Beazer firm on probe; AtheroGenics falls on reports; Equinix gains, Kilroy flat on debuts; five deals launch

By Kenneth Lim

Boston, March 28 - An onslaught of new deals hit the primary market on Wednesday after the close, while a soft secondary market saw Beazer Homes USA Inc. weather a probe into its mortgage business.

Beazer slipped outright but improved on a dollar-neutral basis after the company said federal prosecutors were investigating its mortgage lending practices.

Also in the secondary market, AtheroGenics Inc. fell with its stock after analysts said the company could lose its partnership with AstraZeneca plc following disappointing data from its experimental heart disease drug.

Equinix Inc. improved slightly on its secondary market debut on the strength of outright interest in its offering, but Kilroy Realty Corp. stayed flat amid concerns about the real estate sector.

The new deals continue to arrive fast and furious with the announcement of $860 million of convertibles from five issuers. Including Equinix and Kilroy's issues, this week could see at least $1.48 billion of new convertibles.

Beazer steady amid probe

Beazer Homes' 4.625% convertible due 2024 fell as much as 6 points outright, but recovered in the afternoon to settle at 94.625 against a stock price of $28.45, two points below the previous day's levels.

"Those who got involved last night and this morning before 10, they did well because they really got whacked last night," a buyside convertible trader said. "Those who got involved this morning probably did a point or so better. They're still in from where they were last night, but they're better from the morning."

Beazer stock (NYSE: BZH) fell 8.4% or $2.64 to close at $28.77 after the company said the U.S. Attorney's office sought documents related to its mortgage business. The FBI is also investigating the company after a newspaper report a week ago said Beazer sold homes to people who could not afford them. Beazer said there have been no allegations of wrongdoing and it will cooperate with the investigations.

Beazer is an Atlanta-based homebuilder.

The sharp drop in the stock sent early shockwaves that hit the convertible late Tuesday and early Wednesday, the buysider said. But those who saw the opportunity, whether hedged or outright, could have come out better, the buysider said.

"For the outright guys, the stock's bounced," the buysider said. "It was off, but it's now back to around $28.75."

AtheroGenics takes a hit

AtheroGenics' 4.5% convertible due September 2008 lost 2 points outright as a number of negative brokers' reports sent the stock reeling.

The AtheroGenics convertible was at 81.5 bid, 81.75 offered versus a stock price of $2.85 on Wednesday. AtheroGenics stock (Nasdaq: AGIX) closed at $2.80, down by 13.58% or 44 cents.

Equity analysts at Merrill Lynch, Bear Stearns and ABN Amro said in reports that AstraZeneca was likely to pull out of its partnership with AtheroGenics because late-stage trial data for the experimental heart disease drug AGI-1067 was discouraging. The data was released Tuesday, which prompted a short spike in the share price before the stock closed lower.

AtheroGenics is an Alpharetta, Ga.-based pharmaceutical company. It said earlier in the month that AGI-1067 failed to meet the goals of late-stage trials.

"The stock was up yesterday because people were covering shorts," a buysider said. "My thoughts are that it's a dead drug but the company's putting as much spin on it as it can to keep it alive."

But while the stock is languishing, the convertibles still have some legs left, the buysider said.

Equinix gains on outright interest

Equinix's new 2.5% convertible subordinated unsecured note due 2012 was 100.75 bid, 100.875 offered against a stock price of $85.50 on Wednesday after it was offered at par near the rich end of talk.

The upsized $220 million deal priced with an initial conversion premium of 30%. Price talk was for a coupon of 2.375% to 2.875% and an initial conversion premium of 25% to 30%. The size of the deal was originally $200 million. The over-allotment option remains at an additional $30 million.

Equinix stock (Nasdaq: EQIX) closed at $85.41, down by 0.89% or 77 cents.

Citigroup was the bookrunner of the registered offering.

Equinix, a Foster City, Calif.-based information technology network services provider, plans to use the proceeds of the deal for general purposes that include expansion activities.

"I think there's a significant amount of outright demand that artificially makes them do better," said a hedge convertible trader. "I didn't think they priced that well."

A sellside convertible analyst said the deal appeared fair to slightly rich where it priced.

"I actually had it modeling about half a point cheap at the mids," the analyst said. "So it's actually not that attractive where it came. But the stock's down, and they managed to get the deal done and upsized it, so there must be some people out there who want this."

