Global Industries sets sail; Teleflex coming; convertibles market takes unscheduled three-day weekend

By Evan Weinberger

New York, July 23 - As volatile as the equity markets have been in recent days, the convertibles market has kept up its steady flow from recent weeks.

"Still quiet here in [converts] land," one trader said as the afternoon wore on.

Even if convertibles weren't moving at a frenzied pace, equity markets rebounded from Friday's tumble. The Dow Jones Industrial Average picked up 92.34 points, or 0.67%, to close at 13,943.42. The Nasdaq picked up 2.98 points, or 0.11%, to finish the day at 2,690.58. A combination of upbeat earnings news from Merck & Co. Inc. and several announced buyouts lifted investors' spirits Monday.

Three new issues kicked off the week Monday.

Global Industries Ltd., a Carlyss, La.-based offshore oil and gas exploration and drilling services company, announced that it was going to price $325 million in senior convertible debentures. The pricing was scheduled to happen Monday after market close. There is a $50 million greenshoe.

The debentures are talked at a coupon of 2.25% to 2.75% with an initial conversion premium talked at 32.5% to 37.5%.

The company plans to use the debentures to buy back around $75 million of its common stock and for general corporate purposes like buying new boats.

A second new issue came out of Europe Monday. Hypo Real Estate Holding AG, a commercial real estate financier based in Munich, priced €450 million in subordinated mandatory convertible bonds due Aug. 20, 2008.

The bonds have a 5.5% coupon and a 6% initial conversion premium. The conversion price comes in at a maximum €48.9614 and a €46.19 minimum.

The bonds were issued to help finance the company's acquisition of DEPFA Bank plc.

And from Canada, Primaris Retail REIT issued C$100 million in convertible debentures due Aug. 1, 2014 Monday after the market close. The debentures carry a 5.85% coupon and a 17.75% conversion premium. At the same time, the Toronto-based shopping mall REIT priced 3.134 million units with a price of C$19.15.

There is a C$15 million greenshoe on the debentures and a 470,100 unit greenshoe.

The REIT plans to use the proceeds to repay debts from its operating and interim credit facilities, to fund future property acquisition, to fund redevelopment of the REIT's existing properties and for general corporate purposes.

Half-speed ahead for Global Industries

According to analysts and traders, the debentures being issued by Global Industries this week come from a good home with a solid financial footing. With oil companies needing to explore further out to sea to find their product, Global Industries will continue to have a market for the foreseeable future - at least until the oil runs out.

But the terms of the debentures are giving some investors pause before they unequivocally jump in on them.

"It seems like a very solid company, but I think people are going to be concerned that there's only seven years of call protection and the first put isn't until year 10," one sellside analyst said.

Modeling out the debentures using a 175 basis point credit spread and a 35% vol, the analyst said the debentures were modeling fair. Another sellside trader had the debentures modeling out to a fair value of 94.10, 6.27% rich.

But the call and put structure - a call at seven years with puts at 10 and 15 years - did stick out. "People would want a seven-year put," another sellside analyst said, calling the structure "a little unusual."

A sellside trader was philosophical in his assessment: "Short life, high premium, low coupon," he said.

The sale of the debentures comes on the same day that Global Industries announced that it had secured a $200 million oil pipeline contract to install pipelines at Saudi Aramco's Qatif and Berri Fields in Saudi Arabia.

With all of the news, shares of Global Industries stock (NYSE: GLBL) closed 73 cents, or 2.65%, lower, closing at $26.78.

"It doesn't have the best upside, downside tradeoff," one sellside analyst said. "The highest price target is 27, and that's about where it's trading now. Is there really an upside story for the outrights?"

Teleflex new issue on the way

Teleflex Inc. announced that new convertible debt will be a part of the financing plan for the Limerick, Pa.-based diversified machinery producer's $2 billion leveraged buyout of Arrow International Inc.

In a Monday conference call to announce the deal, Teleflex officials said that along with convertible debt securities, the company would establish a new credit facility and also issue private placement notes.

Bank of America and JPMorgan are providing the financing commitments for the transaction.

Arrow is a Reading, Pa.-based maker of disposable catheter cardiac care products.

"With the execution of this merger agreement, Teleflex is redefining its portfolio and its medical segment by creating a $1.4 billion medical technology business that will be the largest source of the company's revenues and profitability," Jeffrey Black, chairman and chief executive officer of Teleflex said in a statement.

Teleflex stock (NYSE: TFX) rose slightly, gaining 10 cents, or 0.12%, to $85.40. Arrow stock (Nasdaq: ARRO), in contrast, jumped $6.32, or 16.72%, to $44.11.

The Teleflex-Arrow deal is expected to close by the end of the year.

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