Platinum rises to 27 region; NY Community Bancorp trades above par

By Sara Rosenberg

New York, Oct. 29 - Both the new deals priced after Monday's close moved higher when trading began Monday.

Platinum Underwriters Holding Ltd.'s new 7% mandatory traded as high as 27.75 in the afternoon and closed 27.46, according to market sources. The New York Community Bancorp Inc. 6% convertible trust preferred securities also began trading on Tuesday and were quoted closing at levels of 50¾ bid, 50 7/8 offer.

Overall, "[There's a] dull tone in the market," said Jeremy Howard, head of U.S. convertible research at Deutsche Bank around mid-day. "Most of the low quality names are down [like] the chip names that have been bid up. [There's] some profit taking in the stocks and then commensurately there's some profit taking in the bond as well."

Platinum sold $125 million of three-year mandatory convertibles in the ACES (adjustable conversion rate equity security) structure after market hours on Monday at par of $25 to yield 7% and with a 22% initial conversion premium.

"I believe that's going quite well," Howard said in reference to the Platinum deal, citing a quote of 27.39 on the offered side, which is the equivalent of 1081/2/109½ at around mid-day. "It was a very tiny deal but it was well received, but everyone knew it would be. There's plenty of pent-up demand."

The Platinum deal traded up to a 3% or 4% premium in the gray market on Monday, according to a trader, with another source putting it a little stronger at 1¼ points higher.

The deal priced at the rich end of talk which had put the yield at 7%-7½% and the conversion premium at 18%-22%.

Goldman Sachs & Co., Merrill Lynch & Co. and Salomon Smith Barney led the deal.

The sale came alongside an initial public offering to spin off Platinum Underwriters from The St. Paul Cos. Inc. The straight equity component was 30.04 million shares priced at $22.50. Substantially all of the proceeds of the offerings will be contributed to the capital of Platinum's three operating subsidiaries.

The stock closed at $25.01.

New York Community Bancorp sold $240 million of convertible trust preferred securities using the Bonuses structure after market hours on Monday at par of $50 to yield 6% and with a 27% initial conversion premium.

The new 6% convertible trust preferred securities were trading at a small discount of less than ½% in the gray market on Monday.

The stock closed Tuesday at $28.75, up 70 cents or 2.50%.

"It was a pretty poor structure and a pretty poor credit," a source told Prospect News. "We thought it to be worth far below par at 95¼ theoretical pricing off the final pricing. It was pretty aggressively priced to us."

The deal priced with the yield at the cheap end of talk of 5½% to 6% and at the same conversion premium as talk.

Salomon Smith Barney was bookrunner with Lehman Brothers as joint lead manager on the deal.

Proceeds will be used to make equity contributions to New York Community Bank, to finance multi-family loan originations and potential acquisitions and for general corporate purposes, according to a filing with the Securities and Exchange Commission.

Another focus on Tuesday was Neuberger Berman Inc.'s decision to pay cash interest through May 2004 on its 0% senior convertibles notes due 2021

The announcement comes ahead of the put date on Nov. 4 at which investors can require the New York-based fund manager to buy back the securities.

Neuberger Berman said the additional payment is 3.047% on the principal amount at maturity, equivalent to 3.5% of the $870.67 accreted principal amount on Nov. 4.

The put price on Nov. 4 is also $870.67, payable in cash. The put must be exercised by Nov. 1.

"As you can see, NEU incentivized holders to hold onto the convert by adding cash payments at 3.047% per annum for 18 months. When you run the math, this extra cash flow adds about two points of value to the convert and should allow the issue to remain outstanding," said Adrian K. Miller, director of convertible securities at Salomon Smith Barney.

Around lunchtime, the Neuberger Berman convertible was quoted around 87½ bid, 88 offer, according to Howard. "With a put price of 87.067 [and a] bid around 871/2, [that] indicates that probably very few people would put these," Howard said.

The convertible closed at 87¼ bid, 87¾ offer, up about half a point from Monday's levels, according to a trader. The stock closed at $28.77, down $1.21 or 4.04%.

The company probably weighed their options and decided that the most cost-effective way to deal with this put was to sweeten the bond. Furthermore, in the current market environment there is a risk in refinancing, so by adding cash payments the company took the least risky path, Howard explained.

"This is a trend which we have predicted," said Venu Krishna, head of convertible research at Lehman Brothers in reference to company's offering incentives in order to avoid the put. "The risk of puts being exercised today is much more than [it was] six months ago."

Krishna went on to mention that Omnicom Group Inc. is currently viewed as a company that has a "reasonably high likelihood" of giving incentives to avoid the put.

Omnicom's 0% convertible due 2031 has an $850 million put in February 2003. According to Krishna, the company hinted in its conference call that it would benefit from keeping the convertibles outstanding.

"Assuming that the stock remains around current levels, [which is] roughly in the $60 range, then the company may have to create almost four to four and a half points in incremental value to prevent a put from being exercised," Krishna added.

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