Avis sells upsized convertibles; AirTran prices $100 million; Finistar on tap with offering

By Rebecca Melvin

New York, Oct. 7 - New paper from Avis Budget Group Inc. was a focus of convertibles players on Wednesday. The deal, which was upsized and priced at the cheap end of revised talk for the coupon after the market close, was up in the gray market during the session at 102 or 103.

AirTran Holdings Inc. also priced a new deal after the close, selling an upsized $100 million of convertibles compared to the $75 million initially announced. Before the sale, the issue was quiet in the gray market as the airline's shares tumbled 17%.

Aloca Inc., which posted better-than-expected earnings after the close of markets, saw its convertibles a little weaker during the session. The convertibles, which stand at well over double par, were described as quiet during the session.

Elsewhere, a recent new issue from AMR Corp. was steady despite weaker shares. But Gaylord Entertainment Co., which priced at the same time as AMR, saw its convertible soften further, to trade at 96, despite stronger shares.

Gaylord announced that it has accepted for repurchase $228 million, or 85%, of its 8% senior notes due 2013.

Merix Corp., meanwhile, has announced that 98% of the holders of its 4% convertibles due 2013 have agreed to enter into an exchange agreement associated with its merger with Viasystems Group Inc.

Most Merix holders will take an offer of cash and shares, instead of cash only, a West Coast-based market player said.

In the primary market, a Finisar Corp. offering of $75 million of 20-year convertible senior notes was seen pricing after the close Thursday and was talked to yield 4.75% to 5.25% with an initial conversion premium of 22.5% to 27.5%, according to an origination source.

Market players said trading Wednesday was fairly quiet ahead of the advent of earnings season. Most weren't expecting significant moves in equities during earnings season except for possibly moves to the downside.

"It was not that active," a New York-based sellsider said of the market. "How much more equity move can you have, unless it's to the downside."

Downside moves in equities wouldn't be a bad thing given heavy deltas. "That would help," the sellsider said. "We'll see."

Avis gets upsized, repriced

Avis Budget was seen at plus 2 bid during the session 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%.

The Parsippany, N.J.-based car and truck rental company was seeing a pretty consistent bid on the new issue in the afternoon.

After the close, the Avis notes priced to yield 3.5% with an initial conversion premium of 30%.

One source reported at 1.75 points bid early on that rose to plus 2.25 points bid, to plus 2.75 points offered later in the session. "Hearing plus 2 to plus 3 away from us," the sellsider said.

Pricing came at the cheap end of revised talk for the coupon, which was 3.25% to 3.5%, revised from initial talk of 3.5% to 4%; and, at the adjusted point for the initial conversion premium, which was 30%, revised from 25% to 30%.

J.P. Morgan Securities Inc., Deutsche Bank Securities Inc., Barclays Capital Inc., Merrill Lynch & Co. and Citigroup Global Markets Inc. were bookrunners of the Rule 144A offering, with Calyon, RBS Securities Inc. and Scotia Capital (USA) Inc. as co-managers.

The notes will be non-callable and may not be put.

The convertibles will have dividend and takeover protection.

Proceeds will be used for general corporate purposes, to repay debt and to fund a convertible note hedge and warrant transaction.

AMR's recently priced convertibles traded at 102 versus a share price of $7.55.

Sources said that AirTran wasn't heard in the gray market before pricing after the close.

AirTran upsizes, prices

AirTran Holdings priced an upsized $100 million of seven-year convertible senior notes at par late Wednesday to yield 5.25% with an initial conversion premium of 20%, according to a syndicate source.

There is an over-allotment option for an additional $15 million of notes, which was upsized from $11.25 million.

The deal was originally going to be $75 million in size. It priced at the rich end of talk, which was for a coupon of 5.25% to 5.75% and an initial conversion premium of 15% to 20%.

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

Morgan Stanley & Co. Inc. was the bookrunner for the off-the-shelf convertibles offering.

The notes are non-callable and may not be put. The convertibles will have dividend and takeover protection.

Proceeds will be used for general corporate purposes, which may include working capital, capital expenditures or debt retirement.

Alcoa quiet ahead of earnings

Alcoa's 5.25% convertibles due 2014 traded down 5 points to about 236 during the session, with its shares ending up 31 cents, or 2%, to $14.20.

Shares of the Pittsburgh-based aluminum maker jumped more than 5% in after-hours trading and were halted.

The company reported a surprise 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, including job cuts, business sales and production curbs the company took to improve its cash position and profit since the beginning of the year. 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.

Merix gets exchange agreement

Merix shares plunged 30% to $1.92 on news that the Beaverton, Ore.-based maker of printed circuit boards is merging with Viasystems. Its convertibles weren't trading since the company reported that 98% of the convertibles' holders have agreed to enter into an exchange agreement whereby their notes will be exchanged for about 1.4 million newly issued Viasystems shares plus a total cash payment of about $35 million.

Viasystems Group Inc. and Merix Corp agreed to merge, resulting in the largest publicly traded printed circuit board manufacturer by revenue in the United States.

Each Merix share will be converted into about 0.11 of a newly issued share of Viasystems, subject to adjustment.

A sellside source said most holders of the bonds opted for a combination of cash and shares in the exchange.

"You had a choice of getting $72 in cash, or $41 in cash and 29 shares in the new company. You had to come up with your own valuation of what the shares are worth because it's a new company," a sellsider said.

The Merix 4% convertible senior notes due 2013 were last indicated at 42.5.

The companies said that based on the results for the 12 months ended June 30 for Viasystems and Aug. 29 for Merix, on a pro forma basis, the combined operation would have had about $840 million of revenue. Pro forma adjusted EBITDA for that period would have been about $68 million.

The companies expect annual cost synergies of about $20 million can be achieved through steps initiated within the first 60 days after the transaction.

Following the merger, the combined company will have about 13,000 employees and manufacturing capacity exceeding 4.3 million square feet in China and 375,000 square feet in North America.

Finistar to price

Finistar plans to price $75 million of 20-year convertible senior notes to yield 4.75% to 5.25%, with a 22.5% to 27.5% initial conversion premium.

Pricing was seen after the close of markets on Thursday, according to market sources.

The Rule 144A offering has a greenshoe of $11.25 million, or 15%, and is being sold via Piper Jaffray & Co. as bookrunner.

The bonds will be non-callable for five years and then provisionally callable for life at an equity price trigger of 130%.

Holders will have the right to redeem the notes at a specified redemption price on certain specific dates beginning in October 2014 and also in years seven, 10 and 15.

There is takeover protection via a standard matrix and full dividend protection.

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

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

Finistar is a Sunnyvale, Calif.-based maker of fiber optic subsystems.

Mentioned in this article

AirTran Holdings Inc. NYSE: AAI

Alcoa Inc. NYSE: AA

AMR Corp. NYSE: AMR

Avis Budget Group Inc. NYSE: CAR

Finisar Corp. Nasdaq: FNSR

Gaylord Entertainment Co. NYSE: GET

Merix Corp. Nasdaq: MERX

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