Providian, CapitalSource, Cytyc deals emerge; InVision Tech up 6.5 points on acquisition by GE

By Ronda Fears

Nashville, March 15 - Convertibles backslid somewhat Monday as the broader markets spiraled on renewed terrorism worries from last week's bombings in Madrid, but traders said defensive issues were still finding bids. Security-related issues such as InVision Technologies Inc. had buyers due to the terrorist scare, as well, with InVision also climbing on its $900 million acquisition by General Electric Co.

"We've seen risk tolerance plunge again. The train bombings in Spain compounded everything," said a convertible trader at one of the top shops.

"Obviously, we've been seeing most everything pull back. Really, there hasn't been any buyers step up except for defensive paper or something where the spreads have blown out."

Trading flow was described as light, however.

Besides InVision, there were no other homeland security type issues on a higher course. L3 Communications Inc., in fact, was lower, which traders attributed to valuation concerns related to the underlying stock.

Most convertibles were lower, especially in the tech and telecom spaces. Nortel Networks Corp. dropped on restating earnings and Lucent Technologies Inc. was lower in sympathy.

Airline paper took a dive, too, highlighted by Delta Air Lines Inc. issuing a warning late Friday.

Players mainly were busy with new deals as a result.

Providian Financial Corp., CapitalSource Inc. and Cytyc Corp were in the market pitching, altogether, $695 million of new convertibles.

While the stock market was not exactly cooperative with the timing of new deals, a capital markets source at one of the leading convertible underwriters said, "In the right space, with the right name, and decent terms there could be a blockbuster waiting in the wings."

Providian bid at plus 2 points

Market sources were glad to see a fairly hefty chunk of new deals afloat, but there was not a lot of gray market activity going on. For one thing, buyside traders noted that only Providian surfaced before the close. For another, potential buyers were not overly enthused by the terms of any of the pending deals, as usual.

Thus, Providian's was the most active, and still somewhat muted, according to buyside traders. In the gray market the new Providian convertible, however, was bid at 2 points over issue price with an offer at 2.25 points over, according to a buyside trader.

Before Monday's opening bell, Providian Financial began pitching $250 million of 12-year convertible notes talked at 2.25% to 2.75% yield to maturity with a 45% to 50% initial conversion premium for pricing after the close. The senior notes will pay a full cash coupon for seven years, then 1.75% plus an accreting amount for the full yield to maturity during the remaining five years.

Providian has three other convertibles outstanding: $400 million of 3.25% convertibles due 2005, which became callable in August at 101.3; $400 million in proceeds of 0% convertibles due 2021, issued at 45.289 in February 2001, which are callable and putable in February 2006 at 55.207; and $275 million of 4% convertibles due 2008, which are non-callable.

The Providian 4s were quoted up 1 point on the day to 112.5 bid, 113 offered, and the 0s were quoted up 0.75 point to 49.75 bid, 50.25 offered. Providian shares ended the day down 57 cents, or 4.63%, to close at $11.73.

Providian's converts have been in an upward mode since last fall when buzz began circulating that it was a takeover target for Wells Fargo & Co., a dealer said. While the rumor has not panned out, yet at least, he noted that the Providian issues have gained generally around 5 to 10 points.

CapitalSource, Cytyc afloat

After the closing bell rang, two more deals emerged for Tuesday's business - one before the open and another after the close. Neither the CapitalSource or Cytyc deals were seen in the gray market, however.

CapitalSource launched $225 million of 30-year convertible notes talked to yield 0.75% to 1.25% with a 32% to 37% initial conversion premium for pricing before Tuesday's open. It is being sold on swap with some of the proceeds going to buy up to 1.3 million shares of stock from note buyers to limit dilution, plus call options to create an effective conversion premium of 75%.

On Monday, CapitalSource shares closed up 2 cents, or 0.09%, to $23.03. The stock was not seen in after-hours trading.

Cytyc will be marketing its deal all day Tuesday. The $220 million of 20-year convertible notes are talked to yield 2.25% to 2.75% with a 45% to 50% initial conversion premium for pricing after Tuesday's close.

Boxborough, Ma.-based Cytyc, which makes cervical cancer screening tests, said it would use proceeds to finance its $325 million cash purchase of Novacept, a Palo Alto, Calif.-based maker of medical devices to treat excessive menstrual bleeding.

Cytyc shares closed Monday off 67 cents, or 3.19%, to $20.33. In after-hours trading, the stock was down by another 63 cents, or 3.1%.

InVision spikes on GE buy

In addition to getting a boost from the rekindled interest in security-related stocks, InVision got a big boost from the news that GE would buy the explosives-detection systems maker for $900 million, or $50 a share.

InVision shares zoomed up $8.13, or 19.72%, to $49.35.

The InVision 3% convertible, which was a troubled deal late last summer, saw some action, too, moving up 6.5 points outright to 156 bid, 156.5 offered.

"We traded about $2 million today," said a dealer. "It's a small deal [$100 million] so you wouldn't normally see that much trade."

Last August the company, which provides Transportation Security Administration certified explosives detection systems used at airports for screening baggage, scrapped the deal as the climate in the convertible market turned against issuers. It was revived a month later and price to yield 3.0% with a 15.73% initial conversion premium - considerably wider terms than original guidance for 2.25% to 2.75%, up 27.5% to 32.5%.

The Newark, Calif.-based company said last fall it would use proceeds for working capital and general corporate purposes, which might include acquisitions.

Separate from the acquisition announcement, GE said it was confident that it would reach the high end of its estimates for first and second quarter earnings, which would be 32 cents a share for first quarter and 39 cents a share for second quarter.

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