Teradyne, Ingersoll-Rand trade up in the gray; Alcoa gains in line; Alliant Techsystems weaker

By Rebecca Melvin

New York, March 31 - Teradyne Inc. and Ingersoll-Rand Co. Ltd. traded up in the gray market Tuesday, as convertibles players continued to focus largely on new issues after being starved of new paper for about five months.

Teradyne traded up early on a "when-issued" basis to plus 9 points. But its gray market came off slightly after price talk was revised to richer terms in the afternoon. A later market was called 4 points to 7.5 points above par in the gray market.

A small amount of Ingersoll-Rand traded late in the session at 107.75. The price talk of Ingersoll-Rand was also revised in favor of the issuer later in the session.

Gray market activity was more robust than usual. Both Teradyne and Ingersoll-Rand were expected to price after the markets closed.

In secondary market trading, activity picked up "a little bit" from Monday, with March's newly priced issues still trading fairly actively. But there was not much month-end or quarter-end activity to speak of, sources said.

"The new Alcoa's, the JCI's [Johnson Controls Inc.], the new paper is still pretty active," a New York-based sellsider said.

Alcoa Inc.'s 5.25% convertibles, which priced March 18, gained mostly in line with their underlying shares after Deutsche Bank upgraded Alcoa stock to "hold" from "sell" and suggested that the aluminum producer might be a takeover target of mining group BHP Billiton.

Alliant Techsystems Inc. was slightly weaker amid uncertainty related to takeover chatter, a New York-based sellside trader said, while its underlying shares gained on news that the defense company was buying Eagle Industries.

Elsewhere, Amylin Pharmaceuticals Inc. traded as players start to "poke around" in biotechnology names, a sellsider said. The Amylin 2.5% convertibles due 2011 traded at 86.5 versus a share price of $12.00. Shares of the San Diego-based biotech jumped 43 cents, or 2.8%, to $11.75.

Teradyne pricing revised

Teradyne was slated to price $150 million of convertible senior notes after the market close Tuesday. Deal talk was revised to the richer end, to yield a coupon of 4.5% to 5%, down from original talk of 5.75% to 6.25%, and with an initial conversion premium of 25%, at the upper end of original talk of 20% to 25%, according to market sources.

"Everybody knew it would be at the high end of the premium; I think they didn't expected the coupon move," a sellside trader said.

After the revision, Teradyne's gray market was knocked down a couple points from the high of plus 8 bid, plus 9.5 offered.

The registered offering, being sold via joint bookrunners Goldman Sachs & Co. and Merrill Lynch & Co., was thought to be 9.4% cheap at the midpoint of original talk, using a credit spread of 1,100 basis points over Treasuries and capping vol. at 45%, according to a sellside analyst.

The smallish North Reading, Mass.-based supplier of automatic test equipment is considered to be a single B standard credit, another source said.

The bonds will be non-callable for life, with no investor puts.

Proceeds are expected to be used to repay outstanding borrowings under a current credit facility and to enter into call options overlay. Any remaining proceeds will be used for other general corporate purposes.

Teradyne also intends to enter into convertible note hedge and warrant transactions with an affiliate of the underwriters.

Ingersoll-Rand revised, too

Ingersoll-Rand planned to price $300 million of three-year exchangeable senior notes after the close. Initially, the deal was pretty quiet in the gray market, but it was seen traded at 107.25 later in the session.

Like Teradyne, price talk was revised to the rich side. The coupon was reduced to 4.5% to 5%, down from original talk at 4.75% to 5.25%. The initial conversion premium was raised to 27.5% to 30%, up from original talk of 17.5% to 22.5%, according to a market source.

Terms are generally tightening up on new issues because high demand for the paper has been lifting bond prices to unusually high levels in an unusually short period of time.

Sources thought terms would continue to evolve until pricing reached around 103 after final terms.

"You can't keep going back to management saying they traded up to 110 because we didn't do a very good job," a New York-based sellside trader said.

Concurrently with the Ingersoll-Rand registered convertibles offering, being sold via bookrunners Credit Suisse, Goldman Sachs and J.P. Morgan Securities Inc., the company planned to price a benchmark issue, or at least $500 million, of straight debt.

Alcoa adds in line

Alcoa's 5.25% convertibles due 2014 traded at 129.25 bid, 129.375 offered versus a share price of $71.10.

A sellsider who saw the paper higher at 135 versus a share price of $7.50 said the name was up about 5 points. Shares of the Pittsburgh-based company jumped by 65 cents, or 9.72%, to $7.34.

Alliant 0.5 point weaker

Alliant's 2.75% convertibles due 2011 were seen at 93.73 versus a stock price of $66.79. Another source said he saw the paper at 95 versus a stock price of $64.00.

The paper was about 0.5 point weaker as its stock flew upward.

"It got a little weaker on takeover fears. There is renewed takeover chatter," a New York-based sellside trader said.

The Alliant 3% paper was seen at 100.5 versus a share price of $64.00, and the Alliant 2.75% due 2024 was seen at 101.5.

Alliant announced that it was acquiring Eagle Industries in a bid to expand its position in U.S. and international tactical accessories markets serving military and law enforcement customers.

Terms of the agreement were not disclosed, the company expects the acquisition to add more than $80 million to fiscal 2010 revenues, and be slightly accretive to full-year 2010 earnings per share.

Eagle Industries, a maker of individual operational nylon gear and equipment for military, homeland security and law enforcement, will become part of ATK's Armament Systems group.

Shares of the Minneapolis-based aerospace and defense company jumped $2.98, or 4.66%, to $66.98 in heavy volume.

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