Pride International drops on earnings; new Household deal trades up

By Sara Rosenberg

New York, Oct. 25 - Pride International Inc.'s 2½% convertibles due 2007 dipped during trading hours on Friday following its earnings release late Thursday and conference call Friday morning. Household International Inc.'s new convertibles were pretty much flat on the day with some morning activity taking place, according to market sources.

After hours on Thursday, Household International sold $500 million of three-year mandatory convertibles using the ACES structure at par of $25 to yield 8.875% and with a 20% initial conversion premium.

At mid-day Household's new mandatories were trading around 261/2, according to Jonathan Cohen, analyst at Deutsche Bank Securities Inc., and they pretty much stayed at that level for the rest of the day. The deal was priced at 25.

The stock closed on Friday at $24.09, up $1.26 or 5.52%. "It trades pretty much in line with the stock," Cohen added.

Goldman Sachs & Co. was the lead bank on the deal, which has a coupon of 8.875%.

It was priced 0.07% rich to theoretical value off a $21.40 stock price, according to Kimberlee Brody, a Wachovia Securities, Inc. analyst, who used a volatility assumption of 60%, a credit spread assumption of 600 basis points and stock dividend of $1.

"From what I'm told, it was a bought deal," a trader told Prospect News. "It wasn't originally contemplated that way. It was supposed to come next week but the company changed its mind and made people bid on it."

The deal was part of a series of transactions which the company said are intended to "significantly strengthen" its capital base.

"I thought they did a good job considering it didn't look like it was going to go all that well," the trader continued. "Generally we try to do mandatories with better credit profiles and Household is in a bad sector lately."

"I haven't heard it as that active and it was priced relatively expensive for the mandatory market," an analyst said. "I don't know how that one's going to do."

In addition to the units, the Prospect Heights, Ill. finance company also issued 18.7 million shares, raising proceeds of $400 million and agreed to sell $3.2 billion of loans and $4.3 billion of thrift-related deposits.

The deal was warmly praised by analysts at Banc of America Securities, both as good for the company and as a trend-setter for the markets more generally.

"By raising capital quickly and efficiently, Household Inc. may have staved off a looming crisis and also showed a way forward for the markets. Our mantra has been that corporate America needs to restore balance in the capital structure for any rally to come about; we have here the perfect example," wrote David Goldman, head of Banc of America's global markets research group, and Jeffrey Rosenberg, head of credit strategy research, in a report. They added that they have a buy recommendation on Household's straight debt.

Meanwhile, Pride's convertibles were quoted around mid-day at 108.864, compared to the previous day's close of 114.94, according to Cohen. The convertibles closed the day around 108.8, according to a trader. The stock closed at $13.38, down $1.64 or 10.92%.

The Houston, Tex. drilling contractor reported a net loss for the third quarter of $5.723 million or 4 cents per share, compared to net earnings of $5.443 million or 4c per share over the same period last year. Analyst estimates for the quarter were an EPS of 0c.

For the nine-month period ending Sept. 30, the net loss was $9.927 million, or 7c per share, compared to net earnings of $88.076 million, or 63c per share for the corresponding nine months last year.

The company attributed the decline in earnings and revenues in 2002 to weak market conditions in the Gulf of Mexico jack-up market. Another factor affecting financial results was the reduction in activity for the deepwater semi-submersible, Pride South Pacific, which had a negative impact on offshore operations.

"We believe we are now extremely well-positioned to produce significantly improved results in 2003, despite weakness that now exists in many of the world's offshore drilling markets," commented Paul A. Bragg, president and chief executive officer, in a news release. "We have successfully executed a strategy of contracting our most significant assets under long-term work commitments to ensure high utilization at attractive rates in 2003 and beyond. Essentially all available rig time for our drillships and semi-submersibles are committed for 2003."

"Besides [Household International] trading aggressively for the first ten minutes, [it's been quiet]," Cohen said. "A lot of people have been kicking back and digesting earnings news and digesting the Princess news."

On Friday, P&O Princess Cruises plc announced that it welcomed Carnival Corp.'s takeover bid. "Having considered the terms of the two DLC proposals, the Board has determined that a DLC combination with Carnival would be financially superior for P&O Princess' shareholders compared with the DLC combination with Royal Caribbean," a company news release said.

The Carnival proposal calls for: the formation of a dual-listed company (DLC) in which each P&O Princess share would be equivalent to 0.3004 Carnival shares; a partial share offer that would enable P&O Princess shareholders to exchange their existing shares for newly issued Carnival shares; a management structure in which the combined companies managed by a unified executive management team; the continued listings of Carnival on the NYSE and P&O Princess on the London Stock Exchange; and, depending on the share offer, between 21% and 26% of the economic and voting interest in the combined entity would be represented by the P&O Princess shares listed on the London Stock Exchange.

"Following our constructive negotiations over the past two weeks, we are pleased that Carnival has put forward a committed DLC offer that would allow all of our shareholders to retain an ongoing interest in a combination of Carnival and P&O Princess. This is important to us given the growth potential of the cruise industry and the exciting prospects for a combined Carnival and P&O Princess group," said Peter Ratcliffe, chief executive officer of P&O Princess, in the release.

"Our board has determined that the DLC proposed by Carnival would be financially superior to the DLC with Royal Caribbean. With Carnival now committed to make their DLC offer, the Board has decided to withdraw its recommendation of the Royal Caribbean proposal," Ratcliffe added.

Carnival's 0% convertibles were up about 1¼ to 1½ at the close, quoted at 58/59, according to a trader. The company's stock closed at $27.33, up 95c or 3.70%.

Royal Caribbean's 0% convertibles due February 2021 were up by about a point with quotes around 36¾ to 371/4, the trader said. A second trader had the convertibles closing at 37.06. The stock closed at $19.28, down 27c or 1.38%.

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