Molson Coors continues hot streak; Countrywide edges up; ISIS, Level 3 fall; Rayonier, iStar set to play

By Evan Weinberger

New York, Oct. 10 - Molson Coors Brewing Co. convertibles continued to move up a day after their joint venture with SABMiller plc was announced. Countrywide Financial Corp. convertibles edged higher.

On the tech side, Micron Technology Inc., Symantec Corp. and Amdocs Ltd. all nudged up.

ISIS Pharmaceuticals Inc. and Level 3 Communications Inc. slipped lower.

Two real estate investment trusts were set to come to market Wednesday after the market close.

iStar Financial Inc. launched $500 million in senior unsecured floating-rate notes due Oct. 1, 2012. The notes are talked at a coupon of three-month Libor plus 25 to 75 basis points and an initial conversion premium of 28% to 32%. There is a $75 million greenshoe on the registered transaction.

The floaters have call protection throughout.

iStar is a New York-based commercial REIT that specializes in financing commercial real estate. The REIT plans to use the proceeds to repay outstanding debt stemming from the credit facility it established for iStar's acquisition of Fremont General Corp.'s commercial real estate lending business. That deal was announced in May. Any remaining proceeds will be used to repay other existing debt.

Rayonier Inc., a REIT, timberland management and cellulose fiber producer based in Jacksonville, Fla., announced the launch of $250 million in senior unsecured exchangeable bonds due 2012. The exchangeables are talked at a coupon of 3.75% to 4.25% and an initial conversion premium of 18% to 22%. The Rule 144A transaction has a contingent conversion subject to a 130% hurdle.

The exchangeables will carry full dividend and takeover protection. There are no calls or puts. There is a $37.5 million greenshoe.

Morgans Hotel Group Co., which is based in New York, announced the launch of $100 million in senior subordinated convertible notes due 2014 Wednesday after the market close. The maturity date of the Rule 144A transaction is still to be determined. The convertibles are talked at a yield of 2.25% to 2.75% and an initial conversion premium of 17.5% to 22.5%.

There is a $15 million greenshoe and a contingent conversion subject to a 130% hurdle. There is call protection for the life of the convertibles and there are no puts. The convertibles are scheduled to price Thursday after the market close.

Morgans plans to use the proceeds to pay down in full its revolving credit facility, to enter into hedged transactions and for general corporate purposes.

Morgans stock (Nasdaq: MHGC) closed trading Wednesday up 71 cents, or 3.18%, at $23.03.

Speaking of the Nasdaq, equity markets had a mixed day as investors wait for further earnings reports.

The Dow Jones Industrial Average, after spending part of the afternoon down as much as 140 points, closed trading Wednesday down 85.84 points, or 0.61%, to close at 14,078.69. The Standard & Poor's 500 also was down, losing 2.68 points, or 0.17%, for a 1,562.47 close.

The Nasdaq was up, however. The tech-heavy index picked up 7.70 points, or 0.27%, for a 2,811.61 close.

Convertibles watchers reported that things had slowed a bit on their end as the wait for earnings reports continued. "We're all waiting for earnings here," one fund manager said.

An analyst reported that he had seen some investors taking the same approach, although he said flow at his desk was pretty good.

New deals cheap, but is that enough?

Opinion appears to be divided on the iStar and Rayonier deals set to price Wednesday night. Both are viewed as cheap - one analyst had Rayonier at 4.5% cheap and iStar at 2.5%. But there are some issues holding back effusive praise for either of the new issues.

For iStar, it's the dividend. iStar stock (NYSE: SFI) has a 9.6% dividend, which should work to turn off an entire class of investors. "That in itself, no matter whether it models cheap or not, kills the deal for a lot of hedge funds," another analyst said. iStar's coupon is talked at three-month Libor plus 25 to 75 basis points. The initial conversion premium is talked at 28% to 32%.

A longtime fund manager added that investors "don't necessarily want to short that dividend."

Rayonier's (NYSE: RYN) common stock dividend of around 4.5% is no picnic either, the analyst added, since the coupon is only being talked at a coupon of 3.75% to 4.25%. Rayonier's convertibles are talked at an initial conversion premium of 18% to 22%. "I'd be surprised if it doesn't come in at the rich end," one of the analysts said.

Outright investors are going to have to like the companies' outlook in order to get excited by the deals. And with iStar stock getting belted in recent days, the fund manager was leaning to Rayonier having the better story. "I think this is still an interesting company," he said, despite Rayonier's exposure to the housing market.

