GM boosted to $4 billion; Sealed Air, Crown Castle join deal party; Reliant, Calpine mixed on deals

By Ronda Fears

Nashville, June 26 - It was a busy day in convertibles with the General Motors Corp. deal getting bumped to $4 billion as Sealed Air Corp. and Crown Castle International Corp. joined the new deal party going on in converts.

GM also sold some $13.5 billion in other straight bonds and Sealed Air sold $850 million in other straight bonds - both deals getting upsized amid strong demand.

Capital markets contacts in convertibles said the deals in other markets helped the convertible deals for GM and Sealed Air - both of which were described as "hugely oversubscribed." Sweeter terms for new converts also have helped deals get done, buyside sources said.

Sealed Air was pitching a $300 million convert after Thursday's close, along with a $200 million deal from Crown Castle. In addition to GM, McMoRan Exploration Corp. was set to price $100 million of converts.

Morgan Stanley convertible analysts said the number of deals this week put the month of June in record-busting territory for the number of deals with 49, which could rise by a couple more, versus the record-setting 48 in May.

Deal proceeds may also top the May total of $14.7 billion, as well, analysts said.

Calpine Corp.'s converts also rose sharply on its plans for $1.8 billion in second-priority senior secured notes and term loans. The Calpine 4% due 2006 gained 4.5 points to 91 bid, 91.5 offered.

Reliant Resources Inc. converts, however, were weaker on its straight bond deal, which was more than tripled to $1 billion from $350 million. The new 5% due 2010 lost 1.75 points to 98.5 bid, 98.75 offered.

In secondary trading, dealers reported to be busy with a lot of activity focused on either new issues or high-yield paper.

Nextel Partners Inc.'s new convert, the 1.5% due 2008, was quoted up 9.5 points to 118 bid, 119 offered as buzz recirculated that the company may be revisiting the convertible market on the heels of its recent success in the junk bond market.

Airlines also were very active, traders said, moving all those issues higher. Lucent Technologies Inc. was another name mentioned heading north.

Mirant Corp. was a notable laggard, one distressed trader said, on "mounting skepticism" about its ability to get a successful exchange for the 2.5% converts and 7.4% junk bonds as well as renegotiate its bank facilities. The 2.5s were seen about 3.5 points lower.

While the surge in trading produced better bids for converts, not everyone was participating in that party.

"The way things are trading right now, I'm not in the mood to buy anything. It's really ugly," said a convertible trader for a hedge fund in New Jersey.

"You see, the bond market had a deflationary environment built into it and when we didn't get an indication of that, it sold off."

Traders at the major sellside shops, though, said convertible players - particularly hedge funds - are looking to pick up some cheap volatility while many outright guys are searching for yield and hoping that higher turnover rates in their portfolios - or an increased level of trading - will continue to help returns.

With new deal terms moving a little closer to the liking of buyers, the banker types said deals are moving along with a much more positive tone.

MeriStar Hospitality Corp. more than doubled its deal, to $155 million from $75 million, but it offered a fat coupon, even in the regular high-yield world. The seven-year noncallable convertibles priced at par to yield 9.5% with a 100% initial conversion premium - at the wide end of guidance.

It wasn't high-yield accounts that made up the bulk of the book on the MeriStar deal, however.

A source familiar with the deal said it mostly went to equity income funds and REIT funds.

Lehman Brothers, the lead for the MeriStar deal, closed the new convert at 101.25 bid, 102.25 offered. The underlying stock ended up 14c, or 2.75%, to $5.23.

RF Micro Devices Inc. returned to the convert market with a $200 million quick-sale deal, which priced at the wide end of yield guidance but the premium was sweetened considerably.

The new RF Micro Devices seven-year convertibles priced at par to yield 1.5% with a 32% initial conversion premium. It had been talked to yield 1.0% to 1.5% with a 42.5% to 47.5% premium.

Merrill Lynch, the lead for the new RF Micro Devices deal, closed the new convert at 100.625 bid, 100.875 offered. The underlying stock closed up 9c, or 1.56%, to $5.87.

After the closing bell Thursday, Sealed Air, Crown Castle, General Motors and McMoRan Exploration were pricing new deals.

GM upped its deal to $4 billion, selling the 30-year convertibles at par of 25 to yield 6.25% with a 32.5% initial conversion premium - smack in the middle of guidance.

"We saw a lot of demand, a lot of people were attracted to the yield on this convert," said a capital markets source working on the GM deal.

"The book ran across the convertible universe, technical guys, as well as some retail accounts. In addition to the yield, investors liked the use of proceeds."

The giant automaker and its General Motors Acceptance Corp. also sold about $13.5 billion of euro and sterling denominated bonds. Total proceeds will go toward filling the underfunded position of GM's pension plan, which was estimated at $19.3 billion at yearend. The straight bonds, in euro and sterling denominations, were boosted from about $6.25 billion amidst tightening the terms on those issues, a market source said.

Sealed Air was pitching $300 million of 30-year convertible notes talked to yield 2.75% to 3.25% with a 47.5% to 52.5% initial conversion premium. Proceeds, plus proceeds from offerings of 10-year and 30-year straight senior notes, are earmarked to redeem its convertible preferreds due 2018 at 51 for a total of $1.3 billion.

The straight bond deals were bumped to $850 million from $750 million, a market source said, and that could mean the convert would get boosted. The company sold $400 million of 5.625% notes due 2013 at 99.663 to yield 5.669% and $450 million of 6.875% notes due 2033 at 99.642 to yield 6.903%.

The new Sealed Air convert was bid at 0.5 point over issue price in the gray market, a buyside trader said.

Crown Castle was marketing $200 million of seven-year convertible notes talked to yield 3.5% to 4.0% with a 42.5% to 47.5% initial conversion premium, with proceeds earmarked to fund a portion of the previously announced redemption of its 10.625% senior discount notes due 2007.

Merrill Lynch put the new Crown Castle convert 2% cheap, at the middle of guidance with the stock at $8.30, using a credit spread of 825 basis points over Treasuries and a 50% stock volatility.

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