Convertibles bounce sparks new deal buzz, AmerUs emerges

By Ronda Fears

Nashville, Tenn., Feb. 20 - Convertibles firmed up Wednesday with the strong rise in stocks, which market sources said could swing open the floodgates to new deals waiting in the wings if stocks string together a couple of strong days. Getting the jump on the rush, perhaps, AmerUs Group Co. trotted out a new deal late in the day but the deal has a new structure, which buyside sources were a bit skeptical of since details were sketchy. New deal buzz about Siebel Systems Inc. also heated up.

"We didn't see buyers come rushing in, but things are moving in the right direction. If we have a couple of strong days, and that may be a big if, then flow will get a lot better," said the head convertible trader at a major investment bank in New York.

"Not only are a lot of people really skeptical that this market will hold water, because a good portion of the bounce today was attributed to covering shorts, but everyone also anticipates a hoard of new deals and that's what they are really interested in."

The 2% gain in the Dow Jones Industrial Average and the 1.4% rise in the Nasdaq was a strong sign, but the market is looking for at least a couple of days of upward movement.

"What the market really needs is new deals, and we're told that's on the way," said a convertible trader at a hedge fund in New Jersey. "There's not going to be a lot of buyers right now for what's out there. Sure, the flow will get better but what's really going to help the secondary market is new issues. The buzz is at fever pitch right now."

Siebel Systems Inc., which has been the subject of market speculation about a new convertible for about three weeks now, got hit in the stock market as talk heated up on Wednesday about a new deal. Siebel, a software provider, also saw its stock slide on speculation its chief financial officer may be leaving, one trader said.

"Siebel is a really stand-out name. I think there's fire behind the smoke," said a convertible trader at a hedge fund in New York.

"They don't need the money, but the terms they could get right now would be tremendous. Demand from outrights would be mind-blowing, although it would probably be too rich for the hedge funds. They probably would not do a zero, but something like 1% with a pretty high premium, somewhere between 45% and 50%."

Part of the reason Seibel interest would likely be very high, the trader said, is that the existing Siebel convertible has held up so well in the stock market's downturn. "The old ones are trading ridiculously high," the trader said. On the stock's decline, the Siebel 5.5% convertible notes due 2006 (B+) dropped 4 points on the day to 148.5 bid, 148 offered. The shares lost $1.01 to $30.89.

A more for-sure addition to the new issues calendar came from AmerUs but the immediate reaction was dubious. The AmerUs deal was launched late in the day, but with sketchy details about the new structure and an uncertain pricing schedule.

AmerUs is pitching a new convertible in a structure dubbed OCEANS that is similar to premium redemption bonds seen commonly in Europe, but with a few twists market sources have yet to fully understand. Price talk was in flux, but sources said had settled out at 2.0% to 2.6% yield with an initial conversion premium of 0% to 10%. The $150 million of 30-year convertible senior subordinated notes would carry a cash coupon and price at par but at least part of the interest would accrete and redemption would a premium, a buyside source said, adding that it appeared there would be no dilution to the stock by virtue of contingent conversion or a similar feature and other tax advantages to AmerUs.

A schedule for the deal has not been set, sources said. AmerUs shares ended up 47c to $39.50.

Some of the market's hesitance to jumping on the buying bandwagon, traders said, was because the advance was not universally proclaimed. While almost every sector gained ground as a group, traders said there were many sensitive names that did not participate. AES, Calpine, Avaya, Corning, Juniper Networks, Elan and Marriott were among the high-profile situations that did not improve and the convertibles continued to slide, traders said.

Tyco struggled to close higher, despite the CIT tapping an alternative source of funding by raising $1.2 billion from the sale of flow of future cash flow. The financing, secured by receivables, was arranged by JP Morgan Chase, Citigroup and Credit Suisse First Boston, Tyco said. Tyco said it was also in the process of securitizing some income from CIT's home equity loan portfolio in the next several weeks, which it could use for operations.

While funding was seen as a positive factor for holders of Tyco's 0% convertible that is approaching a put option in April, a dealer said the pull on Tyco was due to unconfirmed market rumors that the company had frozen its retirement fund, which would be a signal that the company was in dire financial straits.

"We don't think there's any credence to the Tyco retirement fund rumor, and Tyco managed to close higher," said a convertible trader at a major investment bank in New York. "There still is a great deal of trepidation about the situation, though."

The Tyco 0% convertibles both were indicated closing up 0.75 point, with the 2020 issue at 64.75 bid and the 2021 issue at 68.5 bid. Tyco shares ended up 65c to $28.75.

Nvidia Corp. also had a bounce, a much stronger one. The 4.75% convertible notes due 2007 added back 5.5 points on the day to 145.5 bid, 146.5 offered as the stock gained $2.80 to $56.35.

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