Overall, the Rayonier deal is appearing to be the more attractive of the two, according to the analysts and traders contacted by Prospect News. Both, according to one of the analysts, were being quoted slightly higher in gray market offerings. That didn't indicate that they would be shooting up when they begin trading.

One other notable feature of the two new deals is that both iStar and Rayonier are investment-grade companies. One of the analysts said that he was afraid that the new Financial Accounting Standards Board guidelines for convertibles with net-share settlements would continue the shrinking presence of investment-grade companies in the convertibles universe.

The analyst added the new deals were one-off shots, in all likelihood. He didn't expect the incoming investment-grade convertibles to be the start of a trend. "I don't think it is," he said. "It may have something to do with the fact that it's harder to get straight debt done in this market. And these guys probably don't want to do straight debt."

Not everyone was sold on the two deals, however. One trader said he failed "to understand the attraction of either." The sticking point for him was the dividend yield versus the coupon yield, and that matchup wasn't measuring up. "I wouldn't buy them," he said.

iStar stock lost $1.28, or 3.56%, to close at $34.65 on Wednesday.

Rayonier stock performed a little worse, losing $2.06, or 4.38%, to close at $44.93 on the day.

Molson Coors continues to flow

The tap slowed a bit on TAP Wednesday, but the Montreal-based brewer's 2.5% convertible senior notes due July 30, 2013 continued to move higher on news of its joint venture with SABMiller plc. The new joint venture is meant to challenge the big brewer on the block in the United States, Anheuser-Busch Cos. Inc.

The convertibles closed Wednesday at 119 versus a closing stock price of $56.72. They finished trading Tuesday at 118.375 versus a stock price of $56.15.

Molson Coors stock (NYSE: TAP) added 57 cents, or 1.02%, on Wednesday.

Countrywide back, and up, slightly

It's been a while since America's largest mortgage lender, Calabasas, Calif.-based Countrywide, has seen much trading.

But with news that mortgage applications are up even in the splayed out housing market, Countrywide's convertibles managed to nudge up a bit Wednesday. Of course, Lehman Brothers analysts downgraded Countrywide Tuesday due to an uncertain outlook.

Countrywide's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Wednesday at 93 versus a closing stock price of $18.80. They finished trading Tuesday at 92 versus a stock price of $19.26.

Countrywide's Libor minus 225 bps series B convertible senior debentures due April 15, 2037 closed Wednesday at 90.25 versus a stock price of $18.80 after finishing Tuesday at 89 versus a stock price of $19.26.

Countrywide stock (NYSE: CFC) slumped 46 cents, or 2.39%, on Wednesday.

Techs ahead

Boise, Idaho-based semiconductor maker Micron saw its 1.875% convertible senior notes due June 1, 2014 close Wednesday at 96.125 versus a closing stock price of $10.71. They finished trading at 95.375 versus a stock price of $10.64.

Micron stock (NYSE: MU) added 7 cents, or 0.66%, on Wednesday.

Staying in tech, Cupertino, Calif.-based security software producer Symantec's convertibles were up even as the stock slipped. Symantec's 0.75% convertible senior notes due June 15, 2011 closed at 121 versus a closing stock price of $21 Wednesday. They finished trading Tuesday at 120.20 versus a stock price of $21.16.

Symantec's 1% convertible senior notes due June 15, 2013 closed Wednesday at 122.625 versus a stock price of $21. They closed Tuesday at 122.059 versus a stock price of $21.16.

Symantec stock (Nasdaq: SYMC) slipped 16 cents, or 0.76%, on Wednesday.

And Chesterfield, Mo.-based Amdocs, a software developer, saw its 0.5% convertible senior notes due March 15, 2024 close at 105.25 versus a closing stock price of $37.87. They finished trading Tuesday at 104.731 versus a stock price of $37.39.

Amdocs stock (NYSE: DOX) added 48 cents, or 1.28%, in trading Wednesday.

For every upper, there are downers

Carlsbad, Calif.-based drug maker ISIS had its stock and convertibles slip Wednesday. ISIS' 2.625% convertible subordinated notes due Feb. 15, 2027 closed the day at 132.322 versus a closing stock price of $15.86. They finished trading Tuesday at 134.897 versus a stock price of $16.39.

ISIS stock (Nasdaq: ISIS) fell 53 cents, or 3.23%, on Wednesday.

Broomfield, Colo.-based telecommunications firm Level 3 saw its 3.5% convertible senior notes due June 15, 2012 close at 111.625 versus a closing stock price of $4.84 on Wednesday. They last traded Friday, when they closed at 113.5 versus a stock price of $5.04.

Level 3 stock (Nasdaq: LVLT) slipped 9 cents, or 1.80%, on Wednesday.

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