Allied Waste deal stands pat; energy names firm on hope from Reliant's bank victory

By Ronda Fears

Nashville, April 2 - Traders at several major shops said it was surprisingly slow in converts Wednesday, with many players remaining on the sidelines "gawking" at what looked like momentum buying in stocks - most notably in techs, telecoms and financials.

There was buzz that the Allied Waste Industries Inc. pricing was getting advanced by a day, but that did not pan out.

Refinancing prospects and merger news generated a good deal of activity, or at least interest in convertibles, traders said.

Energy and power names were firmer on refinancing hopes gleaned from the Reliant Resources Inc.'s replacement of its bank facility.

First Data Corp. was bounced around after announcing a $7 billion all-stock acquisition and closed slightly lower on the news.

King Pharmaceuticals Inc. and Elan Corp. plc also were buffeted as King officially snipped its $850 million acquisition of some drug rights and the primary care unit of Elan. King gained slightly, while Elan lost some footing.

"All the energy names were strong. Calpine was up about 2 points, AES was better bid," said a convertible trader at a boutique in Connecticut.

"Basically, the thinking is that since Reliant Resources got refinanced, then a lot of these [other energy bonds] could get refinanced."

Meanwhile, Allied Waste's mandatory, which is part of a huge $4 billion refinancing package, was seen pulling back slightly in the gray market, but was said to be about 1.5 times oversubscribed early in the day.

The new issue closed out at 0.375 point over par on the bid side, 0.875 point over par on the offer side. Allied Waste shares ended up 37c, or 4.7%, to $8.22.

Price talk on the Allied Waste mandatory remains static at 6.25% to 6.75% for a dividend and initial conversion premium at 18% to 22%, which at the midpoint sellside analysts put it about 4% to 6% cheap.

Many players have been anticipating the price talk to be tightened, but now some onlookers say that may not happen because there are so many underwriters involved with the deal. Largely, though, buyside sources still expect that it will be re-priced.

Along the lines of issuance, Salomon Smith Barney convertible analyst Stuart Novick noted in a conversation Wednesday that the market grew by roughly $5.4 billion on a net basis in March.

"That's a pretty healthy inflow into converts," Novick said.

"But I wouldn't look for those numbers to be sustainable over the next couple of months. We're going to see upwards of $5 billion leaving the market in the next two months," he said, due to redemptions, calls, maturities and the like.

A good deal of issuance this year is already expected to be refinancing, and many hope that energy names will have a prominent place in that list.

They are taking hope from Reliant Resources Inc.'s development.

Reliant announced Tuesday that it had nailed down $6.2 billion in new bank financing - right at the deadline to refinance $5.9 billion of debt coming due or likely make a trip up the bankruptcy court steps.

Besides paying off existing debt at the eleventh hour, Reliant got some $300 million of new cash and was able to push out maturities.

In order to get it, however, Reliant pledged virtually all its available assets as collateral and gave the banks warrants for 2.5% of its outstanding equity.

There are a string of merchant energy firms looking to refinance debt - bank loans and bonds - in the wake of the devastation to energy trading following the Enron Corp. scandal and refunds/renegotiated contracts with California as a result of alleged price gouging in the 2000-2001 power crisis.

Others recently able to refinance include AES Corp and El Paso Corp., with Calpine Corp.'s bank facility renewal and a possible Williams Cos. Inc. refinancing in the offing. Xcel Energy Inc. also cut a deal with senior lenders of its bankrupt energy trading arm, NRG Energy Inc.

Calpine's 4% convertible due 2006 was quoted up about 2 points to 69 bid, 70 asked. The stock closed up 29c, or 8.38%, to $3.75.

The AES 4.5% convertible due 2005 were quoted up about 1 point to 69.5 bid, 71.5 asked. AES shares ended up 15c, or 4%, to $3.90.

AES was in better light, also, as it wrapped up the consents process from holders of some $4.1 billion of its bonds to remove cross-default clauses related to subsidiaries in the bond indentures, including the convertibles.

Convertible market players marveled at the terms Reliant was able to hammer out in its new bank facility, "given the distressed nature of its situation and the power industry as a whole," as one distressed trader put it.

Reliant Resources' new credit consists of a $2.1 billion revolver due March 15, 2007, a $3.8 billion term loan due March 15, 2007, and a $300 million additional line of credit due at the earlier of the Texas Genco purchase or Dec. 15, 2004.

Interest rates on the revolver and the term loan are Libor plus 400 basis points and the new line of credit has an interest rate of Libor plus 550 bps.

Merger news was the other big topic within the convertible market.

While abandoning the Elan acquisition was taken as good news for King, traders said positive reaction was muted because the drugmaker said Monday it would delay filing its financials with the Securities and Exchange Commission amid an investigation launched by regulators earlier this month.

King's 2.75% due 2021 edged up about 0.25 point to 95.5 bid, 86 asked. The stock ended up 25c, or 2.13%, to $11.98.

On Monday, the drugmaker said it was delaying until April 15 filing its annual report to give independent auditors more time to review documents following the announcement earlier this month that the SEC is conducting an investigation of the company.

The company said it expects only one material change in its consolidated financial statements, which were released in the fourth quarter. The company now expects a charge of $76.9 million rather than the $51.2 million anticipated previously.

The SEC is investigating King's product sales in 1999 and 2000 and pricing practices with regard to Medicaid in 1999.

The company said its preliminary review in response to the SEC investigation suggests that its calculations related to Medicaid reimbursement "have not technically followed the prescribed methodology pursuant to the applicable regulations."

Also muddying the waters is the fact that Elan is already suing King over the proposed acquisition, as King had been making noise suggesting it was rethinking the purchase.

From Elan's end it was a blow to its much-needed restructuring program as it looks to raise some $1.5 billion via asset sales by yearend in order to meet significant upcoming debt maturities, including an estimated $792 million put on the 0% convertibles due 2018 in December.

Elan's convert was quoted down 0.75 point to 48.25 bid, 50.25 asked. The stock ended off 4c, or 1.4%, to $2.79.

Convertible players were taking a "step back to really look at" First Data's big merger with Concord EFS, traders said. The rating agencies affirmed First Data's credit on the news, but traders said the sheer magnitude of it tended to turn off many people.

First Data's converts were higher for most of the morning, one trader said, but turned south in the afternoon and ended off 1 point at 108.6875 bid, 109.1875 asked. The stock closed up 11c, or 0.32%, to $34.79.

In techs, big markups were noted in Computer Associates International Inc., Network Associates Inc., Tech Data Corp. and McData Corp.

Corning Inc. and Agere Systems Inc. were big gainers among telecoms, but traders noted that L-3 Communications Holdings Inc. pulled back.

Several financials also saw some sharp markups, traders said, as did most of the recent new issues.

© 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.