ImClone trades off gray levels; five new deals surface after Fed leaves rates alone

By Ronda Fears

Nashville, May 4 - Once the Federal Reserve announcement came Tuesday, leaving interest rates unchanged but with a strong indication that rates will be raised soon, convertibles issuers saw the door closing on the friendliest terms they'll see for a while. The news wasn't a surprise, but the headlines prompted issuers to begin traipsing into the market now rather than wait.

At the end of the day, the week was shaping into one with more than $2.6 billion of new convertibles.

Of that, two new issues were in trade Tuesday from ImClone Systems Inc. and Albertson's Inc.

ImClone sold an upsized $500 million of 20-year convertible notes at par to yield 1.375% with a 42% initial conversion premium - at the tight end of revised price talk of 1.375% to 1.5%, up 38% to 42%. Original guidance was for 1.5% to 2.0%, up 30% to 35%, when the deal amount was $400 million.

The new ImClone traded as high as 101.5, according to a buyside trader, which was down from 103 in the gray market before pricing. It was closed by bookrunner Morgan Stanley at 101 bid, 102 offered.

Albertson's sold $1 billion of three-year non-callable mandatory convertibles at par of 25 to yield 7.25% with a 25% initial conversion premium - at the aggressive end of price talk for 7.25% to 7.75%, up 20% and 25%. The issue traded around par in the immediate aftermarket, traders said.

At bat after Tuesday's close was Oscient Pharmaceuticals Corp. with a small $75 million and after the close Thursday Conseco Inc. is now expected to revive its $500 million mandatory offering.

Tower Automotive Inc. gave a bit more information about plans to refinance its 5% convertible that matures in August, and after the market closed four other new deals surfaced.

Issuers come calling post-Fed

All the deals that emerged with indicative terms - four, totaling $545 million - will be pricing after Wednesday's close.

Cooper Cameron Corp. launched $200 million of 20-year convertible notes, to be sold on swap with $50 million of proceeds set aside to buy back stock sold short by note buyers. The issue is talked to yield 1.5% to 2.0% with a 37.5% to 42.5% initial conversion premium. The issue will help pay the tender offer for the Houston-based oilfield services' 1.75% convertible due 2021.

LandAmerica Financial Group Inc. was pitching $125 million of 30-year convertible notes talked to yield 2.75% to 3.25% with a 40% to 45% initial conversion premium. The title insurance firm also is using some of the proceeds to limit dilution effects of the convertible with hedge and warrant transactions.

CTS Corp. began marketing $60 million of 20-year convertible notes talked to yield 1.25% to 1.75% with a 32.5% to 37.5% initial conversion premium.

Palm Harbor Homes Inc. was in the market with $50 million of 20-year convertible notes talked to yield 2.75% to 3.25% with a 38% to 42% initial conversion premium.

And the deal hinted at by Tower Automotive Inc. last week was appearing more real.

Tower Auto deal solidifying

Tower Automotive said Tuesday it plans to sell new $110 million convertible notes to refinance its existing 5% issue before it matures in August. No further details were available in the convertible market.

The Novi, Mich.-based automotive components maker said it plans to use proceeds from the convertible offering along with borrowings under its senior bank facility to call its $200 million of 5% convertible notes due Aug. 1, 2004 ahead of the maturity date.

A refinancing of the 5% issue has been in discussions by the company for almost a year.

Last week in a conference call company executives talked about a refinancing plan that would include a new senior secured credit facility as well as a capital markets transaction, such as a new convertible, to repay its existing credit facility and refinance the 5% convertible.

The latest refinancing plan is expected to close some time in the second quarter. In June 2003, the company amended its bank facility to allow some flexibility toward redeeming the convertible early, but the call was never made. Then, Tower Automotive came under pressure due to earnings weakness in the last half of 2003.

Evergreen drops on merger

Evergreen Resources Inc. traded sharply lower Tuesday following the announcement that it would be acquired by Pioneer Natural Resources Co. for $2.1 billion in a transaction consisting of 25 million shares of Pioneer common stock and $890 million in cash, plus $300 million of assumed debt that includes the Evergreen convertible. The transaction is expected to close by October.

While credit analysts saw it as a positive for Evergreen, one trader noted, the market's reaction was negative due to the weakening of Pioneer's post-merger credit profile. On the news, the rating agencies put Evergreen on review for upgrade and Pioneer for downgrade or changed its outlook to negative.

A market source said the Evergreen 4.75% convertible due 2021 was trading 13 points over parity before the news and dropped after the announcement to a bid of 6 points over parity, with the offer at 8 points over parity.

Evergreen shares fell $1.64, or 4%, to $38.99.

Standard & Poor's changed Pioneer's outlook to negative, but S&P credit analyst Bruce Schwartz said the Evergreen transaction could improve Pioneer's business profile long term. If the Evergreen assets perform as advertised, Pioneer will add a long-lived, onshore area in the United States that generates significant free cash flow after reserve replacement capital expenditures, he said.

Moody's Investors Service put Evergreen's ratings under review for upgrade, as opposed to an immediate upgrade, pending further clarification on the position of Evergreen debt within Pioneer's capital structure. If Evergreen debt becomes pari passu with Pioneer's senior unsecured debt, Moody's said it would upgrade Evergreen to Baa3.

Moody' noted, however, that its recent upgrade of Pioneer credit to investment grade at the Baa3 level had assumed that future acquisitions would be financed with a large common equity component. In Moody's view, the stock portion of the merger is not sufficient to achieve leverage consistent with a solid Baa3 rating.

Charter off on earnings jitters

Traders in distressed paper said there was mounting anxiety about Charter Communications Corp.'s upcoming earnings, along with several other matters causing investors concern. The convertibles lost about a 0.25 point on Tuesday.

Charter is scheduled to report earnings May 10.

Lack of clarity as to the cable company's plans to refinance its convertibles also weighed on investors' minds, traders said. One trader noted that the cable company is now facing a higher interest rate climate to look at refinancing its convertibles, which added some pressure to the story.

Charter's 5.75% convertible comes due in 2005 and the 4.75% issue in 2006.

Additionally, another convert dealer said there was concern about reports that Charter officials were talking about looking for acquisitions during an industry conference in New Orleans this week.

"Right now, the last thing Charter needs to do is pile on more debt," the trader said.

Comments from S&P also were mentioned, with one trader noting a "manic" message from the rating agency.

S&P said in a report Tuesday that absent any indications of operating weakness in Charter's first quarter earnings, it anticipated a revision to its outlook to positive due to an improved maturity profile from refinancings of other debt recently.

Yet, S&P added that, despite the improvement, Charter still faces the $618 million convertible maturing in 2005. Repayment of this debt could depend on access to external financing, S&P said, which will hinge on Charter's demonstration of sustainable positive operating momentum.

Charter shares dropped 5 cents on Tuesday, or 1.23%, to $4.

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