Slow day despite new deals; Baxter gets upsized but new Navistar sinks out of the gate

By Ronda Fears

Nashville, Dec. 11 - It was a slow day, even with a couple of new deals from Navistar International Corp. and Baxter International Inc. circulating.

"It was slow," one dealer said.

A buyside trader said the market seems to already be winding down into a holiday mode.

"We did most of all that [portfolio rebalancing] earlier," said a convertible trader at a hedge fund in New Jersey.

"Right now we're just slowly selling some rich bonds, in small amounts and remixing a few DECS" in light of the Baxter deal.

Baxter boosted its mandatory to $1.1 billion from $850 million amid strong demand, according to market sources. Some potential buyers thought the deal was too large to begin with, yet interest remained strong.

But the guidance was left intact, which pleased buyers since the trend had been to tighten terms of news deals getting strong interest.

The Baxter mandatory is talked to price with a dividend of 7% to 7.5% and initial conversion premium of 20% to 24%.

It was quoted 0.25 point over par in the gray market.

Baxter shares ended Wednesday down $1.93 to $28.78 ahead of the convertible pricing after the close, along with 13 million shares of common stock.

The Baxter 1.25% contingent convertibles due 2021, which are putable at par in June 2003, slipped 0.375 point to 99.125 bid, 99.625 asked.

Not everyone was pleased with the new deals, and Navistar's new paper sank out of the gate much like Computer Associates International Inc.'s deal last week.

"Even though it's really quiet right now and there are not a lot of opportunities, we're not going to participate in this kind of stuff," said another convertible trader based in New York, referring to the Navistar deal. "It's a dog."

Navistar priced $190 million of non-callable five-year convertible senior notes at par to yield 2.5% with a 30% initial conversion premium in the Rule 144A market. It sold at the cheap end of talk, breaking another recent trend of pricing new deals at the rich end of guidance.

At the final terms, Wachovia Securities, Inc. put the new Navistar convertible at 0.82% cheap, using a credit spread of 1,000 basis points over Treasuries and 50% volatility.

Deutsche Bank Securities Inc. put it 3.86% cheap, using a spread of 850 basis points over Libor and 55% volatility.

In the immediate aftermarket, the overnighter sank, closing out 1.5 points below issue price at 98.5 bid, 99.5 asked.

Navistar shares ended down $1.71 to 24.99.

The old Navistar Financial Corp. 4.75% exchangeables due 2009 that convert into Navistar International stock, which were sold in March, closed Tuesday up 0.25 point to 82.75 bid, 83.25 asked.

Otherwise, there were bits and pieces trading here and there, up and down.

"Overall I'd have to say it has been fairly quiet today," said Stuart Novick, convertible analyst at Salomon Smith Barney.

"Wait until next week, when there's a transit strike here in NYC."

If there is a transit strike, the market anticipates many players will not be able to get to work. Thus, activity will drop off further.

Novick said a lot of Invitrogen Corp. converts traded as the stock rose following the company's lowered guidance for the year. He said Salomon is maintaining a buy rating on the stock.

"And we like the [Invitrogen] credit," Novick said.

"The company has a lot of cash, $1.1 billion, and generates a lot of cash from operations."

For 2002, Invitrogen lowered its guidance for EPS by 5c to between 44c to 46c. For 2003, the company said it expects EPS of $2.05, which is better than the consensus estimate of $2.03.

Wachovia Securities convertible analyst Yaroslav Motuzenko said Invitrogen's new guidance appears "conservative" and views it as a "solid" credit.

Invitrogen's 2.25% convertible due 2006, which was issued a year ago, added 2.5 points to 84.5 bid, 85.125 asked. The 5.5% convert due 2007 was flat at 92.5 bid.

Invitrogen shares climbed $2.32 to $31.23.

There also was some action in Intepublic Group's 0% convertibles and Rational Software Corp.

Rational Software's 5% convertibles due 2007 were quoted unchanged at 101.625 bid, 102.625 asked as the stock closed up 25c to $10.54.

"There was a rumor stirring around, that Microsoft would try to outbid IBM" for Rational Software, a dealer said.

"I don't think anyone is really putting any credence in the rumor. The IBM offer [$1.2 billion] was already at a pretty big premium [from $8.17 before the deal was announced].

"What's probably really happening is some people are able to sell at a profit and still leave room for a new buyer to make money."

The Rational Software convert is callable in February at par plus accrued interest, or putable on the change of control, but analysts have suggested holding the issue since it's trading above the call or put price.

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