AirTran climbs on debut, Avis, Alcoa trade higher; Finisar, Stewart Information to price

By Rebecca Melvin

New York, Oct. 8 - Two new issues in the secondary market and two deals on tap for pricing after the close, together with a strong showing in equities, spurred some focus on the convertibles market on Thursday.

Early dealings were brisk, but trading for the day was about average for midweek volume of late, according to a New York-based sellside analyst.

"It's good to see a build in the calendar; and it's been a decent amount of volume, but it's not busier," the analyst said.

Of the two new issues released for secondary dealings, the newly priced AirTran Holdings Inc. 5.25% convertibles had a strong debut, even though it was smaller in size and a smaller market cap name than the newly priced Avis Budget Group Inc. 3.5% convertibles.

The new AirTran traded as high as 108.75 outright, according to a sellsider, and ended the day at about 107, having also traded at 105 and 106.

The new Avis convertible traded at 102.5 to 104 early on, compared to its 102 in the gray market on Wednesday; and at the close it was at 101.5, according to a syndicate source.

Sources didn't report any gray market in Finisar Corp.'s $75 million of 20-year convertible senior notes that were seen pricing after the close Thursday. The deal was not upsized nor was talk revised during the session.

Also seen pricing after the close of markets was title insurance company Stewart Information Services Corp., which launched a $60 million offering of five-year convertible senior notes ahead of the open.

Aloca Inc., which posted better-than-expected earnings after the close of markets Wednesday, saw its convertibles bounce higher in active trading with higher shares on Thursday. That paper settled back somewhat by mid-afternoon but remained elevated compared to Wednesday.

A tender offer from Sinclair Broadcast Group Inc. for its 3% and 4.875% convertibles was expected to push that paper higher to meet the exchange-offer price of 98.

AirTran jumps

The newly priced AirTran 5.25% convertibles due 2016 traded an odd-lot at 108.75 outright but were last seen at 107 and were also at 105 or 106 during the session. Shares of the Orlando, Fla.-based airline gained 17 cents, or 3.4%, to end the day at $5.25 in heavy volume.

The seven-year paper modeled at about 105 using a credit spread of 1,500 basis points over Treasuries and 55% vol. To get 108, credit had to be tighter at about 1,400 bps over.

"There wasn't anything to compare it to," a Connecticut-based sellside analyst said of the AirTran convertibles.

AMR Corp. just priced five-year paper, but it is a much bigger market cap name and not as good efficiency as AirTran, the sellsider said. In addition, JetBlue Airways has convertibles, but one issue is really short dated and the other is deep in the money.

AirTran was upsized and came at better terms for the company than talk, which was 5.25% to 5.75% for the coupon and 15% to 20% for the initial conversion premium.

AirTran also priced about $50 million of common stock, or 9.84 million shares at $5.08 per share.

AirTran's existing 5.5% convertibles due 2015 were quoted higher at 177 compared to a recent level of 150.

AirTran's existing 7% convertibles due 2023, which are putable within the year, were little changed at 99.

"The 7s aren't going to move with the stock," a sellside analyst said.

Airline stocks in general were better on Thursday, but it wasn't clear why given that oil prices were higher. The sector was probably buoyed by markets being better overall on positive jobs data, the sellside analyst said.

Avis ends at 101.5

Avis' 3.5% convertibles due 2014 ended the session at about 101.5 versus a share price of $11.76.

Shares of the Parsippany, N.J.-based car rental company ended down 75 cents, or 5%, on the day.

Avis was seen at plus 2 bid in the gray market ahead of final pricing. The issue was also upsized to $300 million from $250 million, and terms were revised to 3.25% to 3.5% for the coupon from initial talk on the coupon of 3.5% to 4%, and to 30% for the initial conversion premium from 25% to 30%.

Car rental rival Hertz Global Holdings Inc. saw its 5.25% convertibles due 2014, which priced earlier this year in May, change hands Thursday at 145 versus a share price of $10.20. That level was essentially flat compared to Wednesday.

Alcoa trades actively

Alcoa's 5.25% convertibles due 2014 bounced back Thursday, trading in size at 244.5 versus a share price of $14.80, after trading higher at 247 or 248 versus a $15 stock price earlier in the session and after slipping about 5 points on Wednesday.

Shares of the Pittsburgh-based aluminum maker also pulled higher on surprisingly strong third-quarter earnings.

"When the stock eased down to $14.80, the bonds dropped 3 points. People were digesting that," a sellside analyst said.

The Alcoa report combined with good jobs data initially encouraged investors about the outlook for the economy.

The company reported a third-quarter profit of $77 million, or 8 cents a share, down significantly from a profit of $268 million, or 33 cents a share, for the same period last year, but better than the last three quarters of losses.

The profit was based on cost-cutting efforts but also better sales to the auto sector, the company said. Revenue for the quarter dropped 34% to $4.62 billion.

Alcoa also forecast an increase of 11% in worldwide aluminum demand for the rest of the year.

Finisar to price

Finisar was expected to price $75 million of 20-year convertible senior notes after the close to yield 4.75% to 5.25%, with a 22.5% to 27.5% initial conversion premium.

Talk and issue size remained unchanged during the session.

That paper was getting mixed reviews from investors, according to a sellsider.

"They wonder why it's still around. But by the same token, at least it is still around," the sellsider said.

Finisar is a known convert issuer, the sellsider noted, mentioning Finisar's existing 2.5% convertible subordinated notes due 2010 and 2.5% convertible senior subordinated notes due 2010. But the company tendered for a large chunk of that paper in August.

At that time, the company said it expected to accept tendered notes, comprising $33.1 million, or 66.2%, of its $50 million of the subordinated notes, and $14,404,000, or 15.7%, of the $92 million of senior subordinated notes.

Shares of the Sunnyvale, Calif.-based maker of fiber optic subsystems fell 98 cents, or 10%, to $8.54 in heavy volume on Thursday, ahead of pricing of the new convertibles.

Proceeds will be used to repurchase debt, including outstanding convertible notes, and for general corporate purposes, including working capital.

Finisar may also use a portion of the proceeds to fund, acquire or invest in complementary businesses, products or technologies.

Stewart Information to price

Stewart was expected to price an offering of $60 million of five-year convertibles after the close that were talked to yield 5.5% to 6% with a 25% initial conversion premium, according to market sources.

The Rule 144A offering was being sold by FBR Capital Markets.

The bonds will be non-callable for five years and will have no puts. They also have dividend and takeover protection.

Houston-based Stewart Information provides insurance and related information services required for settlement by the real estate and mortgage industries.

Mentioned in this article

AirTran Holdings Inc. NYSE: AAI

Alcoa Inc. NYSE: AA

Avis Budget Group Inc. NYSE: CAR

Finisar Corp. Nasdaq: FNSRD

Hertz Global Holdings Inc. NYSE: HTZ

Sinclair Broadcast Group Inc. Nasdaq: SBGI

Steward Information Services Corp. NYSE: STC

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