ON lights up on debut; Beckman Coulter gains on cheap pricing; Acquicor rises; Cadence launches deal

By Kenneth Lim

Boston, Dec. 12 - New deals continued to drive the action in the convertible bond market on Tuesday, with ON Semiconductor Corp. gaining right off the bat as investors largely saw its offering as a positive for its credit profile.

Beckman Coulter Inc. also rose slightly on its debut, after its deal arrived cheaper than talk amid grumblings that initial marketing was too aggressive.

Acquicor Technology Inc. also improved on its first day of trading. The deal, which finally priced Tuesday after three weeks of marketing, was upsized and set at the rich end of talk.

Meanwhile, Cadence Design Systems Inc. launched a dual-tranche $500 million offering of five- and seven-year convertible notes after the market closed for pricing Wednesday.

Outside of the new deals, the rest of the convertible bond market was relatively quiet.

"If not for the new paper, we'd have nothing to do here," a sellside convertible bond analyst said.

ON powers up on debut

ON Semiconductor's new 2.625% convertible senior subordinated note due 2026 gained about one point outright early Tuesday, after the deal priced within talk.

The new convertible traded at 101 against a stock price of $7.50 early Tuesday, and was offered at 100.5 versus the same stock price later in the session. The notes were offered at par. ON stock (Nasdaq: ONNN) closed at $7.82, up by 4.27% or 32 cents.

"That sounds about right," a sellside convertible bond analyst said. "I would have expected it to trade up a little bit, although I didn't hear a lot of markets in it."

ON priced its upsized $440 million deal on Monday, with an initial conversion premium of 40%. Price talk was for a coupon of 2.375% to 2.875% and an initial conversion premium of 37.5% to 42.5%.

The size of the deal was originally $400 million, with an over-allotment option for a further $60 million. The greenshoe was reduced to $44 million.

Morgan Stanley and Citigroup were the bookrunners of the overnight Rule 144A offering.

ON, a Phoenix, Ariz.-based maker of power and data management semiconductors, said it will use the proceeds of the deal to repay about $199.1 million of an outstanding senior secured debt, as well as to concurrently buy back up to $230 million of its common stock.

"It came a little bit cheap," the sellside analyst said. "I would expect it to do well. All in all it's either neutral or a little bit better for the credit. The stock is certainly moving up."

The analyst said the new deal was a positive move for the company.

"It doesn't really add a lot of debt," the analyst said. "It's a little bit of an increase in their total debt burden, but they're pushing out the maturity, they're replacing senior secured with senior sub. On a relative basis it's an improvement for the older issues, because now there's significantly less secured debt in front of them, and it cuts interest expense down."

The analyst said the deal would have been mostly taken up by hedge investors.

"It's not an outright play," the analyst said. "I think that you could get vol in the stock both ways."

A sellside convertible bond trader agreed that the deal was not suitable for outright investors.

"I think it's terrific that the companies bring out paper when the stocks have run up 50%," the trader remarked. "Hey, guess what, we need to raise money, let's [get it from] the convertible investors."

A buyside convertible bond trader said the deal was "priced fairly," and although it was interesting enough to get involved in, it was not as attractive as it could have been.

"I would have liked it a little cheaper, but it's up about 0.75 on a neutral basis," the buysider said. "I also don't like to see a 40% premium on the convertible."

Beckman Coulter comes cheap

Beckman Coulter's new 2.5% convertible senior note due 2036 improved slightly on Tuesday, after the deal priced cheaper than guidance amid widespread views that price talk was too aggressive.

The convertible was 100.25 bid, 100.5 offered against a stock price of $59.37. Beckman Coulter stock (NYSE: BEC) was mostly flat, up 0.02% or one cent for a close of $59.38.

"Actually they did pretty OK," a buyside convertible bond trader said.

Beckman Coulter priced its $525 million offering Monday, with an initial conversion premium of 25%.

The convertibles were offered at par. Price talk was revised on Monday to a coupon between 2.5% and 2.625% with an initial conversion premium of 27.5%. Original price talk was for a coupon of 2.25% to 2.75% and an initial conversion premium of 27.5% to 32.5%.

There is an over-allotment option for a further $75 million.

Morgan Stanley was the bookrunner of the Rule 144A offering.

Beckman Coulter, a Fullerton, Calif.-based developer of biomedical test systems and supplies, said $100 million of the proceeds will be used to concurrently buy back its common stock, while another $245 million will be used to tender for its outstanding 7.45% senior notes due 2008. A further $185 million will be used to repay a bridge facility it entered into to buy Lumigen Inc., with the remainder earmarked for paying off an outstanding revolving debt.

"I'm not surprised they had to price it cheap," a sellsider said. "There was no way anyone would have bought them if it came where they were talked."

Acquicor rises after wait

Acquicor's new 8% convertible due 2011 improved about ¼ point on Tuesday, after the upsized deal finally priced after a three-week marketing period.

The convertible was seen at 100.25 late Tuesday, while Acquicor stock (Amex: AQR) slipped 0.53% or 3 cents to close at $5.61.

"They did all right," a buysider said. "They traded up a little bit, up ¼ point on a neutral basis."

The $145 million deal was offered at par, and priced with an initial conversion premium of 30%. It had been talked at a coupon of 8% to 8.5% and an initial conversion premium of 25% to 30%.

The original size of the deal was $100 million. The over-allotment option was increased from an additional $15 million to an additional $21.75 million.

CRT Capital Group was the bookrunner for the Rule 144A offering.

Acquicor is a Newport Beach, Calif.-based blank-check company formed to acquire technology businesses. It is buying specialty wafer maker Jazz Semiconductor for $260 million, and will use the proceeds of the offering to help fund the acquisition. The proceeds will be placed in an escrow account pending approval of the acquisition by shareholders. If the merger is not approved by May 31, 2007, the notes will be redeemed at par.

"It's priced rather attractively, and it's a small deal," the buysider said of the offering.

A sellside convertible bond analyst said the deal looked attractive, but also came with a lot of risk.

"With an 8% coupon, you're talking about a really good yield," the analyst said. "The Jazz business they're buying looks like a reasonable business, but of course if things don't go as planned, there's a pretty big risk involved."

Cadence plans deal

Cadence Design announced Tuesday that it plans to offer $500 million of five- and seven-year convertible senior notes, expected to price Wednesday after the market closes.

The $250 million five-year tranche is talked at a coupon of 1.375% to 1.875% and an initial conversion premium of 15% to 20%. The equally sized seven-year series is talked at a coupon of 1.5% to 2% and an initial conversion premium of 15% to 20%.

The notes will be offered at par.

JP Morgan, Merrill Lynch and Morgan Stanley are the bookrunners of the Rule 144A offerings.

Cadence, a San Jose, , plans to use up to $200 million of the proceeds to buy back part of its zero-coupon, zero-yield convertible senior notes due 2023. It will also use the proceeds to concurrently buy back its common stock and fund convertible note hedge and warrant transactions.

Cadence stock (Nasdaq: CDNS) declined 0.51% or 9 cents to $17.50 in after-hours trading, following the announcement of the deal.

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