James River quiet in the gray; AMD convertibles jump on settlement news; Avis trades at 96

By Rebecca Melvin

New York, Nov. 12 - James River Coal Co.'s planned issue of $125 million of six-year convertible senior notes was quiet in the gray market ahead of final pricing seen after the close.

Final terms weren't available by Prospect News' deadline. During the session, sources said that the paper looked rich and the stock borrow was tough.

Advanced Micro Devices Inc.'s convertibles surged in very active trade as its shares shot up 22% after word that competitor and industry leader Intel Inc. will pay AMD $1.25 billion to settle lawsuits.

The AMD bonds were higher by 10 points to 12 points, with the stock up $1.00.

Other than AMD the convertibles market was said to be quiet.

"There was lots of AMD trade; otherwise it was light," a New York-based sellsider said.

Elsewhere, Avis Budget Group Inc. convertibles traded down to 96 as their underlying shares sank nearly 10%.

Auto parts maker BorgWarner Inc. convertibles were little changed.

James River quiet in the gray

James River was expected to price $125 million of five-year convertibles after the close via UBS Investment Bank, after having launched the deal after the close on Wednesday.

The paper was talked to yield 4.5% to 5% with an initial conversion premium of 25% to 30%.

Shares of the Richmond, Va.-based coal producer lost $2.09, or 9.5%, to settle at $19.83 on Thursday.

The deal was quiet in the gray market, possibly because the offering wasn't being very warmly received by investors, which was contrary to expectations given positive momentum in new convertibles issuance recently.

"I hear that the deal is not going well. I'm not hearing that it's oversubscribed, which is what you usually hear if it's going well," a Connecticut-based sellside analyst said, citing stock borrow problems.

"It's negative 2, negative 5 rebate, and that messes up the valuation," the analyst said about borrow.

"It's way above investment value, and there's no downside stickiness," the analyst said.

"The premium to the investment value is 57%, so you're going to fall a lot of that before it sticks as a bond," he said.

The credit spread for valuation was said to be well over 1,000 basis points over Libor.

As a one-commodity company, with high costs and leverage and as a small market cap name, "it certainly has risk. I have only heard four handle spreads on this," the analyst said.

Shares of the company, which have risen dramatically, along with the overall coal sector, since July, were down on Thursday.

UBS was the bookrunner of the offering, with Raymond James as lead manager. Co-managers were Davenport & Co. and Brean, Murray, Carret & Co.

The bonds will be non-callable. There is net share settlement.

About $57.3 million of proceeds will be used in connection with termination of James River's letter-of-credit facility, with the remainder earmarked for working capital and general corporate purposes, which may include acquiring or investing in business or other assets or repayment of outstanding debt.

AMD surges

AMD's 5.75% convertibles due 2012 traded up to 91.5 bid, 94.5 offered in early dealings. Later they were up to 99.

The AMD 6% paper due 2015 was seen at 82.5 bid, 86.5 offered in early dealings, and it traded as high as 87.125 before settling back to 80.5.

AMD shares jumped $1.16, or 22%, to $6.48, in heavy volume after word that Intel will pay AMD $1.25 billion to settle all outstanding legal disputes. The move was taken to help Intel resolve its antitrust lawsuits.

AMD alleged that Intel used illegal means to bolster its 80% market share globally for central processing units.

The AMD deal covers central processing units but doesn't address the market for graphics processing units.

Last week New York attorney general Andrew Cuomo filed a lawsuit against Intel alleging that it threatened computer makers and paid billions of dollars in kickbacks to keep its dominant market position.

The U.S. Federal Trade Commission is also said to be close to filing a complaint against Intel.

In its settlement, AMD agreed to drop a lawsuit against Intel in Delaware and two cases in Japan. The two companies also sealed a five-year cross license deal and gave up claims of vreach from a previous licensing agreement.

Avis trades down with shares

Avis 3.5% convertibles due 2014 traded at 96 versus a share price of $10.25. That price was down from pricing above par in October when the bonds initially priced.

Shares of the Parsippany, N.J.-based car rental company slumped in early trading and settled down $1.08, or 10%, at $10.03 on Thursday.

The Avis paper traded at 102.25 versus a share price of $12.05 for the stock on Oct. 13.

Also in the auto sphere, BorgWarner's 3.5% convertibles due 2012 traded little changed at 124 bid, 124.5 offered. Shares of the Auburn Hills, Mich.-based auto parts maker ended lower by 60 cents, or 1.8%, to $32.10.

Gimme Credit analyst B. Craig Hutson wrote in a report Thursday, "BorgWarner has struggled in a challenging automotive supplier industry as global vehicle production levels have plummeted to record lows; but it has drastically cut headcount and capacity to reduce its breakeven profit."

The company's new backlog figures announced Monday "validate BorgWarner's leading market position and bolster its case as a long-term survivor in the extremely challenging automotive supply universe," Hutson wrote.

Although it reported mixed third-quarter results last month, its results gained sequentially, Hutson pointed out.

Net sales in the third quarter fell 22%, but it was better than the 42% drop in the first half. The company's top line results, which declined 18%, were worse than the industry overall because of its weaker product and geographic mix, Hutson noted.

But BorgWarner's restructuring efforts will help it "easily meet its 2009 financial goals."

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Avis Budget Group Inc. NYSE: CAR

BorgWarner Inc. NYSE: BWA

James River Coal Co. Nasdaq: JRCC

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