Lucent upsized to $1.525 billion, premium price talk revised on strong demand

By Sara Rosenberg

New York, May 29 - Lucent Technologies convertible senior debt got a good response ahead of its pricing after the close on Thursday.

In fact, demand was so strong that the deal was upsized to $1.525 billion from $1.3 billion and price talk on the initial conversion premium was changed, a source close to the deal told Prospect News on Thursday. The deal then priced at the middle of the revised talk.

New price talk throughout the day on the two-part deal was 2.375% to 2.875% yield with an initial conversion premium of 46% to 50% on the tranche A due in 2023 and 2.375% to 2.875% yield with an initial conversion premium of 36% to 40% on the tranche B due in 2025.

Originally, the tranche A was expected to have an initial conversion premium of 42% to 46% and the tranche B was expected to have an initial conversion premium of 32% to36%.

The deal ended up pricing at 2.75% yield-to-maturity with an initial conversion premium of 48% on the $750 million tranche A and 2.75% yield-to-maturity with an initial conversion premium of 38% on the $775 million tranche B.

Citigroup Global Markets and JPMorgan are joint bookrunning managers for the registered offering and HSBC is a joint lead manager.

The Murray Hill, N.J. network provider will use the proceeds towards the repayment or possible repurchase of short- and medium-term obligations over time, as well as for general corporate purposes.

"They're not really adding leverage, just layering in some cheaper paper," a market professional explained. "[Plus], at a $2 and change stock price I think people are willing to take a chance on it."

Ask Jeeves Inc.'s $100 million five-year convertible offering, which priced after market close Thursday, may get lost in the crowd due to its small size in comparison to the other deals that are set to hit the market, according to the professional.

"It might do okay but I'm not sure how many people are going to pay attention to it," he said. "It's $100 million dollar deal amongst about $2 billion."

The deal priced at par to yield 0% with an initial conversion premium of 30%. It priced at the rich end of premium talk. Guidance put the yield at 0% with an initial conversion premium of 24% to 30%.

Ahead of the pricing, Merrill Lynch & Co. analysts put the deal 0.8% rich using the middle of talk of 0% up 27%, a 60% stock volatility, a 920 basis points credit spread over the 5-year Treasury and a common price of $13.75.

Credit Suisse First Boston is leading the Rule 144A deal.

The Emeryville, Calif. provider of web search technologies intends to use the proceeds for general corporate purposes, including potential acquisitions and investments.

ADC Telecommunications Inc.'s $350 million offering, scheduled for after hours Thursday, also received a bit of skepticism since it is coming in a two-part deal. "It's a little complicated because it's a two-tranche deal. $350 million split between two seems a little small but it might do okay," the market professional said.

The deal consists of $175 million fixed-rate convertible subordinated notes due 2008 talked to yield 1% to 1.5% with an initial conversion premium of 48% to 52% and $175 million of floating-rate convertible subordinated notes due 2013 talked with a coupon of Libor plus 37.5 basis points to Libor plus 87.5 basis points and an initial conversion premium of 48% to 52%.

Merrill Lynch is leading the Rule 144A deal.

The Eden Prairie, Minn. broadband company will use proceeds for general corporate purposes and strategic opportunities, including financing for possible acquisitions or investments in complementary businesses, technologies or products

Electronics For Imaging Inc. is expected to price its $200 million principal amount of convertible debentures due 2023 after market close on Thursday in a Rule 144A offering.

The Foster City, Calif. provider of printing and imaging solutions and services intends to use up to $80 million of the net proceeds to purchase shares of its common stock from an affiliate of one of the initial purchasers at the reported last sale price of the common stock on May 29.

Remaining net proceeds will be used for general corporate purposes, which may include the purchase of additional shares of common stock and acquisitions of complementary businesses and technologies.

As for the new issues that priced by market open Thursday, Cypress Semiconductor Corp.'s $500 million convertible subordinated notes due 2008 may not see as much interest from hedge investors due to their cash payout at maturity and Celgene Corp. got a good reception by investors, according to a market professional.

"It is a little confusing because at maturity you're paid partly in cash," the market professional said in regard to Cypress. "It's an interesting company. They're using proceeds to pay down other convertibles. In terms of balance sheet it should be neutral or slightly positive

"Hedge guys may not like it as much since by offering cash you're taking some of the optionality out of the issue. You're taking out some volatility," the professional concluded.

The deal priced at par to yield 1.25% with a 13.09% initial conversion premium. This was at the high end of talk of 0.75% to 1.25%. Price talk on the initial conversion premium was not available.

The notes convert into a 55.172 shares plus $300 in cash, with Cypress having the option to pay the $300 in stock using the price at the time of conversion.

The new convertible closed at 102.5 bid, 102.75 offered, according to a trader. The stock closed at $11.13, up $0.54 or 5.10% on the day.

Piper Jaffray led the Rule 144A deal.

The San Jose, Calif. manufacturer of digital and mixed-signal integrated circuits intends to use proceeds to redeem at least $400 million of its outstanding 4% and 3.75% convertible subordinated notes, to repurchase $95 million of its common stock and for other general corporate purposes, which may include other debt repayment.

The company also intends to use $49 million of the proceeds to purchase 14-month issuer call spread options on its common stock to offset dilution from conversion up to a market price of $24.50.

Celgene Corp.'s upsized deal of $325 million five-year convertibles was said to be "very well received", according to a market source.

"It priced at the aggressive end of guidance. The coupon's low and the premium's high, like other new issues that have come out. But it's the cleanest piece of paper that came out this morning," the source said, explaining that the Cypress deal had some issues due to the cash component.

"From a credit standpoint, the company is slightly above average for the entire world of biotechnology companies. They do have revenues. They roughly break even in terms of cash flows," the source added.

Celgene's convertible priced before market open on Thursday at par to yield 1.75%, with an initial conversion premium of 50%.

Original price talk had the deal, which was expected to be $300 million in size, at a 1.75% to 2.25% yield with an initial conversion premium of 45% to 50%.

The new convertible closed at 100.88 bid, 101.38 offered, according to a trader. The stock closed at $30.3149, down $1.9851 or 6.15% on the day.

Morgan Stanley led the Rule 144A deal.

The Warren, N.J. biopharmaceutical company expects to use the proceeds for general corporate purposes.

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