Navistar $200 million deal talk tightened to 4.75-5.0%, up 27.5-30%

By Ronda Fears

Nashville, Tenn., March 18 - Guidance on Navistar Finance Corp.'s $200 million of seven-year exchangeable notes that convert into Navistar International Corp. stock was tightened to 4.75% to 5.0% with a 27.5% to 30% initial conversion premium, and the pricing was advanced to after Monday's close. The issue slipped in the gray market from 2.25 points over par to 1.5 on the new price talk, but firmed up to 2 over par at the close, traders said.

Original price talk put the yield between 5.0% and 5.5% and premium between 22.5% and 27.5%.

Analysts said the new talk took 200 to 300 basis points of cheapness out of the deal.

Bear Stearns & Co. convertible analyst John Wright said the midpoint of the new price talk puts the deal about 4.5% cheap, using a credit spread of 460 basis points over Treasuries and 32% volatility in the stock. At the midpoint of the original guidance, he put the deal 6.5% cheap.

Wachovia Securities convertible analyst Kimberlee Brody puts the deal at 3.83% cheap, using a credit spread of 500 basis points and 35% volatility in the stock at the midpoint of the new guidance. She said original price talk, at the midpoint, put the deal at 6.72% cheap.

"This amount of cheapness is something we have seen more frequently in recent deals as companies are more willing to offer better terms in order to get deals done," Wright said, noting that several deals recently have emerged with cheap price talk that gets tightened before pricing.

The subordinated notes will be non-callable for three years.

Banc of America Securities and Salomon Smith Barney are joint book-running lead managers of the Rule 144A deal. Co-managers are Credit Suisse First Boston, JPMorgan and Scotia Capital Markets.

Navistar Finance said it would use proceeds for general corporate purposes. Warrenvillle, Ill.-based Navistar International is the largest U.S. truck and midrange diesel engine maker.

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