Intel, Ceradyne trade higher; United Dominion re-offered; Entergy up in gray; OSI launches $100 million

By Rebecca Melvin

Princeton, N.J., Dec. 14 - With the debut of three new issues in the convertible market on Wednesday, the pace of new issuance showed no sign of tapering off since it revved up this month with issuers trying to get deals done ahead of the end of the year.

The new Intel Corp. convertibles traded actively at 101 and slightly below that level after the world's largest chip maker priced $1.4 billion of 30-year convertibles at par to yield 2.95% with an initial conversion premium of 18%.

The new 2.875% convertibles of Ceradyne Inc. garnered a lot of outright support, as did the Intel deal, and that paper traded higher than Intel, closing at 102.25 bid, 102.50 offered, according to a syndicate source.

A third new issue - an overnighter - from United Dominion Realty Trust Inc. was priced at par to yield 4%, with an initial conversion premium of 20.5%. But the notes were re-offered at 98.25, and closed little changed from that level after a day in the market. The United Dominion deal was for $200 million of 30-year convertible senior notes.

After the bell, OSI Pharmaceuticals Inc. launched a $100 million deal of 20-year convertible senior subordinated notes, which were talked to yield 1.75% to 2.25% with an initial conversion premium of 20% to 25%.

The deal, which was being sold via bookrunner UBS Investment Bank, was expected to price late Thursday, according to a syndicate source.

Elsewhere, utilities were a feature of the convertible secondary market, with Duke Energy Corp.'s 1.75% convertibles trading up about 1.5 points, in line with its shares.

The group was a focus ahead of pricing of a new issue of $500 million of mandatory convertibles from electric utility Entergy Corp. and amid reports Wednesday that FPL Group Inc., parent of Florida Power & Light, was considering an $11 billion takeover offer of Constellation Energy, which owns Baltimore Gas & Electric, market sources said.

The Constellation takeover would boost FPL's market share and diversify its nuclear generation exposure with Constellation's unregulated generation business.

Also on Wednesday, market players were glued to news after the close that biotechnology leader Amgen Inc. has agreed to acquire Abgenix Inc. for $2.2 billion in cash and the assumption of debt.

Fremont, Calif.-based Abgenix is a small biotechnology company that has two existing convertible bond issues, including an older issue with $200 million outstanding, and a new issue with $300 million outstanding.

The older 3.5% issue doesn't have cash takeover protection and is putable at par. It is less liquid than the newer issue and generally trades at about 96.5 bid, 97.5 offered.

The newer 1.75% issue has takeover protection and traded on Wednesday at 127.

Shares of Abgenix closed up 46 cents, or 3.24%, at $14.65, and surged after hours, moving up $7.29, or 50%, to $21.94, which was close to the expected per share price offer of $22.50.

Entergy deal looks cheap

Ahead of pricing late Wednesday, the Entergy deal of $500 million of mandatory convertible equity units was showing up in the gray market at 100.25 bid, 100.375 offered.

Valuations by market players put it about 1% to 1.5% cheap.

At the midpoint of talk, using a credit spread of Libor plus 50 basis points and a volatility of about 21%, the mandatories looked 1.3% cheap, according to a New York-based analyst.

A Connecticut-based sellside analyst assumed a credit spread of Treasuries plus 110 basis points and a volatility in the high teens.

"It's an interesting situation," the Connecticut analyst said. "It's a well run utility, but it faces costs related to Hurricane Katrina and deferred fuel costs. Clearly, it's on the watch list for a downgrade. But S&P isn't likely to downgrade it below investment grade."

The Entergy risks, including insurance proceeds, potential federal tax benefits and questions related to whether costs will go into rate base or be securitized, will be resolved over the next several years, the analyst said. "They are not going to play out over the next several months."

The Entergy mandatories will be $50 equity units that mature Feb. 17, 2009.

They were talked to yield 7.375% to 7.875%, with an initial conversion premium of 20% to 24%, and are being sold via joint bookrunners Morgan Stanley, Citigroup Global Markets and J.P. Morgan Securities.

Entergy is a New Orleans-based electric utility that is temporarily headquartered in Clinton, Miss., due to devastation in the region caused by Hurricane Katrina.

