Teradyne, Ingersoll-Rand convertibles jump in first-day trading; Sonic slumps; Ford steady

By Rebecca Melvin

New York, April 1 - Activity in the convertibles market Wednesday was concentrated on two new issues released for secondary trading that both "played well."

Teradyne Inc. priced an upsized $175 million of convertible senior notes after the market close Tuesday to yield 4.5% with an initial conversion premium of 25%.

The new Teradyne 4.5% paper traded up to about the 109 mark, according to market sources.

Ingersoll-Rand Global Holding Co. Ltd., a subsidiary of Ingersoll-Rand Co. Ltd., priced $300 million of three-year exchangeable senior notes to yield 4.5% with an initial conversion premium of 30%.

The Ingersoll-Rand 4.5% paper moved up to as high as 110 after early trades at 107 bid, 107.5 offered, sources said.

"Ingersoll-Rand and Teradyne both played well, continuing with new issuance priced to go," a West Coast-based trader said.

Transocean Inc. was also among the top volume names along with Teradyne and Ingersoll-Rand. Otherwise, trading was pretty quiet, sources said. Most queried said they had been involved with the new issuance and not much else.

There was a little activity in Sonic Automotive Inc. after a filing in which the auto retailer's auditors raised concerns about the company's viability as a going concern and worse-than-expected earnings.

Ford Motor Co. was also seen in trade at about 7 points over parity as the Dearborn, Mich.-based automaker posted at 41% decline in U.S. auto sales for March.

Pricing too cheap?

New issue pricing, which in many cases is being revised to tighter terms, has players wondering how long it will take before deals are tightened up to a more sustainable 103 first-day trade levels, and down from the 110 first-day trade levels being seen currently.

"That's a lot of money to leave on the table," a sellside syndication source said.

The source argued that in order to have "more product," in other words, deals, pricing has to be tighter.

But a buysider countered that the new issues have to be cheaper to make up for the increased risk that investors are taking to purchase the paper.

"There's a lot of stock risk. They have to be cheaper with the way bankers are allocating new deals and three-quarters going to outrights, and we can't set them up," the hedge player said.

"Ingersoll-Rand was ridiculously cheap," the syndication source said, citing the fact that it's a $4.5 billion market cap company, and pricing started out 5%, up 20%, at the midpoint.

"There has to be more realistic pricing so there's more product," he said.

Teradyne tears higher

"What is significant with Teradyne is that it is a small- to mid-cap company that was able to get financing done. This is a good sign for companies that need to raise cash and are not 'seasoned and serial issuers,'" a sellsider observed.

Teradyne opened at 105 and then dropped to 104 with the market opening weak, a sellsider said. But it was later trading in the 107 bid, 108 offered area, and there were late bids at 109.

The registered deal came on the rich end of revised talk, which was 4.5% to 5% for the coupon, compared to original talk of 5.75% to 6.25% for the coupon.

The premium was at revised talk of 25%, from 20% to 25% initially.

Teradyne is a tech name with a small market cap.

It was "definitely a homerun for the issuer, which might not have been able to access the high yield market with its market cap. They have a bond hedge," a syndicate source said, who commented that an equity raise or other market would have been a lot worse for the company. A high-yield market offering could have had a coupon as high as 15%.

"Who knows were it would have actually come out pricing," the source said. The convertible market was the "best market to hit, considering the alternatives."

The market is seeing a lot of fundamental investors and crossover investors that used to play in high yield. But they are entering the convertible space because pricing is much better in favor of the investors.

Convertibles have more upside and downside protection too, which fundamental investors, in particular, are looking for.

The deal was upsized by $25 million from an initially talked $150 million. There is a $15 million greenshoe, which was downsized from an initially expected $22.5 million.

Goldman Sachs & Co. and Merrill Lynch & Co. were joint bookrunners.

Teradyne has also entered into convertible note hedge and warrant transactions with Goldman Sachs and affiliates.

The company plans to use $122.5 million of proceeds and proceeds from the warrant transaction to repay and terminate its senior secured credit facility. In addition, about $59.5 million will pay for convertible note hedge transactions. And any remaining proceeds will be used for general corporate purposes.

Based in North Reading, Mass., Teradyne supplies automatic test equipment used in the consumer electronics, automotive, computing, telecommunications, and aerospace and defense industries.

Ingersoll-Rand wows 'em

The new Ingersoll-Rand 4.5% convertibles due 2012 traded late in the session around 110 after early trades in the 107 bid, 107.5 offered area.

The deal priced at the rich end of revised talk. Talk for the yield had been lowered to 4.5% to 5%, from original talk of 4.75% to 5.25%, and the premium had been revised to 27.5% to 30% from original talk of 17.5% to 22.5%.

A syndicate source said that based on its credit, "It needed less cheapness to get done," and the company did debt with the deal, as well, which helps take the guess work out of pricing.

"In the end it priced where it needed to be, but they had to tighten it," the source said.

Credit Suisse, Goldman Sachs and J.P. Morgan Securities Inc. were joint bookrunners of the registered offering.

There is a $45 million greenshoe. Concurrently Ingersoll-Rand priced more than $600 million of straight debt.

Ingersoll-Rand is a global diversified industrial firm incorporated in Bermuda.

Sonic bust

Sonic's 4.25% convertible senior subordinated notes due November 2015 were seen in the 23 bid, 25 offered range Wednesday, according to a sellside trader.

The Sonic 5.25% convertible senior subordinated notes, which are due in May, and which the company has said it won't be able to repay, was around the 25 level.

There were some attempts to "get something going there," a Connecticut-based sellsider said. He hadn't heard word of any restructuring agreement yet.

The company said in a filing Tuesday that attempts to refinance its upcoming debt have been hampered by lack of credit availability and flagging vehicles sales.

The auto retailer, based in Charlotte, N.C., reported Wednesday that it swung to a fourth-quarter loss of $658.8 million, compared to income from continuing operations of $26.8 million in the prior-year period.

For the full year, Sonic's loss from continuing operations was $634.1 million, compared to income from continuing operations of $98.2 million for full-year 2007.

For the quarter, revenue dropped 28% in the fourth quarter to $1.26 billion from $1.74 billion in the year-earlier quarter.

As of Dec. 31, Sonic had $105.3 million principal amount of the 5.25% convertibles outstanding. There is $160 million of the 4.25% convertibles outstanding.

Mentioned in this article:

Ford Motor Co. NYSE: F

Ingersoll-Rand Co. Inc. NYSE: IR

Sonic Automotive Inc. NYSE: SAH

Teradyne Inc. NYSE: TER

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