Invacare rises on debut; ArvinMeritor prices, quiet in gray; Conceptus bid higher; Suntech launches deal

By Kenneth Lim

Boston, Feb. 6 - New deals continued to dominate the convertible market on Tuesday, as Invacare Corp. attracted improved bids on Tuesday but stayed mostly quiet after its new convertible priced ahead of schedule and within price talk.

ArvinMeritor Inc. was quiet in the gray market, as investors voiced reservations about the long structure.

Conceptus Inc. did better, gaining in the gray market after its offering receiving warm reviews for its volatile stock and potential outright gains.

Meanwhile, Suntech Power Holdings Co. Ltd. launched a $300 million offering of five-year convertibles that is expected to price Thursday after the market closes.

Invacare slow on early start

Invacare's new 4.125% convertible senior subordinated note due 2027 was bid more than 2 points higher on its secondary market debut, but did not see significant trading activity.

The convertible was 102.5 bid against a stock price of $19.75 early Tuesday. The convertible was offered at par. Invacare stock (NYSE: IVC) closed at $19.50, down by 3.66% or 74 cents.

"It was bid earlier today, but I haven't seen anything since," a sellside convertible trader said.

Invacare priced its $125 million deal a day earlier than expected on Monday, with an initial conversion premium of 22.5%. The convertibles talked at a coupon of 3.875% to 4.375% and an initial conversion premium of 20% to 25%.

There is an over-allotment option for a further $10 million.

Bank of America was the bookrunner for the offering.

Invacare, an Elyria, Ohio-based maker of non-acute health care products, expects to use the proceeds of the convertible deal and other debt to refinance substantially all of its existing indebtedness. Invacare, which announced its refinancing plans a week ago, expects the new financing efforts to result in total capacity of about $700 million.

A sticking point for some analysts was Invacare's high-yield offering, which was expected to arrive with a better coupon and a senior ranking.

A sellside convertible analyst who thought Invacare was "kind of a bad credit" noted that Invacare was "issuing straight debt along with it, and the straight debt has a pretty high coupon, which makes me feel like that's slightly more attractive."

"They only have one revolver outstanding, so they're not too highly leveraged here, but with these new debt instruments I think they're going to be stretching a little further," the analyst said.

The analyst was using a credit spread between 500 basis points over Libor and 600 bps over Libor, with a volatility in the mid-20% region.

Another convertible analyst explained that with its subordinated ranking and longer structure, the convertible had to model with a wider spread than the straight debt. The second analyst used a slightly higher volatility assumption, noting that volatility in the stock has picked up the past few days.

"I guess if you look at the stock today, you'll think that it should get a higher vol," the second analyst said. "Otherwise the deal just looks fairly rich...The problem with the Invacare deal is the 10-year put."

ArvinMeritor prices, quiet in gray

ArvinMeritor's planned $175 million of 20-year convertible senior unsecured notes was quiet in the gray market on Tuesday, with critics indifferent to its long structure.

The notes priced within talk after the market closed, at a coupon of 4% and an initial conversion premium of 37.5%. The notes were offered at par. They were talked at a coupon of 3.875% to 4.375% and an initial conversion premium of 35% to 40%.

The 4% coupon will be paid semiannually for the first 12 years, after which no cash interest will be paid. But the principal will accrete after the 12th year, at a rate that provides holders with an aggregate yield of 4%.

There is an over-allotment option for a further $25 million.

JP Morgan was the bookrunner of the Rule 144A offering.

ArvinMeritor, a Troy, Mich.-based auto components maker, said it expects to use the proceeds of the deal to fully repay its $169.5 million term loan due 2012. If it decides not to repay that loan, it will use the proceeds for general purposes, including retiring other debt or funding pension or other long-term liabilities.

ArvinMeritor's existing 4.625% convertible due 2026, which priced in March 2006, traded at 121.625 against a stock price of $20.05, about ¾ point higher outright. ArvinMeritor stock (NYSE: ARM) closed at $19.44 on Tuesday, lower by 3.04% or 61 cents.

"The deal looks OK," a buysider said of price talk. "The pricing is decent. It looks like it might do fine, although it would definitely be more interesting if it comes at the cheap end."

The buysider said the main concern related to the deal was its unusually long 12-year put structure.

"I don't like the 12-year put," the buysider said. "Their credit isn't that great, although the volatility is pretty decent, but I'm not comfortable getting locked in for so long. Plus there's no coupon after 12 years."

Conceptus bid up in gray

Conceptus's planned $75 million of 20-year convertible senior notes was bid ¼ point higher in the gray market on Tuesday, ahead of pricing expected after the market closed.

The convertible was talked at a coupon of 2.25% to 2.75% and an initial conversion premium of 25% to 30%. Conceptus stock (Nasdaq: CTPS) fell 5.21% or $1.18 on Tuesday and closed at $21.45.

The convertibles will be offered at par.

There is an over-allotment option for a further $11.25 million.

UBS Investment Bank is the bookrunner of the registered off-the-shelf offering.

Conceptus, a Mountain View, Calif.-based maker of birth control devices, said it will use the proceeds of the deal for general purposes and to fund convertible note hedge and warrant transactions.

"I actually thought this one was pretty interesting," a sellsider said. "It's modeling up 1% to 1.5% cheap according to my assumptions, a credit spread around 500 basis points over Libor and a stock volatility in the higher 30s."

A convertible analyst agreed that the deal looked interesting, but reckoned that investors will have to take a leap of faith in the company's key product, which is marketed as a minimally invasive and highly effective birth-control method.

"You really have to buy their story," the analyst said. "But I think they make a good case. They're FDA approved and they're rolling the product out, only it's going to be a slow ramp because they have to train the physicians and do the marketing."

"There's a lot of potential to the procedure if it's safe," the analyst added. "And it can be extremely effective...they made a strong case why physicians and insurers will like it."

Suntech launches deal

Suntech on Tuesday launched a $300 million offering of five-year convertible senior unsecured notes, talked at a coupon of 0.25% to 0.75% and an initial conversion premium of 25% to 30%.

The convertibles will be offered at par and are expected to price on Thursday after the market closes.

There is an over-allotment option for a further $60 million.

Goldman Sachs (Asia), UBS Investment Bank and ABN Amro Rothschild are the bookrunners of the Rule 144A offering.

Suntech, a Wuxi, China-based maker of solar cells whose American depository shares trade on the New York Stock Exchange, said it will use $100 million of the proceeds to expand its manufacturing lines, $50 million to buy raw materials, $100 million to repay a bridge loan used to pay for its acquisition of MSK Corp. and up to $50 million for other general purposes.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.