Schlumberger $1.3 bln 2-tranche convertibles talked at 1-1.5%, up 51-56%, 1.625-2.125%, up 67-72%

By Ronda Fears

Nashville, June 3 - Schlumberger Ltd. launched a $1.3 billion, two-part convertible deal to price before the open Wednesday in the Rule 144A market via joint bookrunning lead managers Citigroup and Goldman Sachs & Co.

Tranche A - for $850 million with a $125 million greenshoe - is talked to yield 1.0% to 1.5% with a 51% to 56% initial conversion premium. The 20-year senior unsecured notes will be non-callable for five years with puts in year five for cash only and in years 10 and 15 for cash and/or stock.

Tranche B - for $450 million with a $75 million greenshoe - is talked to yield 1.625% to 2.125% with a 67% to 72% initial conversion premium. The 20-year senior unsecured notes will be non-callable for seven years with puts in year seven for cash only and in years 10 and 15 for cash and/or stock.

Merrill Lynch & Co. analysts put Tranche A at 0.85% rich and Tranche B at 2.32% rich at the middle of guidance with Schlumberger stock at $47.90, using a credit spread of 80 basis points over the 5-year Treasury and a 29% stock volatility. The evaluation also considers a 1.57% yield on the common stock.

The aggressive terms scared off some outright players, although they like the name and interest was piqued by investment-grade paper.

"We're passing," said one outright convertible fund manager on the West Coast.

"We're low on cash and it's not attractive enough terms to raise cash from [selling] other bonds."

Yuir Garbuzov, a portfolio manager for Pimco Convertible Fund commented that Schlumberger stock "volatility is awfully low for these terms."

Both tranches are expected to be rated A1 by Moody's Investors Service and A+ by Standard & Poor's Corp.

Schlumberger, a New York-based oilfield services company, plans to use proceeds to repay debt and for general corporate purposes.

The stock closed Tuesday off 46c, or 0.95%, to $47.90.

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