WaMu takes wild ride; A&P, Network Equipment, Hecla Mining on tap; Countrywide down again

By Evan Weinberger

New York, Dec. 12 - Washington Mutual Inc. was the center of the action in the convertibles universe Wednesday as the company unleashed its upsized $3 billion in convertible perpetual preferred stock on an eager market.

The opening, however, didn't go as planned.

Three new deals are set to hit the tape Thursday. Montvale, N.J.-based supermarket chain the Great Atlantic & Pacific Tea Co., Inc., better known as A&P, is bringing $380 million in convertible senior notes in two tranches that are set to price before the market opens Thursday. The first tranche of $150 million in convertible senior notes will mature in 2011. The second tranche of $230 million will mature in 2012.

Network Equipment Technologies, Inc. is set to bring $85 million in convertible senior notes due Dec. 15, 2014 talked at a 3.25% to 3.75% coupon and a 27.5% to 32.5% initial conversion premium Tuesday after the market close.

And Hecla Mining Co. launched $175 million in mandatory convertible preferred stock due Jan. 1, 2011 before the market open Wednesday. The mandatories are talked at a 6% to 6.5% dividend and an 18% to 22% initial conversion premium.

The Securities and Exchange Commission-registered transaction has a $26.25 million over-allotment option.

In secondary action, Countrywide Financial Corp. convertibles were down again on the Federal Reserve's moves to mitigate the credit crisis and on a new mortgage bill that could allow borrowers to shrink their mortgages in bankruptcy court. The bill made its way out of a House of Representatives committee Wednesday.

Schering-Plough Corp. preferreds took a hit on word of a Congressional inquiry into its popular cholesterol fighting drug.

Transocean Inc. had the hot new issue last week, and its three tranches of convertible senior notes all moved up a couple points Wednesday.

And Six Flags Inc.'s convertibles were on the upswing Wednesday.

Equity markets began the day strong, with the Dow Jones Industrial Average surging more than 270 points on the Fed's announcement of up to $40 billion in loans going up for auction and coordination of credit lines with the European, Swiss and in the coming days Canadian central banks on credit.

The tone turned late in the day, and markets fell below the break-even mark. "I think it's interesting. I'm happy to see it. I think it's a viable plan that should work for a couple of reasons," a trader said. "The analysts here just think it's not enough."

Further rate cuts and other plans are needed, the trader added.

In the end, all three major indices ended the day up. "So everyone's happy," the trader said.

The Dow gained 41.13 points, or 0.31%, to close at 13,473.90.

The Nasdaq picked up 18.79 points, or 0.71%, for a 2,671.14 close.

And the Standard & Poor's 500 closed at 1,486.59, an addition of 8.94 points, or 0.61%.

"I just think the roller coaster equity markets are providing a good avenue," an analyst said. "All indications point to more financing needs."

The new deals are coming in cheap, and they're missing stock buybacks - or "happy meals," as a trader called them - that new issues in a calmer market produce. "None of that's going on. The name of the game is liquidity and having a lot of cash on your balance sheet," the trader said.

WaMu takes a wild ride

Speaking of roller coasters, Washington Mutual's $3 billion in 7.75% perpetual convertible preferred stock took some serious hairpin turns to end up at around par on their first trading day.

The convertibles were trading in the gray market at 103.5 to 104.5 Wednesday night and traded up as high as 108 upon opening, according to several sources.

Then "the stock got the living crap kicked out of it," a trader said.

A second trader said "the stock's like death."

The convertibles came in at the mid range of dividend talk, which had been changed to 7.5% to 8%, and the cheap conversion premium talk, which started at 18% to 23%. The deal was originally announced at $2.5 billion.

They cheapened up over the course of the day, sources reported.

At the end of the ride Washington Mutual's new convertibles closed between 99 and par versus a closing stock price of $16.06.

WaMu stock (NYSE: WM) tumbled $1.36, or 7.81% on Wednesday.

