American Tower gains 2.25 points on junk bond deal; three small new deals emerge

By Ronda Fears

Nashville, Nov. 3 - It was a fairly typical Monday, slow in other words, but three tiny new deals emerged and convertible market sources are expecting a bit of a rush before the holiday season gets fully under way.

Meanwhile, the lull in the primary market has boosted prices in the secondary market and trading flow somewhat.

"We had the usual suspects trading around, then a couple of interesting situations," said a dealer.

American Tower Corp.'s newest convert, the 3.25% due 2010, was better bid Monday as headlines about it selling $350 million of junk notes hit the tape early in the day.

The junk deal was going very well, too, according to Prospect News high yield sources, and was upsized to $400 million by day's end, settling with a 7.25% handle. The eight-year senior subordinated notes, which sold at par, priced at the rich end of price talk that put the yield between 7.25% and 7.5%.

The American Tower 3.25s gained 2.25 points on the development, moving to 124 bid, 124.625 offered. The underlying stock rose 40c, or 3.45%, to $12.

A convertible source on the buyside said that holders liked that the company was using proceeds to repay outstanding borrowings on its bank facilities.

Several tech names were higher as well. Among those mentioned by dealers were Advanced Micro Devices Inc., Conexant Systems Inc., Skyworks Solutions Inc. and Akamai Technologies Inc.

"Due to the lack of supply, there's a better bid undertone in the market. We've been seeing this trend for a couple of weeks now," said a sellside market source.

"I don't see that changing until there's a lot of new deals."

Merrill Lynch convertible analyst Tatyana Hube said that despite negative net new issuance - in the neighborhood of $1.7 billion - for October, "strong performance" in the secondary market propelled the market value of the convertible universe upwards by $6.7 billion.

The Merrill Lynch master convertible index increased to $282.4 billion at the end of October from $275.7 billion at the end of September.

Elan Corp. plc's new convertible continued to be a raging success among buyers, dealers said, even amid only modest flow in the broad convertible market on Monday.

Morgan Stanley, lead manager on the Elan deal, closed the new 6.5% convert up 0.75 point to 111.625 bid, 112.625 offered. Another sellside firm, though, quoted the issue up 1.5 points to 112.25 bid. Elan shares ended the day up 7c, or 1.36%, to $5.20.

Three new deals emerged Monday, but the grand total of all three is just $230 million.

After the closing bell, Actuant Corp. launched $100 million of 20-year convertible notes - with seven years of hard call protection - talked to yield 2.0% to 5.25% with a 30% to 35% initial conversion premium.

Actuant's Rule 144A issue will be marketed throughout Tuesday, with Wachovia Securities as the bookrunner, then final terms will be set after the market close.

Actuant shares closed Monday up 76c, or 2.36%, to $33.

Early in the day, Navigant International Inc. got busy marketing a $60 million offering during the session, via lead manager Banc of America Securities.

The Navigant deal launched right at or shortly before the opening bell rang, putting the 20-year convertible notes - non-callable for seven years - pricing to yield 4.75% to 5.25% with a 20% to 27% initial conversion premium.

Lehman Brothers analysts put the new Navigant issue 7.8% cheap, at the midpoint of price talk, using a credit spread of 800 basis points over Treasuries and a 30% stock volatility.

Lehman analysts said in a new issue report that the cheapness was warranted, given the company and deal specifics. While the Lehman high yield consumer cyclicals trade at a spread of 462 bps, they bumped the spread on Navigant to 800 bps due to the company's small market cap, the subordinated status of the convert, a difficult borrow on the stock and the competitive nature of the travel services industry.

Breakeven on the convert of 3.81 years, well within the seven years of hard call protection, was a positive, though, the analysts noted.

Navigant, an Englewood, Colo.-based consulting services firm, said the convertible offering is part of a refinancing package that also includes a new $170 million senior secured credit facility.

It was set to price right after the close, but final terms were not available by press time.

Navigant shares lost $1.74, or 11.55%, to $13.33 on heavy volume.

Also, on the horizon, Komag Inc. is planning to sell $70 million of 20-year convertible notes and 6 million shares of common stock, via bookrunner Bear Stearns & Co. Inc.

Pricing will be scheduled once the registration statements, which were filed Monday, clear the Securities and Exchange Commission.

Komag shares ended Monday off 56c, or 2.97%, to $18.30.

Otherwise, traders said flow was "fair," as one put it.

A lot of tech issues were moving higher in tandem with the stock, and a few were trading, "but most of that paper is pretty rich," the trader said.

With the run-up in tech stocks, he said, several issues that had fallen off radar screens at dedicated convertible funds are now showing back up. Thus, they are finding fresh bids.

Akamai shares hit another 52-week high, gaining $1.41, or 17.85%, to $9.31 - fueled by good earnings last week, plus the company naming a new executive Monday.

Akamai announced it has named Michael Ruffolo as chief operating officer, following last week's earnings report that showed third quarter revenues rose nearly 18% and that its net loss was flat compared with a year ago.

The Akamai 5.5% convertible due 2007 gained about 4.5 points, the trader said, to 92.5 bid, 93.5 offered.

Conexant moved on its acquisition of GlobespanVirata Inc. in a stock swap valued at about $969.5 million, forming what it described as a company better equipped to target the broadband digital market, including digital-subscriber line connectivity and wireless local-area networking.

Conexant's convertibles were marked up, although traders noted there's not much left outstanding, while the stock dropped slightly on the merger news.

Skyworks Solutions, however, which has a close relationship to Conexant gained a lot of ground. One trader said that Skyworks it stands to reason that if Conexant's business picks up, then Skyworks' will too.

The Skyworks 4.75% convertible due 2007 shot up nearly 5 points, the trader said, to 125.5 bid, 126.5 offered. Skyworks shares gained 32c on the day, or 3.74%, to close at $8.90.

A convert trader at a hedge fund in New York also mentioned that Sandisk Corp. was a little weaker on a Barron's article saying the computer storage firm's expectations for business growth may be too optimistic. The 4.5% due 2006 issue was off 1 to 2 points, he said, following a "hot streak" over the past few weeks as the convert rose alongside the stock..

Sandisk shares ended down 33c, or 0.41%, to $80.27.

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