The company is in the process of implementing a financing plan of about $2.5 billion to provide adequate liquidity and capital resources while storm restoration cost recovery is underway and to provide additional financial support against potential unexpected events, the company said in a regulatory filing.

The plan includes the equity units, a new revolving credit facility and other new debt. Like all mandatories, Entergy's equity units offering is like a delayed equity offering with the proceeds being received right away.

The new Entergy revolving credit facility with capacity of up to $1.5 billion would supplement an existing five-year $2 billion revolving credit facility. The issuance and sale of up to $500 million of new debt at Entergy Gulf States and Entergy Louisiana includes $150 million of first mortgage bonds issued by Entergy Louisiana on Oct. 21.

In addition to the financing plan, Entergy Corp. plans to provide funding of $300 million to Entergy Gulf States.

Intel trades actively

Intel's junior subordinated convertible debentures priced toward the middle of talk for the coupon, which was 2.875% to 3.125%, and at the cheap end of the initial conversion premium, which was 18% to 20%.

The Rule 144A deal, sold via bookrunner JP Morgan, has a greenshoe of $200 million.

The debentures are non-callable for seven years, and are provisionally callable at a trigger of 130% after that. There are no puts.

The debentures also have dividend and takeover protection.

Santa Clara, Calif.-based Intel intends to use proceeds for general corporate purposes. A portion of proceeds will also be used to buyback shares when the debentures close on Friday.

Ceradyne closes higher

Ceradyne priced an upsized $110 million of 30-year convertibles at par to yield 2.875%, with an initial conversion premium of 35%.

The senior subordinated convertible notes priced at the rich end of talk which was for a coupon of 2.875% to 3.375% and an initial conversion premium of 30% to 35%.

The amount of notes sold represents an increase of $10 million over that announced at the deal's launch on Dec. 1. Also there is an over-allotment option for an additional $11 million, for a total of $121 million.

Using a credit spread of Libor plus 350 basis points and a volatility of 40%, the notes were seen 1% to 2% cheap, which was basically where they traded, according to a New York-based sellside trader.

They closed higher at 102.25 bid, 102.50 offered, while their shares remained little changed, up 16 cents, or 0.37%, at $43.47.

Concurrently with the convertibles, the company priced 1.8 million shares of common stock at $43.31. And there is an option for the sale of an additional 270,000 shares.

The convertibles are non-callable for five years, with puts in years seven, 10, 15, 20 and 25.

Citigroup Corporate and Investment Banking was bookrunner, with Wachovia Securities and Needham & Co. LLC acting as co-lead managers.

Ceradyne plans to use a portion of the proceeds from both offerings to repay its credit facility, which was $110.9 million as of Sept. 30.

The remainder of proceeds will be used for working capital, capital expenditures and other general corporate purposes, including potential acquisitions of businesses, technologies or product lines.

Costa Mesa, Calif.-based Ceradyne develops and markets technical ceramic products for defense, industrial, automotive and commercial applications.

United Dominion re-offered at 98.25

The 4% United Dominion convertibles closed at 98.25 bid, 98.375 offered, little changed from their re-offer price. The issue wasn't widely seen in trade.

The Rule 144A deal, sold via bookrunner Goldman Sachs & Co., has an additional $50 million greenshoe.

The notes are non-callable for five years, with puts in years five, 10, 15, 20 and 25.

Highlands Ranch, Colo.-based United Dominion is an apartment REIT.

OSI to price $100 million

OSI Pharmaceuticals' $100 million planned offering of 20-year convertible senior subordinated notes were talked to yield 1.75% to 2.25% with an initial conversion premium of 20% to 25%, according to a syndicate source.

The notes are non-callable for five years and have a put in year five. There is an option for an additional $15 million of the notes.

OSI intends to use up to $25 million of proceeds to purchase shares of its common stock concurrently with pricing of the notes, as well as to enter into call spread transactions to reduce dilution from conversion of the notes.

Remaining proceeds will be for general corporate purposes.

In connection with the call spread transactions, the initial purchaser of the notes or its affiliates have indicated that they will purchase shares of OSI's common stock in secondary market transactions and enter into various derivative transactions near to the time that the notes price.

Melville, N.Y.-based OSI Pharmaceuticals is an oncology-focused biotechnology company.

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