Washington Mutual is a Seattle-based retail bank and lending institution. The company intends to put $1 billion into its subsidiary, Washington Mutual Bank, for working capital, and the rest of the proceeds will be held by the holding company for general corporate purposes.

The preferred stock offering was part of a major restructuring and cost-cutting plan Washington Mutual announced late Monday after the company announced around $1.6 billion in losses from the subprime mortgage crisis.

Hecla deal looks cheap

Coeur d'Alene, Idaho-based precious metals miner Hecla Mining is expected to bring $175 million in mandatory convertible preferred stock due Jan. 1, 2011 to market Thursday. The preferreds are talked at a 6% to 6.5% dividend and an 18% to 22% initial conversion premium.

"It doesn't look terrible, kind of 2% cheap," an analyst said, adding that he used a vol in the mid 40s. "It's a standard mandatory."

Another analyst said that Hecla doesn't have any other outstanding debt and unlike other mining companies is actually making money right now.

The analyst said he was using a 55 vol and the deal still came back cheap.

Because the deal is a three-year mandatory, both analysts said credit spreads didn't affect their valuations.

Hecla stock (NYSE: HL) lost $1.43, or 12.85%, to close at $9.70 on Wednesday.

Hecla plans to use the proceeds for general corporate purposes, including acquisitions of other businesses, securities, assets, properties or mining projects, claims or interests.

Countrywide down again

Calabasas, Calif.-based Countrywide saw its convertibles take another dive Wednesday. With the Fed's series of announcements and the House moving along on a mortgage bill with potentially disastrous consequences for mortgage lenders - it would allow borrowers to shrink the size of their mortgages in bankruptcy court - people just aren't feeling bullish on America's largest home lender.

So Countrywide's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Wednesday at 79.75 versus a closing stock price of $10.53. They closed Tuesday at 82.134 versus a stock price of $11.33.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 15, 2037 closed Wednesday at 76.871 versus a stock price of $10.53. They finished trading Tuesday at 78.8898 versus a stock price of $11.33.

Countrywide stock (NYSE: CFC) lost 80 cents, or 7.06%, on the day.

Schering-Plough down on House inquiry

Cholesterol fighting drugs are big business, and there have been calls for increased scrutiny on new drugs after several high-profile health scares.

That's why the House Committee on Energy and Commerce wants to know why Schering-Plough and Merck & Co. have delayed the release of their cholesterol drug Vytorin.

The mere hint of problems - and possible investigations - scared investors away from Schering-Plough's 6% mandatory convertible preferred stock due Aug. 10, 2013.

The preferreds closed Wednesday at 248.25 versus a closing stock price of $27.94. They closed at 257 versus a stock price of $29 on Tuesday.

Schering-Plough stock (NYSE: SGP) fell $1.06, or 3.66%, on the day.

Transocean regains position

The new kid on the block that had the market excited last week was Houston-based oil and gas driller Transocean's convertible senior notes due Dec. 15, 2037 in three tranches.

They've stayed hot, and they sit above par.

The 1.625% series A convertible senior notes closed Wednesday 106.212 versus a closing stock price of $138.66. They closed Tuesday at 104.754 versus a stock price of $135.93.

The 1.5% series B convertible senior notes closed Wednesday at 106.343 versus a stock price of $138.66 after closing Tuesday at 104.98 versus a stock price of $135.93.

The 1.5% series C convertible senior notes closed Wednesday at 106.347 versus a stock price of $138.66. They closed Tuesday at 105.373 versus a stock price of $135.93.

Transocean stock (NYSE: RIG) stretched $2.73, or 2.01%, on the day.

Six Flags on the upswing

The day started with a rollercoaster convertible, and it ends with rollercoaster convertibles.

New York-based amusement park operator Six Flags watched its 4.5% convertible senior notes due May 15, 2015 close Wednesday at 76.1875 versus a closing stock price of $2.66. They closed Tuesday at 74.92 versus a closing stock price of $2.44.

Six Flags stock (NYSE: SIX) skyrocketed 22 cents, or 9.02%, on the day.

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