American Tower gains sharply on hopes of exchange offer; 3M, Teva continue northward

By Ronda Fears

Nashville, Nov. 15 - Trading flow slowed somewhat, typical of Fridays, but new paper from 3M Co. and Teva Pharmaceuticals was very active as buyers continued to push them northward.

American Tower Corp. also rose, very sharply, on the heels of news from its peer, Crown Castle International Corp., but more so on hopes of an exchange offer for one of the three converts.

Stocks stalled, but traders said converts were getting marked up "nicely" on tighter credit spreads as a result of positive economic news this week - namely the jobless claims and consumer spending reports.

"The new deals were hot, very hot, items," said a convertible trader at a major investment bank.

"These last few deals have been expensive but our market is starved for new paper. People are willing to pay up right now, especially for exposure to names like 3M."

3M's overnighter was a home run, according to buyside sources.

"We heard the books ran 10 times over," said one buyside trader.

3M sold $500 million in proceeds of 30-year convertible senior notes at 86.087 for a yield to maturity of 0.5% with a 40% initial conversion premium.

It priced at the middle of yield talk and rich end of premium guidance.

In the immediate aftermarket, traders said there continued to be a frenzy of trading in the new convert, although not a lot of ground was gained from issue price as "the bid/ask spread was very tight" due to it pricing rather expensive.

Wachovia Securities, Inc. convertible analyst Kimberlee Brody put the deal 1.33% rich, using a credit spread of 60 basis points over Treasuries and 30% volatility in the stock, plus factoring in a 1.91% current dividend on the common stock.

Brody noted that credit default swaps on 3M were at 20 basis points bid, 30 basis points asked before the deal emerged, and widened to 30 basis points bid, 35 basis points asked afterward.

The 3M convert closed up about 0.75 point to 86.75 bid, 86.875 asked. 3M shares ended off 50c to $129.50.

Teva's new 0.375%, which also priced expensive by most estimates, gained 0.75 point to 105.75 bid, 106.25 asked. Teva shares closed up $2.23 to $74.54.

Financial issues were mixed in the wake of the Household International Inc.'s acquisition by HSBC Holdings plc for $13.2 billion in stock, traders said.

Household continued to rise, however.

Household's new 8.875% mandatory added another 1.61 points to 31.95. The stock closed up $1.85 to $29.35.

Ohio Casualty Corp. also gained nicely, but traders said several other names in the financial sector lost ground because "confidence hasn't totally been restored" in that group.

There was a definite sign of hope among holder of tower paper, that is, outside of SpectraSite Holdings Inc., which has succumbed to bankruptcy.

Wireless tower operator Crown Castle late Thursday posted a narrower net loss and higher total revenue and that boosted American Tower Corp. paper.

Crown Castle posted a third quarter net loss of $65.6 million, or 16c a share, versus a net loss of $110.3 million, or 60c, a year earlier. Revenues gained to $227.4 million from $218.4 million.

American Tower converts climbed sharply higher.

The 2.25% due 2009 rose 14 points to 63 bid, 65 asked. The 6.25% due 2009 gained 7.375 points to 54.875 bid, 56.875 asked. And, the 5% due 2010 added 5.5 points to 51 bid, 53 asked.

American Tower shares, however, dropped 5c to close at $1.50.

"Crown Castle bought back $100 million of debt in the last quarter, plus had decent numbers. That helped all the tower paper," said a convertible dealer.

But the real push for the American Tower converts, the dealer said, was due to a potential exchange offer for the 2.25% issue.

"There is some speculation out there that they [American Tower] will be able to come up with an exchange offer of some sort," the dealer said.

"It might not be a good offer, but the thinking is that if they can eliminate some debt it will be a boost to the credit metrics and the other issues will look better."

The 2.25% convertibles are putable on Oct. 22, 2003.

In its 10-Q filing Thursday, American Tower said: "We are currently evaluating financing alternatives with respect to these convertible notes generally and, in particular, with respect to the put right of the 2.25% convertible notes.

"These alternatives may involve the issuance of a significant number of shares of our Class A common stock or securities convertible into or exercisable for these shares."

The company noted that it has previously entered into private agreements with holders of its convertibles to induce them to covert. As a result of these conversions, during 2000 and 2001 the company acquired $155.6 million principal amount of the 2.25% convertible notes and $87.3 million of the 6.25% convertible notes.

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