Kilroy flat on debut

Kilroy's new 3.25% exchangeable senior unsecured note due 2012 was flat at its reoffered price of 99 on Wednesday amid concerns about the real estate sector.

The $400 million deal priced with an initial exchange premium of 20%. It was talked at a coupon of 2.75% to 3.25%, an initial exchange premium of 20% to 25% and a reoffered price of 99. Kilroy stock (NYSE: KRC) eased 0.16% or 12 cents to close at $72.70 on Wednesday.

There is an over-allotment option for an additional $60 million.

JP Morgan, Banc of America and Lehman Brothers were the bookrunners of the Rule 144A offering.

Kilroy, a Los Angeles-based real estate investment trust that focuses on office and industrial real estate in southern California suburban markets, said the proceeds of the deal will be used to fund capped call transactions, reduce a $550 million unsecured revolving debt, repay outstanding mortgage indebtedness, partly finance its development pipeline and fund general purposes.

"I thought they priced reasonably," a sellside convertible analyst said. "They're actually OK at the cheaps. It's probably not doing so well because nobody's really excited about having another REIT."

A buysider said the convertible market in general was "heavy," but REITs in particular were weighed down by concerns that they were raising money because of problems that arose because of the problems in the subprime lending segment.

"There's talk that a lot of these REIT guys are raising money to buy back mortgage debt or something like there," the buysider said. "So there may be more REITs coming in."

New deals worth another $860 million

Sure enough, Strategic Hotels & Resorts Inc., a Chicago-based REIT that focuses on upscale hotels, announced $150 million of five-year exchangeable senior notes on Wednesday. Its deal is talked at a coupon of 3% to 3.5% and an initial exchange premium of 20%.

There is an over-allotment option for a further $30 million.

Deutsche Bank, Citigroup and JP Morgan are the bookrunners of the Rule 144A offering.

Strategic Hotels will use the proceeds to enter into capped call transactions, buy back up to $25 million of its common stock, repay outstanding bank debt and fund general purposes.

The Strategic Hotels deal will price Thursday after the market closes, along with deals by RF Micro Devices Inc., St. Mary Land & Exploration Co. and Eddie Bauer Holdings Inc.

RF Micro's $300 million deal is split into equal tranches of five- and seven-year convertible subordinated notes. The five-year series is talked at a coupon of 0.75% to 1.25% and an initial conversion premium of 22.5% to 27.5%, while the seven-year tranche is talked at a coupon of 1% to 1.5% and the same initial conversion premium range.

Each tranche has an over-allotment option for a further $25 million.

Merrill Lynch is the bookrunner for the Rule 144A offering.

RF Micro Devices, a Greensboro, N.C.-based maker of radio frequency components, said the proceeds of the deal will be used for general purposes, which include working capital, potential acquisitions and future stock repurchases.

St. Mary's $250 million offering of 20-year convertible senior notes is talked at a coupon of 3.5% to 4% and an initial exchange premium of 47.5% to 52.5%.

There is an over-allotment option for a further $37.5 million.

Merrill Lynch and Wachovia Securities are the bookrunners of the Rule 144A offering.

St. Mary, a Denver, Colo.-based oil and gas exploration company, said the proceeds of the deal will be used to repay outstanding revolving debt.

Eddie Bauer rounds up the pack with $75 million of seven-year convertible senior notes talked at a coupon of 5.5% to 6% and an initial conversion premium of 20% to 25%.

JP Morgan is the bookrunner of the Rule 144A offering.

Eddie Bauer, a Redmond, Wash.-based retailer of casual sportswear and outdoor accessories, plans to use the proceeds of the deal to partially repay a term loan that will be amended and restated concurrently with the offering.

Also announced on Wednesday, Ambassadors International Inc. said it had priced $85 million of 20-year convertible senior notes to yield 3.75% with an initial conversion premium of 25%.

There is an over-allotment option for a further $15 million.

Thomas Weisel Partners was the bookrunner of the Rule 144A offering.

Ambassadors, a Newport Beach, Calif.-based cruise and travel company, said it will use the proceeds to retire $60 million in seller financing expected to arise from its pending acquisition of Windstar Cruises and to fund general purposes.

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