expect a reprice and upsize!?!!?!?!?"

A trader wondered whether BofA would follow Citigroup's lead when it priced its preferreds earlier in the month. "Since Citigroup's original terms were well received and ultimately repriced outside the range, does the same happen for BAC?" he said. "I would not be surprised if that happens."

By the end of the trading day, it appeared there was an answer to the speculation.

Traders reported that the deal was upsized - perhaps more than doubled. A Bloomberg story had the total as high as $13 billion, with $5 billion to $6 billion issued in straight preferreds and $6 billion to $7 billion issued through convertibles.

An analyst said he heard the deal was coming in aggressive. Talk was set at a 7.25% to 7.75% dividend and a 20% to 25% initial conversion premium.

The upsizing - which if the number holds makes Bank of America's issue the largest convertible issue ever - and aggressive pricing took the steam out of the deal.

An analyst said he saw bids drop from plus 3 to par plus 5/8 after the talk shifted.

A second fund manager said that the excitement wore off as the deal got bigger. "They upsized and repriced BAC so [that] took most of the juice out," he said.

The fund manager, who was not impressed with the terms and the lack of downside protection on the offering, concluded that there was a case to be made to get in on the deal.

"If you like the stock, you should own these preferreds," he said. "If you like the yield and are not worried about credit, then you like these preferreds."

The country's second-largest bank also reportedly let go around 25% of its securities analysts Thursday.

Charlotte, N.C.-based Bank of America stock (NYSE: BAC) closed at $39.90, a loss of 67 cents, or 1.65%, Thursday.

National City opens flat

National City had enough interest that it was able to upsize its principal offering on its 4% convertible senior notes due Feb. 1, 2011 to $1.25 billion from the originally announced $1 billion. The deal came in cheap, with the 4% coupon at the high end of talk and the 22.5% initial conversion premium at the low end. Talk was set at a 3.5% to 4% coupon and a 22.5% to 27.5% initial conversion premium.

The greenshoe was upsized to $187.5 million from $150 million.

The deal didn't excite many investors, apparently.

"Somebody told me they traded at +½ this morning and I haven't seen anything" after that, a trader said early in the afternoon.

Another trader said that while he didn't like the terms of the deal, he said the stock had significant upside. "So for outright accounts I would own it," he said.

National City's 4% convertible senior notes due 2011 closed Thursday at 101.5 versus a closing stock price of $16.49.

National City stock (NYSE: NCC) gained $1.05, or 6.8%, on the day.

Settlement is expected on Jan. 29.

The conversion price is $18.91, and the conversion ratio is set at 52.8709.

There are no calls or puts.

The notes carry full dividend protection in the form of a conversion ratio adjustment. There is fundamental change protection but no public acquirer change-of-control waiver.

National City is a Cleveland-based financial holding company with banking networks in Ohio, Florida, Illinois, Indiana, Kentucky, Michigan, Missouri, Pennsylvania and Wisconsin.

National City plans to use the proceeds to repay $300 million in outstanding senior notes due April 1, to cover the costs of the hedge and warrant transactions and for general corporate purposes.

Kinross deal golden

Toronto-based gold miner Kinross Gold also upsized its new offering of convertible senior notes, which mature in 2028. The offering came in at $420 million from an originally announced $400 million.

The total offering size, assuming bookrunners Merrill Lynch and UBS opt for the greenshoe, remains the same since the greenshoe was downsized by the exact same amount. Originally the greenshoe was $60 million, but it was downsized to $40 million.

The deal came in aggressively, with a 1.75% coupon and 40% initial conversion premium. Talk was set at a 1.75% to 2.25% coupon and a 22.5% to 27.5% initial conversion premium.

And that didn't matter because investors flocked to the deal. It traded actively and ever-higher. As of around 3 p.m. ET, a trader reported a bid of 108.5 for the convertibles.

A second trader said that investors really wanted exposure to gold given fears over the economy. "The converts market could really use that," he said.

At the end of the day, Kinross' 1.75% convertible senior notes closed the day at 109 versus a closing stock price of $22.52.

Kinross stock (NYSE: KGC) jumped $2.18, or 10.72%, Thursday.

The settlement date on the convertibles is expected to be Jan. 29.

The conversion price is $28.48, and the conversion ratio was set at 35.1173.

The convertibles are callable beginning March 20, 2013. There are puts on March 15 in each of 2013, 2018 and 2023.

There is a contingent conversion subject to a 130% hurdle.

The convertibles carry full dividend and takeover protections and a net-share settlement agreement.

Kinross Gold is a Toronto-based gold miner. The company plans to use the proceeds to repay outstanding term loans with the rest of the proceeds going toward capital expenditures and general corporate purposes.

Symantec up on earnings

Cupertino, Calif.-based security software company Symantec announced a 13% rise in its fiscal 2008 third-quarter earnings Wednesday evening.

Symantec brought in a net of $132 million, or 15 cents per share, in the last three months of 2007. In the same period in 2006, Symantec had net earnings of $117 million, or 12 cents per share.

Those figures beat Wall Street estimates, as did Symantec's fourth-quarter guidance.

Investors were pleased.

Symantec's 0.75% convertible senior notes due June 15, 2011 closed Thursday at 110.568 versus a closing stock price of $16.93. They closed Wednesday at 105.892 versus a stock price of $15.26.

Symantec's 1% convertible senior notes due June 15, 2013 closed Thursday at 110.57 versus a stock price of $16.93 after finishing Wednesday at 105.95 versus a stock price of $15.26.

Symantec stock (Nasdaq: SYMC) stretched $1.67, or 10.94%, on the day.

Lockheed Martin flies higher

Bethesda, Md.-based Lockheed Martin posted a 10% rise in profits for the fourth quarter of 2007, the company said Wednesday after the close.

The defense contractor reported a $799 million, or $1.89 per share, profit for the quarter. The company posted $729 million, or $1.68 per share, profit for the same period in 2006.

That handily beat analysts' projections, according to Thomson Financial.

Lockheed Martin's Libor minus 25 bps cash-to-zero convertible senior unsecured floating-rate notes due Aug. 15, 2033 closed Thursday at 147.488 versus a closing stock price of $105.90. They closed Wednesday at 140.876 versus a stock price of $101.69.

Lockheed Martin stock (NYSE: LMT) gained $4.21, or 4.14%, on the day.

Amgen earnings up

Amgen, a Thousand Oaks, Calif.-based biotechnology company, posted relatively flat profits for the fourth quarter of 2007, but it still beat Wall Street estimates.

The company gave lower guidance for the first quarter of 2008, however.

Amgen had a profit of $835 million, or 76 cents per share, for the last three months of 2007. In the same period in 2006, Amgen had profits of $833 million, or 71 cents per share.

Those relatively flat numbers narrowly beat Wall Street estimates, according to Thomson Financial.

The relatively flat sales led to a rise in Amgen's two convertibles after hours, market watchers reported.

On Thursday, they were relatively flat.

Amgen's 0.125% convertible senior notes due Feb. 1, 2011 closed Thursday at 93.56 versus a closing stock price of $46.12. They closed Wednesday at 93.621 versus a stock price of $44.75.

Amgen's 0.375% convertible senior notes due Feb. 1, 2013 closed Thursday at 90.606 versus a stock price of $46.12 after finishing Wednesday at 90.37 versus a stock price of $44.75.

Amgen stock (Nasdaq: AMGN) was up $1.37, or 3.06%, Thursday.

The stock was trading higher after hours as well.

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