Trickle of new issues providing hope for eager buyers

By Ronda Fears

Nashville, Nov. 18 - The slow trickle of new deals is providing hope for convertible players, as three offerings line up for pricing this week. Otherwise, traders said the market was very quiet.

PacifiCare Health Systems Inc. has a quick sale Monday and Scottish Annuity & Life Holdings Ltd. joins Ligand Pharmaceuticals Inc. later this week.

"We've got some new deals now, but there's just a lot of credit risk involved. The credits have so much hair on them that it's just not prudent," said John Seibel, head convertible trader at Silverado Capital Management.

"I'm hoping that maybe this wave will sop of some of the leverage and liquidity so we can get some decent terms."

Opportunistic was a phrase used to describe many of the deals coming to market of late.

"Either you have terms that are so expensive it's a struggle to get set up to make money," said another buyside trader. "Or the credit is so bad that you leery about stepping out there to buy it."

But syndicate sources said books were running heavy on all three deals scheduled to price this week, as buyers flock to the $335 million of new paper.

Meanwhile, a private transaction announced late Monday by TXU Corp. was turning heads.

TXU Corp. said its TXU Energy Co. unit sold $750 million of 9% exchangeable notes due 2012 to DLJ Merchant Banking Partners III. Credit Suisse First Boston and Merrill Lynch advised the company on the deal.

The 9% exchangeable, which converts into TXU Corp. stock, is convertible at $13.15.

TXU shares closed up 17c to $15.57.

"The terms on this deal look very interesting, but I'm thinking there has to be some sort of conversion restriction [since the conversion price is less than the current stock price] or the company could have issued stock and avoided so much dilution," said a dealer.

TXU said the issue would result in a 17% dilution to outstanding common stock.

After the close, however, traders said TXU headed south on announcing a request from the SEC for more information regarding its 80% common dividend cut last month.

TXU's new mandatory closed up 0.11 point to 25.15. The old mandatory ended off 0.15 point to 24.75.

"I think it's remarkable that TXU could do any kind of deal right now," the dealer said.

"We are seeing some opportunistic deals. But you can't blame the issuers or the bankers really. The convertible market is just starved for [new] paper."

PacifiCare was pitching an overnight sale of $100 million of 30-year convertible notes talked to yield 3.0% to 3.5% with a 30% to 35% initial conversion premium.

The deal, estimated roughly 3.5% cheap by sellside analysts, was bid in the gray market at 2-3 points over par. PacifiCare shares closed down $1.415 to $30.51.

Scottish Annuity launched $100 million of 20-year convertible senior notes with guidance for 4.5% to 5.0% yield and a 25% to 30% initial conversion premium for pricing after the close Wednesday.

The deal, estimated about 8.35% cheap, was seen bid 0.5 to 2 points over par in the gray market.

Scottish Annuity shares closed down $1.40 to $16.70.

Several buyside traders said there was nothing available on the Ligand deal.

"I don't know what that means," said a trader, referring to not seeing any bids on the Ligand deal in the gray market.

"It sort of looks desperate, but there's been a lot of these types of deals this year. I don't think it has anything to do with how it will go. I think it will get done with lots of orders and it will be bid up."

Ligand is pitching $135 million of five-year convertible subordinated notes talked to yield 5.75% to 6.25% with a 15% to 20% initial conversion premium. Also, two years of coupons are collateralized with Treasuries.

Ligand shares ended up 9c to $5.25.

Recently priced converts were lower, which traders said reflecting some of the stock market decline and also some flipping to buy into other new deals.

3M's new 0.5% convert slipped about 0.5 point to 86.3125 bid, 86.5625 asked. 3M shares dropped $2 to close at $127.50.

Teva's new 0.375% was off 0.5 point to 105 bid, 106 asked. Teva shares closed off 22c to $75.33.

Otherwise, traders said it was a typical slow Monday.

American Tower Corp. continued to climb, traders said, presumably still on hopes of an exchange offer for one of the three converts.

Allergan Inc.'s tender for its 0% due November 2020 helped keep the American Tower group hopeful, one trader said, although Allergan was getting marked down as a result of the tender.

The Allergan convert was quoted sharply lower by most dealers, the trader said, but "very little, if any, actually traded."

The Allergan 0% convertible due November 2020 was quoted at 64.625 bid, 65.625 asked. Allergan is offering 64.75 per note. The converts sold at 60.841 in November 2000.

The Allergan 0% convertible due November 2022 was quoted off 0.25 point to 84 bid, 84.5 asked.

Allergan shares closed down 36c to $56.12.

Holders of American Tower's converts are hopeful about the prospects of an exchange, a trader said, particularly given the "distressed pricing levels" of the issues.

American Tower's 2.25% convertible due 2009 was quoted up 0.875 point to 63.875 bid, 65.875 asked. The 6.25% convertible due 2009 was quoted up 4.625 points to 58.25 bid, 60.25 asked. The 5% convertible due 2010 added 5.625 points to 56.625 bid, 58.625 asked.

American Tower shares closed up 52c to $2.02.

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