CBIZ higher on quiet debut; AMR weaker on disappointing guidance; Vertex to price pre-open

By Rebecca Melvin

New York, Sept. 22 - CBIZ Inc.'s newly priced 4.875% convertibles moved higher when they began trading, being marked at 102.375 bid, 103.875 offered versus a closing share price of $5.41 at the end of their debut session Wednesday, but volume was extremely light in the new paper.

The Cleveland-based business services provider company priced an upsized $115 million of five-year convertible senior subordinated notes late Tuesday at the midpoint of revised coupon talk and at the rich end of talk for the initial conversion premium.

"I saw lots of quoting, but no trades," a New York-based sellside trader said. Others concurred.

AMR Corp. convertibles were weaker on disappointing market guidance. The air carrier said third-quarter unit revenue would not meet analyst expectations.

Also trading were some recently priced new issues including American Equity Investment Life Inc.'s new 3.5% convertibles, which traded Wednesday at 103.75 versus a share price of $10.25, compared to 102.75 versus a share price of $10.00 on Friday; and the new UBS AG/GT Solar International Inc. mandatory exchangeables with a par price of $25 and a 6.75% dividend, which traded at $27.20 versus a share price of $8.00, compared to $25.5 versus a share price of $7.60 a week ago.

Back among established issues, Symantec Corp. remained a staple of the market, trading at a steady 102.25 versus a share price of $15.00; and Micron Technology Inc.'s 1.875% convertibles traded at 88 versus a share price of $6.75

After the market close, Vertex Pharmaceuticals Inc. launched an offering of $375 million of five-year convertible notes that were seen pricing Thursday ahead of the open.

Overall, the convertible bond market was said to have weakened slightly, or at a minimum it was mixed, according to market sources. Stocks drifted lower as the volatility index rose intraday.

CBIZ up in quiet debut

CBIZ's newly priced 4.875% convertibles due 2015 weren't heard in trade by most traders queried. They said they saw it 102.5 bid only in the Street. A single sellsider said his firm was trading the new paper, but he declined to say at what level.

A syndicate source said the new paper went out at 102.375 bid, 103.875 offered versus a closing share price of $5.41.

"That's a pretty tight spread, actually," the syndicate source said.

Shares of the company ended the session down 8 cents, or 1.5%, at $5.41.

The deal was upsized by $15 million to $115 million, and there is an additional $15 million greenshoe, but still market sources cited the small deal size as a culprit for why the new issue wasn't trading.

"I suspect it has flown below most investor's radar screens, and those that did play seem satisfied to keep what they were allocated," a New York-based sellside analyst said.

But that was in contrast to Volcano Corp. which priced a successful 2.875% convertible with a $100 million deal size last week. That paper quickly ramped up to 106 from its par issue price.

An important difference between the two issues, perhaps, was their respective equity markets and market capitalization, a New York-based sellside analyst said.

Volcano has a market cap of $1.18 billion, while CBIZ has a market cap of only about $334 million.

A $1billion market cap in not uncommon in convertibles, but $330 million isn't interesting, the sellsider said.

In addition its sector in business financial services was more mundane, the sellsider said, In contrast, Volcano operates in an attention-getting area. It develops, makes, and sells intravascular ultrasound and functional measurement products for vascular and structural heart disease.

"Volcano is probably more interesting regarding what they do," the sellsider said.

Many traders said they weren't paying a lot of attention to CBIZ.

Nevertheless, the valuation on the new convertibles wasn't considered to be too bad.

"I think my model is for about 26% vol. and 725 credit, and I got 104 to 105. So it's still trading at a discount to fair value," a sellsider said, referring to 26% volatility and 725 basis points over Libor for the credit spread.

The new CBIZ convertibles came at the midpoint of revised talk for the coupon, which was 4.75% to 5%, revised down from 5% to 5.5%; and at the rich end of premium talk, which was revised to 32.5% to 35%, from 30% to 35% initially talked.

Banc of America Merrill Lynch was sole bookrunner of the Rule 144A offering.

Proceeds will be used refinance the company's 3.125% convertibles, which were issued in 2006 and are callable in June 2011

CBIZ may use funds from the new offering to repurchase some of those notes from time to time and also for general corporate purposes, including repayment of a existing balances under its senior credit facility. Up to 25% of the proceeds may be used to repurchase of common stock

AMR weaker early, rebounds

AMR's 6.25% convertibles due 2014 traded at 97.5 versus a share price of $6.25 in early trade, according to a New York-based sellside desk analyst.

Late Wednesday the paper had improved some to stand at 98.75, which was down 3.875 points outright, according to Trace market data.

Shares of the Fort Worth-based airline ended down 60 cents, or 8.7%, at $6.28.

AMR, the parent company of American Airlines, published an outlook for stronger revenue that was less than analysts were expecting.

Third-quarter unit revenue, or total revenue divided by available seats times miles flown, is now forecast to grow between 9.8% and 10.8% compared with a year ago. The revenue guidance was consistent with performance in the last quarter, when its unit revenue was not as strong as that of competing airlines.

Vertex to price

Vertex launched a sizable offering of $375 million of five-year convertible senior subordinated notes that were seen pricing Thursday ahead of the open.

The registered deal, which has an over-allotment option for a further $25 million of notes, was talked to yield 3% to 3.5%, with an initial conversion premium fixed at of 35%, according to market sources.

Bank of America Merrill Lynch is the underwriter.

The notes have a provisional call prior to Oct. 1, 2013 if the closing price of shares is greater than 130% of the conversion price for at least 20 out of 30 consecutive days. The call price is par plus a make-whole payment for interest. Starting Oct. 1, 2013, the notes have a hard call.

Holders may require Vertex to repurchase all or any part of their notes upon the occurrence of a fundamental change.

Vertex is a Cambridge, Mass.-based drug maker. The company plans to use the proceeds for general corporate purposes.

Mentioned in this article:

American Equity Investment Life Inc. NYSE: AEL

AMR Corp. NYSE: AMR

CBIZ Inc. Nasdaq: CBZ

Micron Technology Inc. NYSE: MU

Symantec Corp. Nasdaq: SYMC

UBS AG/GT Solar International Inc. Nasdaq: SOLR

Vertex Pharmaceuticals Inc. Nasdaq: VRTX

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