ExpressJet in holding pattern, waiting on Continental signal; three other new deals emerge

By Ronda Fears

Nashville, July 30 - Those interested in the ExpressJet Holdings Inc. deal had to cool their jets Wednesday as the deal went into a holding pattern, stalled because Continental Airlines Inc. didn't want to sell stock in the regional carrier at the lower levels resulting from hedge funds shorting the common.

But, not to worry - three more deals emerged, including a bought deal from WCI Communities Inc. - reoffered by the underwriter at 98 - and an overnighter from Flextronics International Ltd.

Vishay Intertechnology Inc. also tossed in a deal to price after Thursday's close along with the pending Dynegy Inc. convert.

A source at one of the lead banks on the ExpressJet deal said underwriters were "shooting for" pricing it after Wednesday's close, but nothing definite had been decided. The issue was talked to yield 4.25% to 4.75% with a 26% to 30% initial conversion premium, and had been slated to price after Tuesday's close.

Continental wants to sell 5 million shares of ExpressJet stock in a public offering, plus ExpressJet plans to buyback 8 million shares with proceeds from the pending $125 million convertible deal. Continental said in a statement Tuesday its stake in ExpressJet would be cut from 53.1% to 37.5%, assuming a purchase price of $15.54 a share.

ExpressJet shares closed Wednesday unchanged at $13.95 on heavy volume.

"Continental has blocked it. We've heard below $14 nothing gets done," said a convert trader at a hedge fund in New Jersey.

"Hedge guys shorting the common is keeping the price down. It [ExpressJet stock] closed at $13.95, but if they didn't do it last night at $13.95, what makes you think they're going to tonight?"

Long after the close, ExpressJet announced that Continental had abandoned its planned stock sale, citing market conditions. But ExpressJet went ahead with the convertible, pricing it to yield 4.25% with a 30.47% initial conversion premium, at the aggressive end of talk.

The ExpressJet deal had been one of the hottest new deals pending this week, trading in the gray market 1.5 to 2.5 points over issue price on Tuesday.

Gray market activity was grounded by the pricing delay, however, buyside traders said.

"There was nothing going on with it [ExpressJet's pending convert] in the gray today," one buyside trader said.

"People don't want to trade any more of it because maybe nothing happens."

Plenty of other converts were changing hands, however, as dealers reported another very active session - particularly in new paper. But the market was better sold, dealers said, and even most of the new paper was soft.

Nextel Partners Inc. had a bought deal in play, a new 1.5%, up 31% convert, which buyside traders said sank right out of the gate. And, the old Nextel Partners 1.5s fell nearly 12 points.

American Tower Corp.'s new issue - its fourth visit to the convert market - sold at the cheap end of price talk with a 3.25% handle and 37.5% initial conversion premium. It didn't set the market on fire, though, as lead manager Goldman Sachs took it home at 100.125 bid, 100.625 offered. The stock closed up 19c, or 2.14%, to $9.08.

Bausch & Lomb Inc.'s convertible cash-to-zero floaters - a structure that the market is beginning to get comfortable with - turned out to be the home run of the day among new deals, as the split-rated paper got a broader audience of buyers, according to one dealer.

The Bausch & Lomb issue, sold to yield six-month Libor plus 50 basis points, up 50%, was closed by sole bookrunner Citigroup at 103.875 bid, 104.125 offered. That was up 2.625 points from gray market close of 101.25 bid at the close Tuesday.

Bausch & Lomb shares ended up 99c, or 2.42%, to $41.95.

Priceline.com Inc.'s new issue turned out to see a lot of profit takers flip it, traders said. The new 1%, up 15% issue dropped 1.25 points to 100.75 bid, 101 offered - that coming from lead manager Goldman - while the stock lost 43c, or 1.33%, to close at $31.80.

New issues from Veritas Software Corp. and Invitrogen Inc. were also weaker.

Another big newsmaker in the secondary realm of the market was Omnicom Inc., as it offered a sweetener to holders of its 0% convert due 2032 to not exercise the approaching $1 billion put coming up Thursday. The convert was seen flat at about 100.25 bid, while the stock fell $1.17, or 1.58%, to $73.11 - but that was well above the mark where analysts figure holders would put it back to the company. (See full story elsewhere in this edition.)

Early Thursday, the market will be looking at deals from WCI and Flextronics.

After Wednesday's close WCI sold $125 million of 20-year convertible notes at par to yield 4.0% with a 48% initial conversion premium, via sole bookrunner Deutsche Bank Securities.

Lehman Brothers analysts put the WCI convert 2.77% cheap, based on a price of par, using a credit spread of 425 basis points over Treasuries and a 35% stock volatility.

But Lehman analysts said in a new issue report that "investors are likely to demand better terms given ... a difficult stock borrow, small market cap, and macro trends of declining volatility and rising interest rates." If WCI stock drops 10%, the analysts noted, the issue would be about 0.8% rich.

Indeed, Deutsche is reoffering it at 98, moving the terms to 4.45%, up 45%, according to buyside sources.

WCI shares closed Wednesday up 63c, or 3.5%, to $18.63.

Flextronics is pitching $500 million of seven-year convertible notes talked to yield 0.5 to 1.0% with a 35% to 40% initial conversion premium, for pricing before the open Thursday. The stock closed off 16c, or 1.37%, to $11.52.

After Thursday's close, there will be the Vishay offering and Dynegy.

Vishay's $450 million of 20-year convertible notes are talked to yield 3.125 to 3.625% with a 60% to 65% initial conversion premium. The electronics components maker also reported earnings Wednesday, and the stock ended down 22c, or 1.5%, to $14.46.

In part, Vishay will use proceeds to take out the old General Semiconductor 5.75% convertible, which was quoted closing off 0.25 point at 102.5 bid, 103.5 offered. That issue is callable in August at 103.29.

At the midpoint of guidance, Deutsche Bank puts the new Vishay convert 1.84% rich to 1.68% cheap, using a credit spread of 500 bps over Libor and a 40% stock volatility.

Dynegy's $175 million of 20-year convertible notes are talked to yield 3.25% to 3.75% with a 30% to 35% initial conversion premium. No gray market activity in the deal was reported by buyside traders, while the stock dropped 19c, or 5%, to $3.62.

At the midpoint of price talk, Deutsche Bank puts the Dynegy deal 0.79% rich to 4.3% cheap, using a credit spread of 775 bps over Libor and a 55% stock volatility.

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