Convertibles see light volume amid quiet session; A&P leads corporates issuing paper

By Reshmi Basu

New York, Dec. 13 - The whipsaws in the equity market kept investors at bay as one issuer called off its $125 million convertible deal due to market volatility.

Several market sources summed up Thursday's secondary session as inactive. However, the primary market was a little less lethargic as a few companies were brave enough to sneak in some issues.

New deals came from across the United States as well as from the Middle East.

Network Equipment Technologies, Inc. priced $85 million of 3.75% senior notes due 2014 with a 27.5% initial conversion premium after the close Wednesday.

The deal came at the cheap end of talk, which had been for a 3.25% to 3.75% coupon and a 27.5% to 32.5% initial conversion premium.

Bear Stearns was the bookrunner of the Rule 144A transaction.

Network Equipment Technologies is a Fremont, Calif.-based voice and data communications equipment producer. The company plans to use the proceeds for working capital and general corporate purposes, which may include capital expenditures and potential acquisitions.

New deal from A&P

Great Atlantic & Pacific Tea Co., Inc. priced a $380 million two-part convertibles offering made up of $150 million in 5.125% senior notes due 2011 and $230 million 6.75% senior notes due 2012, according to a prospectus filed with the U.S. Securities and Exchange Commission.

The 2011 notes will carry a 30% initial conversion premium and an initial conversion price of $36.40. The notes are not redeemable.

Meanwhile the 2012 notes will bear a 35% initial conversion premium and an initial conversion price of $37.80. The company has the right to redeem the notes for cash on Dec. 15, 2010 at 102.70 and from Dec. 15, 2011 to maturity at a redemption price of 101.35.

Banc of America Securities LLC and Lehman Brothers Inc. were joint bookrunners for the deal, which priced after the close Wednesday.

Proceeds will be used to pay down the remaining debt on a bridge loan established to help finance the acquisition of Pathmark, which closed on Dec. 3.

A&P is a Montvale, N.J.-based supermarket chain, and manages A&P, Pathmark, Waldbaum's, the Food Emporium and other supermarkets.

Hecla sells preferreds

Meanwhile Hecla Mining Co. priced $175 million of mandatory convertible preferred stock due Jan. 1, 2011 with a 6.5% dividend and a 22% initial conversion premium.

The deal came within talk for a 6% to 6.5% dividend and an 18% to 22% initial conversion premium.

The convertibles priced Wednesday after the market close.

JPMorgan and Merrill Lynch are joint bookrunners on the Securities and Exchange Commission-registered transaction.

There is a $26.25 million over-allotment option.

Hecla Mining is a Coeur d'Alene, Idaho-based precious metals miner. The company plans to use the proceeds for general corporate purposes, including acquisitions of other businesses, securities, assets, properties or mining projects, claims or interests.

Tamweel sells sukuk notes

In an overseas deal, Tamweel PJSC announced a $300 million issue of exchangeable notes (//A) due January 2013 with a 4.31% profit rate.

The notes, structured as a sukuk in compliance with Islamic law, priced on Thursday at par with an exchange premium of 20.5% and exchange price of $2.2711.

The notes are exchangeable into Tamweel shares and may be redeemed at up to 50% of the sukuk in each six-month period from March 2011, subject to a 13% hurdle.

Barclays Bank plc is the lead manager.

Tamweel is a home finance company in Dubai, United Arab Emirates.

Kemet pulls deal

But one soul backed out a deal due to market volatility as U.S. stocks traded in negative territory for most of the session.

Kemet Corp. postponed the sale of $125 million of convertible senior notes due to market conditions, according to a company press release.

Earlier Thursday, the company announced plans to sell senior notes due 2027 in a Rule 144A offering.

Proceeds from the sale would have been used to fund acquisitions and for corporate purposes. Kemet said the potential buyout target had $85 million in revenue and $5 million in net income in 2006, but did not disclose the name of the company.

The underwriters would have had a $25 million greenshoe.

Kemet, based in Greenville, S.C., is a maker of capacitors for electronic devices.

Light volumes on volatile equities

Returning to the secondary market, liquidity in the convertible market dried up Thursday as U.S. stocks remained under pressure. The Dow Jones Industrial Average gave up more than 100 points before closing out the session higher, prompted by stronger-than-expected retail sales for November.

The Dow was up 44.06 points, or 0.33%, at 13,517.96. The Standard & Poor's 500 Index was up 1.82 points, or 0.12%, at 1,488.42. The Nasdaq Composite Index was down 2.65 points, or 0.10%, at 2,668.49.

While volatility is normally a good thing for convertibles, the lack of direction has been hurting the category, according to a sellside source.

"It felt pretty quiet today [Thursday]," he said, adding "I don't see anything newsworthy."

Another source had a different take on the current malaise in the market, noting that there has been $15 billion in new issuance.

"People are waiting to see what comes next," observed an analyst, who added that investors did not want to put cash to work in case there are some compelling deals that come down the pipeline over the next week.

As one trader said, it is "hard to get people to look at things for sale and make a bid."

Meanwhile Hecla's deal traded down in the secondary as the sellside source noted that it has been "trading below water."

Initially there were some trades, but eventually the issue dropped off the radar, the source added.

Hecla stock (NYSE: HL) lost $0.32, or 3.30%, to close at $9.38 on Thursday.

Countrywide continues descent

In other news, Calabasas, Calif.-based Countrywide Financial Corp. saw its convertibles extend their decline Thursday, following reports that its mortgage-loan funding for the month of November had shrunk by 40% to $23 billion. On top of that, the state of Illinois has begun an investigation into its home loan unit, according to news agencies.

Countrywide's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Thursday at 81.90 versus a closing stock price of $10.08. They closed Wednesday at 79.75 versus a stock price of $10.53

Countrywide stock (NYSE: CFC) lost 45 cents, or 4.27%, on the day.

AMD slides on poor news

Sunnyvale, Calif.-based chip maker Advanced Micro Devices Inc. dove Thursday on news that the company will push back the release of major new products. Also, adding to its woes, AMD will not turn out a profit this quarter.

AMD's 5¾% senior notes due August 15, 2012 closed Thursday at 85.566 compared to a closing stock price of $8.84. They closed Wednesday at 86.415 versus an $8.89 stock price.

And the company's senior notes due May 1, 2015 ended Thursday at 75.324 versus a closing stock price of $8.84. They wrapped up Wednesday at 75.9129 versus an $8.89 stock price.

The news triggered a sell-off in the company's shares (NYSE: AMD) which eased 13 cents, or down 1.5% for the day.

Dendreon unmoved on congressional inquiry

Seattle-based pharmaceutical company Dendreon Corp.'s convertibles were slightly down to unchanged despite a surge in its shares after members of congress sought an investigation into potential conflicts of interest that might exist among government advisers, who are looking into the company's prostrate cancer drug, Provenge.

Dendreon Corp.'s 4.75% convertible notes due June 15, 2014 were spotted Thursday at 92 versus a closing stock price of $6.98. They ended the previous session at 92 versus a $5.64. However, one source noted they were whispers of trades at the 88.5 level after 4 p.m. ET.

Dendreon stock (NASDAQ: DNDN) soared $1.34, or up 23.76%.

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