GM up amid bankruptcy threat; Allegheny adds, Alliance quiet in gray; Penson, Terex to price

By Kenneth Lim

Boston, May 27 - General Motors Corp.'s convertibles gained slightly on Wednesday as investors hoped to benefit if the company files for bankruptcy protection.

In the gray market, Allegheny Technologies Inc.'s planned $350 million of five-year convertibles were bid up slightly before the deal arrived at the midpoint of price talk. Market sources said the deal appeared slightly cheap, but views were split on the attractiveness of its common stock.

Alliance Data Systems Corp.'s expected $300 million deal did not attract any gray market bids amid a lack of confidence about the direction of its stock.

The primary market continued to be active, with Penson Worldwide, Inc. announcing a $50 million offering after the close and Terex Corp. planning a $150 million deal off the shelf.

GM up despite looming bankruptcy

General Motors' three convertibles were up slightly Wednesday despite the looming threat of bankruptcy after the company failed to secure enough tenders in an offer to restructure its $27.2 billion of unsecured debt.

The 5.25% convertible due 2032 gained 0.4 points to trade at 2, while the 6.25% convertible due 2032 was up ¼ point at 2. The 1.5% convertible due June 1, 2009 was quoted at 3.5, up by ¼ point.

General Motors common stock closed at $1.15, down by 20.14%, or $0.29.

"It's a bit of a dice roll," said a buysider who does not have any exposure to the convertibles. "I suppose people who end up with it now, they see value through the bankruptcy or they see the company's going to have a change of heart."

Investors who bought the convertibles on Wednesday are probably hoping that debt holders will gain from forcing the company to go through bankruptcy proceedings, the buysider said.

"People are gambling on the fact that there's not too much downside and the government might blink," the buysider said.

But the buysider warned that the thin trading volumes in the General Motors convertibles made it difficult to guess how most of the investors truly feel about their prospects.

"It's $5 million of GPM, it doesn't take much to move it," the buysider said.

Detroit-based General Motors, an automaker, said Wednesday that it failed to secure sufficient tenders for its $27.2 billion of unsecured debt. The company was offering its debtholders a 10% stake in a reorganized company. It had to win at least 90% approval from its bondholders to meet a target set by the White House.

The company said its board was meeting to explore the next step.

Allegheny seen cheap

Allegheny was up slightly in the gray market, reflecting views that its $350 million offering was a little cheap.

The notes were seen bid around 101.5 and 105.5 in the gray, which suggested that the market saw the deal as cheap. But as for how cheap, one buysider said the gray market range was "so wide that it doesn't tell you anything."

Allegheny common stock fell 10.22% or $3.66 to close at $32.15 on Wednesday.

Allegheny, a Pittsburgh-based diversified specialty metals producer, priced the deal at the midpoint of price talk Wednesday after the market closed to yield 4.25% with an initial conversion premium of 30%.

There is an over-allotment option for an additional $52.5 million.

J.P. Morgan Securities Inc. and Citigroup Global Markets Inc. were the bookrunners of the registered shelf offering.

Allegheny concurrently priced an upsized $350 million offering of 10-year senior notes at a coupon of 9.375% to yield 9.5%, a spread of 578.5 bps over Treasuries. The company initially planned to issue $300 million of straight debt.

Proceeds of the convertibles are earmarked to manage liabilities and other obligations, such as by making voluntary contributions to the company's defined benefit pension trust and contributions to trusts established to fund retiree medical benefits. Proceeds from the straight notes will be used to buy all of its $300 million principal amount of 8.375% notes due 2011 under a tender offer. Allegheny is offering $1.06 on the dollar for the 2011 notes.

The deal was a timely move by the company, a sellside analyst said.

"I think they are smart and opportunistic to do this," the analyst said. "They're going to take out their 2011 debt and pay down other obligations."

But the analyst, who thought that the deal warranted a credit spread wider than 600 basis points over Treasuries and a volatility of around 40%, saw more potential for hedge investors because the common stock appeared to have little upside.

"The company's really cyclical and I think it's going to be a really long recovery," the analyst said.

The buysider agreed that the common stock seemed fully valued, but noted that the sharp price drop on Wednesday could create some upside.

"Perhaps the valuation on the stock is relatively full, but the company has a strong balance sheet...it's got a pretty good runway in terms of liquidity," the buysider said.

Alliance quiet in gray

Alliance Data's $300 million of five-year senior unsecured convertibles failed to draw significant bids in the gray market on Wednesday, market sources said.

One buysider said the deal did not model "particularly cheap" and paled in comparison to the one by Allegheny because of uncertainty about its common stock. From an outright perspective, the risk in the common stock was unattractive, while from a hedge perspective there is "very high short interest" in the name, which made the stock expensive to borrow.

"The credit may be OK, but the stock is harder to predict, and we're basically more cautious," the buysider said.

Alliance planned to price the deal after the close on Wednesday. Price talk was for a coupon of 3.75% to 4.25% with an initial conversion premium of 20% to 25%. The common stock closed at $40.31, up by 1.46%, or $0.58.

The Rule 144A offering has a $45 million over-allotment option of additional convertible notes.

Barclays Capital Inc., J.P. Morgan Securities Inc. and Bank of America-Merrill Lynch are the bookrunners.

Proceeds will be used to buy back about $75 million of Alliance Data common stock, to pay about $39.3 million for the cost of convertible note hedge transactions related to the offering and for general corporate purposes, which may include repayment of outstanding debt under the company's revolving credit facility.

The stock repurchase would be part of the company's previously announced stock repurchase program and would be paid for concurrently with the issuance of notes, under the terms of prepaid forward transactions entered into in connection with the offering of notes.

Alliance is a Dallas-based marketing services company.

Penson, Terex plan deals

After the markets closed, Penson and Terex announced new offerings.

Penson, a Dallas-based securities clearing firm, plans to price $50 million of five-year convertible senior unsecured notes on Thursday after the market closes with price talk at a coupon of 7.75% to 8.25% and an initial conversion premium of 12.5% to 17.5%, market sources said.

Penson common stock closed at $11.35 on Wednesday.

There is an over-allotment option for an additional $10 million.

JPMorgan is the bookrunner for the Rule 144A offering.

Proceeds will be used to pay down some of the company's existing $70 million of corporate debt, provide working capital and for other general corporate purposes.

Westport, Conn.-based Terex, an industrial equipment maker, plans to price $150 million of six-year convertible senior unsecured notes on Thursday after the market closes with price talk at a coupon of 4% to 4.5% and an initial conversion premium of 20% to 25%, market sources said.

Terex common stock closed at $15.39 on Wednesday.

There is an over-allotment option for an additional $22.5 million.

Credit Suisse, Citi and UBS Investment Bank are the bookrunners for the off-the-shelf offering.

The company is concurrently offering $300 million of senior notes and about $150 million, or 11 million, shares at about $13.64 apiece, of its common stock. The common stock offering has a greenshoe of an additional 1.65 million shares, or about $22.5 million.

Proceeds of the debt and equity offerings will be used to pay down outstanding amounts under a senior credit facility and for general corporate purposes.

Mentioned in this article:

Allegheny Technologies Inc. NYSE: ATI

Alliance Data Systems Corp. NYSE: ADS

General Motors Corp. NYSE: GM

Penson Worldwide, Inc. Nasdaq: PNSN

Terex Corp. NYSE: TEX

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