NCI jumps on exchange offer; Regions Financial adds; Omnicare a little weaker; CACI slips

By Rebecca Melvin

New York, Aug. 14 - The convertible bond market ended on a mild note Friday, with trading desks thinned ahead of what was expected to be a warm summer weekend in the Northeast, and with anyone still at their desks not offering up many names in trade.

Despite the low-volume week, however, the convertibles market held up pretty well, they said.

"Convertibles have been surprisingly strong, given what's happened in the other markets, like the ABX," a New York-based sellsider said. "We didn't see that much come in."

Another sellsider said that contrary to action in recent weeks, it was more difficult to find buyers this week, and on Wednesday some names traded in or went without bids.

But "some names are still either holding gains or adding to them," the sellsider also said.

There was no activity in the U.S. primary market in the past week, and some weakness started creeping into the secondary beginning with financials on Tuesday.

But on Friday, NCI Buildings Systems Inc.'s convertibles popped more than 20 points after the Houston-based maker of metal products launched an exchange offer to retire the 2.125% convertibles due 2024 and said it is getting a $250 million cash injection from private equity.

Regions Financial Corp. was higher for a second consecutive day after a regulatory filing from Paulson & Co. Inc. hedge fund showed the fund bought 35 million common shares of the Birmingham, Ala., regional bank.

Omnicare Inc. was a little weaker after a slight shudder Thursday that marked the first downtick in awhile.

CACI International Inc. followed its shares a little lower Friday after the information technology services company's better-than-expected earnings and reiterated guidance caused a pop in those securities on Thursday.

NCI jumps with exchange offer

NCI Building Systems' 2.125% convertibles due 2024 traded at 90.5 around noon ET, compared to a market called 89 bid, 93 offered earlier in the day, but up about 21 points from previous sessions.

And a pricing source said that it looked like some trades occurred after 4 p.m. ET at around 87.

Shares of the company, which supplies non-residential construction markets, opened higher on the news but pulled back quickly and closed lower by 10 cents, or 2.5%, at $3.94.

The company plans to retire its 2.125% notes by offering a combination of $500 cash and 125 shares of its common stock for each $1,000 note. There is $180 million of the convertibles left outstanding according to its latest 10-Q, Bank of America-Merrill Lynch research analyst Tatyana Hube said in a research note.

"We find the exchange terms quite attractive for the NCS 2.125% convertible investors, and recommend to tender their notes when the company officially launches the exchange offer," Hube wrote.

She said that based on a stock price of $4.26, the offer is worth $1,032.50 per bond, or 103.25 points, compared to where the convertibles were recently trading at about 69-70 points.

This discounted price was prevalent even though the paper has a par put in November because of the high risk of bankruptcy in the absence of significant financial restructuring.

The move announced Friday, which includes an equity infusion by Clayton, Dubilier & Rice, is a move in the right direction and away from bankruptcy, Hube said.

The $500 cash per bond component effectively puts a reasonable and attractive floor on how much bondholders could lose, or rather would not lose, even if the stock price goes to zero, Hube said.

The 125 shares per bond component puts a breakeven value, between the convertible's par put and the exchange offer, for the common stock at $4.09.

"As long as the stock trades above that value, the bondholders stand to gain more than the $1,000 put value per bond in November. Moreover, if the overall transaction were to fail due to a bondholders' holdout, the $1,000 put value may not be there, come November," Hube wrote.

A pricing source questioned the closing level of the convertibles, saying the current value of the exchange offer is around 99 ($500 + (125 shares x $3.94)), and the bond is putable anyway in November at 100, plus the company is getting a capital injection.

Regions Financial adds

Regions Financial's 10% mandatory convertibles due December 2010 were seen settling at 1,328 Friday compared to 1,254 on Thursday.

Shares of the Birmingham, Ala.-based financial services holding company gained 8.5%, which was up 44 cents, to $5.64.

According to a regulatory filing on Wednesday, John Paulson of Paulson & Co. bought $35 million of Regions Financial common stock.

Omnicare a little weaker

Omnicare's 4% convertible preferred shares due 2033, which don't have takeover protection, were seen closing Friday at 75.1 compared to 74.53 on Thursday.

Shares of the Covington, Ky.-based geriatric pharmaceutical services company were up 45 cents, or 2%, to $23.44 on Friday.

On Thursday, the paper came in a bit to trade at 75.25 to 75.375, according to a sellsider, who said it was the first downtick in that issue in awhile.

"Omnicare is very much a blended play," the sellsider said. "Outright or swap guys can play them so price can be influenced by an outright buyer sitting there scooping them up as the stock goes lower."

CACI retreats some with shares

CACI international 2.125% convertibles due 2014 were seen at 101.9 at the close, versus a share price of $45.87.

The paper had traded at 102.189 during the session, which was down 2.7 points on the day.

Shares of the Arlington, Va.-based simulation and information technology company were down $1.13, or 2.4%.

The move marked a retreat from higher pricing on Thursday.

"CACI has a high degree of sensitivity to the stock. It trades on an 80 delta," a sellsider said.

On Thursday, CACI had improved to a 105.125 bid versus a share price of $47.85.

"These are still near a 20% premium with plenty of life left," the sellsider said.

After the market close on Wednesday, the company said its fiscal fourth-quarter profit rose 23% to $29 million, compared to $23.5 million in the year-earlier period. Revenue rose 11% to $728.9 million.

Mentioned in this article:

CACI International Inc. Nasdaq: CACI

NCI Buildings Systems Inc. NYSE: NCS

Omnicare Inc. NYSE: OCR

Regions Financial Corp. NYSE: RF

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