St. Jude gains on debut; BankUnited slips with stock; Delta Petroleum quiet; Archer Daniels better to sell

By Kenneth Lim

Boston, April 20 - St. Jude Medical led an otherwise lackluster batch of new convertibles on Friday as robust interest in its offering drove its fresh paper to an early gain.

BankUnited Financial Corp. improved out of the gate, but a weak stock dragged the convertible below par later in the day.

Delta Petroleum Corp. drew strong bids, but no matching offers led to a quiet day for the deal as borrow remained tight.

Among older issues, Archer Daniels Midland Co.'s 0.875% convertible due 2014 gained about ¼ point as the stock improved. The convertible was marked at 105 bid, 105.5 offered against a stock price of $38.55 at the close. Archer Daniels Midland stock (NYSE: ADM) rose 3.32% or $1.24 on Friday.

"Those were active," a sellsider said. "They came in a little, but they had a good run...Today at least they were better for sale."

Archer Daniels Midland, a Decatur, Ill.-based biofuels and agricultural services company, said Friday that it will announce its fiscal third-quarter results on May 1.

The convertible market ended the week on a weaker note.

"There's a lot of contraction," a convertible trader said. "People are focusing on short-term volatility. The stock market seems to never go down, so that never helps volatility at all. A lot of paper for the month of April has really come in. There's been a gradual eroding over the month on premium."

"Because of volatility going down, folks seem more like they're on shorter-term volatility than on longer term" - possibly because of the surge in takeovers.

A sellside convertible strategist agreed that "we've kind of seen things coming in a little" over the past couple of weeks.

"Which is natural," the strategist said. "We've had a good run, a lot of paper coming to the market, particularly over the last six weeks, so it's not surprising to see a little lightening up, or reallocation of money...Maybe we're just coming off of an overbought situation."

St. Jude gains on debut

St. Jude's new 1.22% convertible senior unsecured debenture due December 2008 improved slightly on Friday as investors described the deal as reasonably priced.

The convertible traded at 100.875 against a stock price of $43.38 early Friday and hovered around that level the rest of the day. The convertible was offered at par. St. Jude stock (NYSE: STJ) closed at $43.16, down by 0.51% or 22 cents.

The $1.2 billion deal priced Thursday after the market closed with an initial conversion premium of 20%. The deal was talked at a coupon of 1% to 1.5% and an initial conversion premium of 7.5% to 22.5%.

The size of the deal was originally $1 billion, but the over-allotment option of $200 million was immediately exercised.

Banc of America was the bookrunner of the Rule 144A offering.

St. Jude Medical, a St. Paul, Minn.-based maker of cardiovascular medical devices, said it will use the proceeds of the deal to repay debt that was incurred in its $700 million stock buyback in February. It will also buy back up to $300 million of its common stock and fund convertible note hedge and warrant transactions.

"I think they did OK," a buysider said. "I thought it was slightly cheap at the mids, which was about where it came. It's a pretty safe piece of paper to hold."

BankUnited dragged by stock

BankUnited's new 6.75% mandatory convertible senior note due 2012 improved slightly early Friday but was pulled under water later in the day by a heavy stock.

The convertible was at 50.625 against a stock price of $23.40 in the morning, but was marked at 49.875 bid, 50 offered at the end of the day. The convertible was offered at par of $50. BankUnited stock (Nasdaq: BKUNA) lost 2.82% or 66 cents to close at $22.74.

"The BKUNAs did OK," a buysider said. "They were a little soft because of the stock."

BankUnited priced its $160 million offering of HiMEDS equity units with an initial threshold appreciation premium of 40% on Thursday after the market closed. The deal was talked at a distribution rate of 6.25% to 6.75% and an initial threshold appreciation premium of 40% to 45%.

There is an over-allotment option for a further $24 million, or 480,000 equity units.

JPMorgan is the bookrunner of the registered offering.

The convertibles will mature in five years, but they will be remarketed in the third year when the units must be converted.

BankUnited, a Coral Gables, Fla.-based bank, said the proceeds of the deal will be used to buy back its common stock and to fund general corporate purposes.

"They priced it at the cheaps so that obviously helped," the buysider said. "I think guys who bought it liked the coupon, although the premium is a little on the high side."

Delta Petroleum quiet

Delta Petroleum's new 3.75% convertible senior note due 2037 was better bid but did not trade on Friday as stock borrow concerns continued to dampen interest.

The convertible attracted a bid of 102 against a stock price of $21.26 early Friday but the bid was not matched. The convertible was offered at par. Delta Petroleum stock (Nasdaq: DPTR) closed at $20.93, down by 1.55% or 33 cents.

"That was a funny one," a sellsider said. "Some people were saying they were able to get the borrow, and if you did it would have been pretty cheap, but I didn't see any trading today."

Delta Petroleum priced its $100 million offering with an initial conversion premium of 48% on Thursday after the close. The deal was talked at a coupon of 3.25% to 3.75% and an initial conversion premium of 42% to 48%.

There is an over-allotment option for a further $15 million.

JPMorgan, Lehman Brothers and Deutsche Bank were the bookrunners of the registered offering.

There was a concurrent offering of 6.2 million shares of Delta Petroleum common stock at $20.50 per share with an over-allotment option for an additional 930,000 shares.

Delta Petroleum, a Denver-based oil and gas company, said the proceeds of the stock and convertible deals will be used to reduce $117 million of outstanding senior secured debt under its credit facility, and fund capital expenditures and other general purposes. The company will also redraw some or all of the amounts paid down on its credit facility.

A convertible trader said it remains to be seen whether the stock offering will free up the borrow.

"That won't happen immediately," the trader said. "That doesn't happen on the first day. It has to get into guys' accounts, so you'll know if the borrow frees up by something like Tuesday or Wednesday. It's purely a logistics matter."

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