JetBlue, Encysive Pharma, Semco deals emerge; Playboy fetches an offer, bids faint; Nash Finch on tap

By Ronda Fears

Nashville, March 9 - A string of small deals gave convertible players something to stay busy looking at, but as one big fund manager put it, none seemed overly sexy, including the Playboy Enterprises Inc. deal on tap after the closing bell.

Also at bat after Wednesday's close was Nash Finch Co. The food distributor's $150 million of discount cash-to-zero convertibles, talked to yield at 2.75% to 3.25% with an initial conversion premium of 32.5% to 37.5%, were still quiet in the gray market, a buyside trader said.

Early Wednesday, Semco Energy Inc. launched a tiny $60 million of 10-year convertible preferreds with guidance for a dividend of 5.0% to 5.5% and initial conversion premium of 25% to 30%. Credit Suisse First Boston is the sole bookrunner of the Rule 144A/Regulation S deal, which is slated to price Thursday.

Then after the closing bell rang, JetBlue Airways Corp. and Encysive Pharmaceuticals Inc. tossed out more to consider.

"We would love to get involved in some of these new issues, but pricing and/or structure have just not been very appealing," said a buyside analyst, who said he would like to see more call protection or earlier put dates. "PLA and ENCY both have five years of hard call protection (and two years of soft call protection), but put/maturity is seven years out, no make-whole during the provisional call period, and borrow was tight.

"At least their [Playboy] roadshow presentation had some pictures, so it wasn't a complete disappointment. ENCY's conference call is tomorrow. I doubt a drug for heparin-induced thrombocytopenia will be nearly as interesting."

Otherwise, traders said secondary action continued to be rather slapdash, with oil prices pressuring stocks, the long bond yields surging and signals becoming mixed on the economic and inflation fronts.

"We need the [stock] market to get taken down 10% for me to feel like I could relax," said a hedge fund trader.

Meanwhile, with the end of first quarter looming, sellside traders are anticipating another wave of hedge funds to shut their doors to convertibles. "We're waiting for the shake out," one sellside trader said. "The weaker hands will fold."

JetBlue offered 2 points over

JetBlue's return to the convertible market was met a bit "hesitatingly," as one buyside trader put it, pointing out, as well, that the issue was offered in the Street at 2 points over par within minutes of the deal getting launched.

The low-cost carrier based at New York City's John F. Kennedy International Airport will host a full day of marketing for $250 million of 30-year convertible notes talked to yield 3.25% to 3.75% with a 42.5% to 47.5% initial conversion premium.

"We love airlines, right now especially, since they are sort of an out-of-favor lot," said one fund manager in Connecticut. Yet, he said he had not placed an order for the new JetBlue convert, saying, "I am going to sleep on it."

Amid tough post-holiday flight schedules and rising fuel prices, JetBlue last Friday reported a 27.8% gain in February traffic as its capacity, or available seat miles, rose 19.6%. JetBlue said its load factor, or the percentage of filled seats, rose 5.4 points to 83.3%.

JetBlue shares closed Wednesday off 51 cents, or 2.66%, at $18.63. In after-hours trading on the convertible news, the stock was seen down by 78 cents, or 4.19%.

Encysive launches small deal

Houston-based biotech concern Encysive Pharmaceuticals Inc. launched $100 million of seven-year convertible notes talked with a coupon of 2.25% to 2.75% and initial conversion premium of 30% to 35% after the market closed, for Thursday's business.

Encysive plans to use proceeds to fund the final stages of pre-launch matters related to its Thelin drug, an endothelin receptor antagonist used as a treatment for pulmonary arterial hypertension. In addition, Encysive has at least two other drug candidates in earlier stages of development for a range of cardiovascular and inflammatory diseases.

The company also receives royalties on sales of Argatroban, its first FDA-approved product, which is being marketed by GlaxoSmithKline for heparin-induced thrombocytopenia.

In 2004, Encysive posted a net loss of $54.7 million, or $1.01 per diluted share, compared with a net loss of $35.3 million, or $0.80 per diluted share, for 2003. Revenues grew to $13.8 million from $11.6 million in 2003. At year-end 2004, the company recorded cash, cash equivalents and investments of $69.1 million.

Encysive shares closed Wednesday up 21 cents, or 2.14%, at $10.04. On the deal news, the stock was seen in after-hours trading down 66 cents, or 6.57%.

Playboy bids don't stand up

Early Wednesday, traders said they saw the Playboy issue offered at 1 point over issue price. But by day's end that had drooped to an offer of 0.75 point over and, as one trader put it, no one had "seen a bid standing up."

Playboy is pitching $100 million of 20-year convertible notes with guidance for a 2.5% to 3.0% coupon and initial conversion premium of 30% to 35% with proceeds slated in part to take out its 11% junk bonds. Also, the company may use up to $5 million of proceeds to buy back stock, in addition to founder Hugh M. Hefner possibly buying back about $5 million of stock at the same time.

On Wednesday, Playboy shares lost 88 cents, or 6.3%, to close at $13.09.

Playboy deal models barely cheap

At the middle of price talk, using a credit spread of 400 basis points over Treasuries and a 32% volatility, Merrill Lynch analysts said the Playboy convertibles were modeling out 0.35% cheap, or in a range of 1.9% rich to 2.5% cheap at the respective ends of the guidance, based on a stock price of $13.97.

Given the current scarcity of new deals and accounting for a somewhat tight borrow and small deal size, Merrill's convertible analyst Tatyana Hube said the deal likely would price at the midpoint to cheap end of the price talk.

Playboy stock borrow tight

Illustrating how tight the borrow on the stock is, one analyst noted that to set the Playboy deal up on a 75% hedge, one would need about 4.7 million shares versus only about 3.5 million shares available Wednesday for borrow at a rebate.

"I think the [Playboy] pricing is weak, given how anything with a 2.5 handle trades these days," said a manager of a big fund based in California. "I will have a closer look at the name and credit. It's probably better than expected! And if you get the assets, who needs a hedge fund?"

Merrill's Hube noted that Playboy's 11% senior secured notes are rated B by Standard & Poor's and B1 by Moody's Investors Service so the new senior subordinated convertible should carry a lower rating, like B- or CCC+. Playboy has relatively stable revenues and earnings turned positive in 2004 for the first time in six years, she pointed out. Since convertible proceeds will be used to take out the secured debt, she added, that should alleviate Playboy's debt burden and financial risk.

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