Navistar $190 million overnighter convertibles at 2.0% to 2.5% yield, up 30% to 35%

By Ronda Fears

Nashville, Dec. 10 - Navistar International Corp. tossed out an overnighter just after the close, following a two-notch downgrade by Moody's on the heels of downgrades by Standard & Poor's and Fitch Ratings on Monday.

The truck and diesel engine maker was pitching $190 million of non-callable five-year convertible senior bonds, talked to price at a yield 2.0% to 2.5% with a 30% to 35% initial conversion premium. The Rule 144A deal is coming to market via lead manager Credit Suisse First Boston.

"It's nothing spectacular, being such a small deal, but it's interesting that we're seeing deals come with full call protection," said a buyside trader.

But the trader said the new Navistar convert was bid 2 points over par with offers at 2.5 points over par.

Computer Associates International Inc. sold $400 million of non-callable convertible bonds with a 1.625% coupon and 38% premium last week. That deal also was above par in the gray market before pricing, but darted under par immediately out of the gate and hasn't recouped yet.

Sellside analysts put the new Navistar deal almost at fair value to nearly 5% cheap.

Deutsche Bank Securities Inc. analysts put it 2.8% cheap at the midpoint of guidance, using a credit spread of 850 basis points over Libor and 55% volatility in the stock.

The Navistar 9.375% senior unsecured note due 2006 traded at 93 bid, 95 asked before Moody's downgrade to Ba3, the analysts said, adding they expected that issue to settle out around 92 for a spread of 900 basis points over Libor.

Part of the proceeds will be used to repay the company's $100 million of 7% senior notes due Feb. 1, 2003. Remaining funds will be used to repay other debt.

In March, Navistar Financial Corp. unit sold $200 million of seven-year exchangeable notes that convert into Navistar International stock.

The 4.75% convert due 2009 was quoted closing Tuesday up 0.25 point to 82.75 bid, 83.25 asked.

Navistar shares ended up 20c to $26.70.

Moody's cut Navistar senior debt to Ba3 from Ba1 and subordinated debt to B2 from Ba2, including that issued by Navistar Financial, citing an expectation that cash generation and debt protection measures will remain under considerable pressure through 2003.

Moody's said the outlook was stable but noted that in addition to the continuing downturn in the North American truck market, the decision by Ford Motor Co. to not install the V-6 engines developed by Navistar in Ford's light trucks and SUV's would put pressure on Navistar's operating results.

S&P cut the Navistar Financial convert to B from B+, with a stable outlook.

Fitch also cut the convert to B+ from BB-, but said the outlook was negative.

Although Fitch said it feels Navistar has the liquidity to manage through some continued industry weakness, the rating agency said overall level of financial flexibility has decreased.

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