Central European Distribution jumps; AMR up; Cliff mandatory flat; Post, Forestar on tap

By Rebecca Melvin

New York, Feb. 19 - Central European Distribution Corp.'s convertible bonds jumped 5 or 6 points to about 30 on Tuesday.

Market sources said the climb in the convertibles of the Polish vodka maker and beverage distributor was related to improved recovery prospects given an offer by shareholder Mark Kaufman to the board of directors for up to $75 million of his personal funds to go toward restructuring the bonds that mature March 15, 2013.

The offer was outlined in a letter that surfaced early Tuesday. "That is what is driving the trade today. Short on details though," a Connecticut-based trader said.

Elsewhere, School Specialty Inc., also in the distressed arena, was better by about 1.5 points at 46, with its underlying shares down 5.5% in over-the-counter trade, and AMR Corp. added another 0.5 point to trade at 107 as investors remain cheered about the official merger agreement between bankrupt American Airlines and US Airways.

Otherwise, it was pretty quiet in distressed names, and in the overall secondary market, sources said.

The first day of trading after the three-day Presidents Day weekend was described as "extremely quiet," with market players using it as "kind of a catch up day," despite a number of earnings reports that were out.

Medtronic Inc. was trading little changed after the Minneapolis-based medical device maker reported mixed earnings that sent shares lower.

Company earnings reports due later this week include those from Terex Corp., Toll Brothers Inc., Goodrich Petroleum Corp., InterMune Inc. and Volcano Corp.

Cliffs Natural Resources Inc.'s new 7% mandatory convertible preferreds were unchanged in light trade after a weak showing for the upsized $675 million deal on its debut in the secondary market Friday.

The mandatories were seen $24.45 to $24.50 at the close, which is where they closed Friday, according to a syndicate source. The underlying shares of the Cleveland-based iron ore and natural resources company were also little changed at $28.84.

The securities were unchanged despite an upgrade of the shares Tuesday to "overweight" from "neutral" by JPMorgan, which also raised its price target on the stock to $40.00 from $35.00.

After the market close, Post Holdings Inc. launched an offering of $175 million of perpetual convertible preferred stock. The deal was talked to price after the market close Wednesday for a yield of 3.75% to 4.25% with an initial conversion premium of 20% to 25%.

The Rule 144A Post deal was being priced via joint bookrunners Morgan Stanley & Co. LLC, Wells Fargo Securities LLC and Credit Suisse Securities (USA) LLC.

Also after the close, Forestar Group Inc. launched an offering for $110 million of seven-year convertible bonds. The Austin, Texas-based real estate, mineral and fiber resource company was offering the bonds under a shelf registration via Goldman Sachs & Co. as the bookrunner, with KeyBank Capital Markets Inc., JMP Securities LLC, Capital One Southcoast Inc., JPMorgan and UBS Securities LLC acting as the co-managers.

CEDC jumps on Kaufman letter

Central European's 3% convertibles due March 15, 2013 traded up to nearly 30 from 24 or 25, market sources said.

The bonds were pulled higher by better recovery prospects after a letter surfaced from shareholder Mark Kaufman, traders said.

In the letter, Kaufman said that he was interested in working with the board on a "solution to address the problem of the convertible notes due 15th March 2013."

Kaufman is CEDC's second largest shareholder, based on open market purchases of CEDC shares that he has made in the last year and a half, according to an open letter he wrote dated Jan. 16, 2013 and filed with the U.S. Securities and Exchange Commission.

In the latest letter, Kaufman said that he is confident in the underlying potential of the company and that it could be an attractive opportunity for several financial or strategic investors "under normalized circumstances."

As sponsor of a restructuring plan, Kaufman said he would commit up to $75 million in cash. There are about $260 million of the convertibles currently outstanding.

He said a condition of the investment would be a restructuring agreement among all holders of the convertibles and senior straight notes due 2016.

The agreement would have to take into account the current market value of the 2013 convertibles and would involve a reduction in the principal of the 2016 notes.

He said he is willing to work full time to turn the company around and that he believes a 2015 EBITDA target of $150 million to $175 million excluding one-time items, is realistic, with a further increase to $200 million EBITDA in 2016 to 2017.

CEDC shares closed Tuesday unchanged at $1.43 after active trade.

Post on tap

St. Louis-based cereal maker Post plans to price $175 million of perpetual convertible preferred stock after the market close Wednesday that were talked to yield 3.75% to 4.25% with an initial conversion premium of 20% to 25%, according to market sources.

The preferreds are non-callable for five years and then are provisionally callable if the underlying shares exceed 130% of the conversion price.

The Rule 144A deal has a $26.25 million greenshoe and was being priced via bookrunners Morgan Stanley, Wells Fargo and Credit Suisse.

Proceeds will be used to repay amounts outstanding under the company's term loan facility and for general corporate purposes, which could include financing acquisitions.

Forestar to price

Forestar, an Austin, Texas-based real estate, mineral and fiber resources company, said it will price $110 million of seven-year convertible senior notes after the market close Wednesday.

The notes were talked to yield 3.5% to 4% with an initial conversion premium of 32.5% to 37.5%, according to market sources.

The registered, off-the-shelf offering has a $15 million greenshoe.

The notes are non-callable with full dividend protection in the form of a conversion rate adjustment and takeover protection.

Proceeds will be used to repay outstanding borrowings under the company's revolving line of credit and for general corporate purposes, including investments in oil and gas exploration, drilling, real estate acquisition and development.

Mentioned in this article:

AMR Corp. Pink Sheets: AAMRQ

Central European Distribution Corp. Nasdaq: CEDC

Cliffs Natural Resources Inc. NYSE: CLF

Goodrich Petroleum Corp. NYSE: GDP

Forestar Group Inc. NYSE: FOR

InterMune Inc. Nasdaq: INTM

Medtronic Inc. NYSE: MDT

Post Holdings Inc. Nasdaq: POST

School Specialty Inc. Pink Sheets: SCHSQ

Terex Corp. NYSE: TEX

Toll Brothers Inc. NYSE: TOL

Volcano Corp. Nasdaq: VOLC

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