Secondary activity picks up on influx of earnings reports; flow of small new issues continues

By Sara Rosenberg

New York, April 29 - The day in convertibles was filled with a lot of earnings announcements, a lot of conference calls and a lot of secondary activity - and a decent volume of new deal-related activity although mostly small deals.

Some names in particular that were seen actively trading Tuesday included Omnicom Group Inc., oil field services companies such as Pride International Inc., Transocean Inc. and Cooper Cameron Corp., King Pharmaceuticals Inc. (which was active on patent news as opposed to earnings news), Jones Apparel Group Inc. and Bunge Ltd., according to Stu Novick, convertibles analyst at Salomon Smith Barney

For the first quarter of 2003, Omnicom reported net income of $128.6 million, a marginal increase from first quarter 2002 results and diluted earnings per share of 69 cents per share, compared to analyst estimates of 70c per share, up from 68c per share in the first quarter of 2002. Worldwide revenue increased 12% to $1,937.2 million from $1,732.4 million in the first quarter of 2002. Domestic revenue for the first quarter of 2003 increased 8% to $1,099.6 million compared to $1,022.1 million in 2002. International revenue increased 18% to $837.6 million compared to $710.3 million last year.

While active, Omnicom's convertible due 2032 was essentially unchanged on the session, ending at 100.23 bid, compared to Monday's 100.37 bid, according to a market source. The stock closed at $63.10, down 19c or 0.30%.

Omnicom is a New York marketing and corporate communications company.

Pride International saw its convertibles weaken a point or two. Its 2.5% convertible due 2007 finished trading at 115.18 bid, down from Monday's bid of 117.15, according to a market source. Towards the end of the session, the 3¼% convertible due 2033 was quoted with a 102.92 bid, down from 103.75 bid on Monday. The stock closed at $15.07, down 59c or 3.77%.

Slightly weaker was Transocean.

The Houston offshore drilling contractor reported net income for the first quarter of $47.2 million, or 15c per diluted share, beating analyst estimates of 12c per share, on revenues of $616 million. The first quarter 2003 results compare to a net loss of $1,286.4 million, or $3.98 per diluted share on revenues of $667.9 for the three months ended March 31, 2002.

At close, Transocean's 1.5% convertible due 2021 was quoted with a 94.74 bid, down slightly from Monday's bid of 94.83, according to a market source. The 0% convertible due 2020 was quoted with a 62.29 bid, compared to a 62.59 bid on Monday. The stock closed at $19.30, down 60c or 3.02%.

Cooper Cameron's convertibles were seen mixed even though the company missed forecasts.

Cooper Cameron reported net income of $8.4 million, or 15c per share, compared to analyst estimates of 24c per share, for the quarter ended March 31, 2003, compared with net income of $19.5 million, or 35c per share, for the first quarter of 2002. Total revenues were $361.1 million for the quarter, down slightly from 2002's $366.9 million, while income before income taxes was $11.4 million, down 59% from 2002's $27.5 million. Consolidated EBITDA was $37.9 million, down from 2002's $46 million.

At close, Cooper Cameron's 0% convertible due 2021 was quoted at 78.95 bid, 79.95 offer, up 0.27, according to a trader. The 1.75% convertible due 2021 was quoted at 99.13 bid, 99.63 offer, down 0.18. The stock closed at $46.17, down 58c or 1.24%.

Cooper Cameron is a Houston manufacturer of oil and gas pressure control equipment.

King Pharmaceuticals was boosted on news that it received a patent that extends through Feb. 15, 2022 from the U.S. Patent and Trademark Office on Levoxyl, which is indicated for the treatment of hypothyroidism.

At close, King's 2.75% convertible due 2021 was quoted at 86.37 bid, 87.37 offer, up 0.91, according to a trader. The stock closed at $12.85, up $1.83 or 16.61%.

King is a Bristol, Tenn. pharmaceutical company.

For the first quarter of 2003, Jones Apparel reported that revenues increased 9.5% to $1,234 million, from $1,127 million for the first quarter of 2002. Earnings per share under GAAP increased to 90c, compared to analyst estimates of 85c, and compared to 53c for the first quarter of 2002. On an operating basis, adjusted to exclude certain charges, earnings per share for the first quarter of 2002 were 77c.

"Our first quarter results were very satisfying in a period that witnessed a generally soft economic climate, major geopolitical concerns and military conflict. This was evidenced in our retail stores, which were impacted by lackluster consumer traffic resulting in a 10% decline in comparable store sales. The weaker than planned retail performance was offset by the acquisitions of Gloria Vanderbilt and l.e.i., which provided healthy sales and strong operating margins. In general, our wholesale businesses performed at or close to plan despite the difficult retail environment. The combination of these factors allowed us to exceed our expectations for the quarter," said Peter Boneparth, chief executive officer, in a news release.

