Convertibles prices ease; market eyes Bill Barrett, Central Europe deals; Regal Entertainment to price

By Rebecca Melvin

New York, March 4 - The convertible bond market was depressed Tuesday despite two new deals released for secondary trading at the open and two more seen pricing after the close, market participants said.

After the close, two more new convertible deals were launched, including Regal Entertainment Group's $190 million of convertibles, seen pricing early Wednesday, and a convertible issue from Canada's Canadian Royalties.

NuVasive Inc.'s new 2.25% convertibles, which priced late Monday at the rich end of talk, jumped more than 2 points Tuesday but slipped below par during the session as its stock weakened.

The new 3% convertibles of Central European Distribution Corp., which priced on the cheap end of talk on the coupon, were seen trading early at about 99.5. But later, the Vodka producer and distributor's stock also lost ground, taking bids for the convertibles along with it.

Little trading was seen in either issue later in the session, sources said.

Meanwhile, players eyed two deals expected to price after the close, including those from Central European Media Enterprises Ltd. and Bill Barrett Corp.

Elsewhere most prices were lower. Some financial names were drummed into play by fresh comments by Federal Reserve chairman Ben Bernanke. The Fed chairman urged banks and lenders to do more to help prevent home foreclosures, calling for a "vigorous response" to help buoy the housing market, and thereby the overall economy.

The convertible preferreds of Washington Mutual Inc. and the floaters of iStar Financial Inc. were solidly lower, while SL Green Realty Corp. closed down by less than half a point.

Also seen in trade Tuesday were the 2.75% convertibles of Tech Data Corp. and Intel Corp.'s 2.95% convertibles, closing at 94.99 and 93.7, respectively.

Mark Henriquez, head of trading at J Giordano Securities Group, chalked up the day's weightiness to general uncertainty that persists in the financial markets.

Irrespective of stock prices, "bonds are coming in due to the fact that there's not a lot of confidence out there. There's not a lot of confidence in rating agencies, which have been a cornerstone of the debt markets, or in Bernanke, either. It's troubling, and it's not going to go away overnight," he said.

To maneuver in such a market, Henriquez says convertibles players should keep durations short. "Don't have any more than three years to a put. The further out, the less certainty there is about credit assumptions, so I'd keep portfolios as short as possible in terms of duration."

Bill Barrett models cheap

Despite the very high premium talked on the Bill Barrett bonds, the deal was seen cheap by a couple of sellside analysts.

Using a credit spread of about 450 basis points over Libor and a volatility of 32%, they looked about 3.5% cheap at the midpoint of talk, according to one analyst.

The $130 million of 20-year convertibles were being talked to yield 4.75% to 5.25% with an initial conversion premium of 50% to 55%.

They have hard call protection for four years, with puts in years four, seven, 10 and 15.

Deutsche Bank Securities Inc., Banc of America Securities LLC and J.P. Morgan Securities Inc. were still finishing pricing on the senior unsecured notes by press time.

The Denver-based oil and natural gas exploration and development company plans to use proceeds of about $126.1 million to repay borrowings under its revolving credit facility.

"It's not a bad credit; I don't know why the drillers' spreads are so wide," one analyst said of the credit spreads for the company's sector, adding that Bill Barrett's natural gas hedges would seem to merit a tighter spread.

"The stock upside looks limited. But they are protected on the downside by their natural gas hedges, which total 70% for 2008," the analyst said.

NuVasive jumps at the open

Even though the new 2.25% NuVasive convertibles priced on the rich end of talk, they jumped at the open to 102.5 versus a stock price of $35. Subsequently they lost altitude and were seen trading at 99.75 versus a stock price of $33.50 later in the session. No close was available on the convertibles, but its underlying shares (Nasdaq: NUVA) closed at $33.55, down $1.54, or 4.4%.

JPMorgan and Goldman Sachs were bookrunners of the Rule 144A sale of $200 million of five-year convertible senior notes.

Price talk was for a coupon of 2.25% to 2.75% and an initial conversion premium of 22.5% to 27.5%. There is an over-allotment option of up to $30 million.

NuVasive intends to use proceeds from the senior notes for general corporate purposes, including potential strategic acquisitions.

The company will also enter into convertible note hedge transactions intended to increase the effective conversion price of the notes and thereby reduce stock dilution upon potential future conversion of the notes.

The company also intends to enter into separate warrant transactions with counterparties, which would result in additional proceeds to the company and would partially offset the cost of the convertible note hedge transactions.

San Diego-based NuVasive is a medical device company focused on developing products for minimally disruptive surgical treatments for the spine.

CEDC weakens with shares

The 3% convertibles of Central European Distribution traded at 99.5 early, according to a New York-based sellsider. But they drifted lower with their underlying shares and seemed to suffer from a perception of 'otherness.'

"People don't know the company," a sellside analyst said.

The Polish vodka producer plans to use about $130 million of the proceeds, together with other cash and bank debt, to fund the cash portion of the proposed purchase of Parliament and 999.9 brands in Russia and about $175 million to fund the cash portion of a proposed investment in Whitehall Group.

The senior unsecured notes priced at the cheap end for the coupon, which was talked at 2.5% to 3%, and at the midpoint of talk for the initial conversion premium, which was 27.5% to 32.5%.

J.P. Morgan Securities Inc. was the bookrunner of the $310 million of five-year convertibles that were offered under a shelf registration.

Bala Cynwyd, Pa.-based Central European Distribution's shares (Nasdaq: CEDC) closed down $2.73, or 5.2%, at $49.71.

Regal carries high coupon

If Bill Barrett's 4.75% to 5.25% coupon talk was enticing, then Regal Entertainment's talk for a coupon of 5.75% to 6.25% might be irresistible.

The Knoxville, Tenn.-based movie theater operator plans to price $190 million of three-year convertibles talked to yield 5.75% to 6.25% with an initial conversion premium of 18% to 22%.

Bookrunners for the Rule 144A private placement to qualified institutional buyers are Credit Suisse, with Lehman Brothers as co-lead. There is a greenshoe of $20 million.

Proceeds will be used for convertible note hedge and warrant transactions as well as general corporate purposes, which Regal expects will include the repurchase of all or a portion of its outstanding 3.75% convertible senior notes due 2008 or repayment of those notes at maturity.

Regal may acquire the 3.75% notes through open market purchases, privately negotiated transactions or conversions.

In connection with the offering, Regal intends to enter into a convertible note hedge transaction with an affiliate of one of the initial purchasers.

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