At close, Jones Apparel's 0% convertible due 2021 was quoted at 54.77 bid, 55.02 offer, down 0.04, according to a trader. The stock closed at $28.75, up 49c or 1.73%.

Jones Apparel is a Bristol, Pa. designer and marketer of women's clothing.

Bunge's convertible moved up smartly after the company beat Wall Street forecasts.

The White Plains, N.Y. agribusiness and food company reported first quarter 2003 net income of $40 million, or 40c per share, beating analyst estimates of 33c per share, compared to net income of $13 million, or 15c per share, in the same quarter of 2002. For the quarter, volumes grew 57% to 22.8 million metric tons compared to 2002, gross profit increased 46% to $268 million and income from operations rose 74% to $118 million.

At close, Bunge's 3.75% convertible due 2022 was quoted at 114.18 bid, 114.68 offer, up 2.01 on the session, according to a trader. The stock closed at $28.66, up $1.17 or 4.26%

In the primary, the emergence of new deals such as DuPont Photomasks Inc., MSC.Software Corp., ASM International N.V. and UnumProvident Corp. have sparked varying reactions from market participants.

One analyst told Prospect News that it was "nice to see issuance", even if the most of the deals are sized on the small side.

According to a fund manager though, DuPont Photomasks "is too small for us to get involved in. price talk is ridiculous. If they put a 3 or 4 handle on the coupon then we probably would have played it." As for ASM, "I did look at that," the fund manager continued, "But there's no way I would get bonds on that. $60 million. There's no liquidity. It's way too small."

"Dupont seems like it will probably get done but it seems fairly expensive," a second fund manager stated. "It all depends on credit opinion. We're not that positive on it but some other people like it better.

"MSC seems attractive," the fund manager continued. "It's trading up a couple of points higher in the gray market."

After the close Tuesday, DuPont Photomasks priced an upsized $105 million of convertible subordinated notes due 2008. Full terms were not available but the deal came at a yield of 1.25% with a conversion price of $25.60, 36% above the stock closing level of $18.83.

The yield was in the middle of talk released earlier in the day of 1% to 1.5% while the conversion premium was at the cheap end of talk of 36% to 40%. The original size was $100 million.

Based on talk, the deal was valued 0.70% cheap to theoretical value using a $19.00 stock price, according to Kimberlee Brody, a Wachovia Securities analyst, who used a volatility assumption of 50% and a credit spread assumption of 700 basis points.

Lehman Brothers and Credit Suisse First Boston are the lead managers on the deal.

There is a $20 million greenshoe.

The Round Rock, Tex. manufacturer of photomasks said that proceeds will be used for general corporate purposes, and may also be used to acquire additional businesses, products, and technologies and to invest in joint ventures. Furthermore, proceeds may also be used to repurchase or repay the company's outstanding convertible subordinated notes due 2004.

MSC.Software is scheduled to price $85 million of convertible notes due 2008 after the close Thursday in a Rule 144A offering. Merrill Lynch is the lead manager on the deal.

Price talk is 2.25% to 2.75% with an initial conversion premium of 25% to 30%.

There is a 15% greenshoe available.

Santa Ana, Calif.-based MSC.Software said it plans to use proceeds to repay borrowings outstanding under its credit facilities and other debt.

After market close Monday, ASM International NV sold an upsized deal of $75 million overnight of seven-year convertible notes at par for a 5.25% yield to maturity and a 40% initial conversion premium, at the aggressive end of guidance.

The Rule 144A deal, via lead manager Morgan Stanley, was originally anticipated to be sized at $60 million.

There is a $15 million greenshoe.

The Bilthoven, Netherlands-based semiconductor firm said it plans to use proceeds to repay short-term debt and for general corporate purposes.

UnumProvident is expected to price a $500 million mandatory offering after Wednesday's close, according to a source close to the deal. Guidance puts the yield at 8.25% to 8.75% with an 18% to 22% initial conversion premium.

Wachovia's Brody put it 4.69% cheap, based on a 2.96% current yield on the common stock at a price of $10.15 and using a credit spread of 440 basis points over Treasuries and 55% stock volatility.

Venu Krishna, convertibles analyst at Lehman Brothers, put it 3.39% cheap, using a stock volatility of 35% for an at-the-money strike and 30% for an out-of-the-money strike and a credit spread of 400 basis points over Treasuries.

Goldman Sachs & Co. is the bookrunner on the convertible. Joint lead managers are Banc of America Securities and Morgan Stanley. Co-managers are Deutsche Bank Securities Inc., Merrill Lynch & Co. and SunTrust Robinson Humphrey.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.