Cracker Barrel, Calpine gain; Charter edges lower; Teva, AAR launch convertible deals

By Rebecca Melvin

Princeton, N.J., Jan. 25 - CBRL Group Inc. was the focus of a large volume of convertibles market trading on Wednesday following an announcement that the company is reviewing potential capital structure initiatives, traders said.

The company, which operates Cracker Barrel Old Country Store restaurants, saw its 0% convertibles gain about 2.5 points outright while its underlying shares charged up 22%. On a hedged basis, the bonds expanded 0.5 to 0.875 point, traders said.

Also in trade on Wednesday were the convertibles of Calpine Corp. on news that the San Jose, Calif.-based independent power producer was approved by the bankruptcy court for a $2 billion debtor-in-possession credit facility that it will use to fund operations during its Chapter 11 restructuring as well as to retire certain obligations at The Geysers.

In healthcare, the convertibles of Sepracor Inc. were trading on no particular news, traders said.

Advanced Micro Devices Inc. offered some support to the technology sector, trading up late in the session as its shares gained more than $1. And the convertibles of Charter Communications Inc. were lower in line with their shares, with its 5.875% convertibles trading at 70 bid, 71 offered, a sellside trader said.

Charter, a St. Louis-based cable television provider, announced Tuesday that it plans to issue $400 million worth of senior notes to repay debt.

After the close, two new convertible deals were launched, including $1.25 billion in convertibles from Teva Pharmaceutical Industries Ltd. and $100 million of convertibles from AAR Corp.

The two launches came just ahead of pricing expected late Wednesday on NRG Energy Inc.'s $500 million of mandatory convertible preferreds and United Auto Group Inc.'s $250 million of convertibles.

At press time, a UAG syndicate source confirmed that the pricing was underway but that final terms weren't yet available.

Teva to price convertibles

Teva plans to price $1.25 billion of convertibles in two tranches on Thursday, according to a syndicate source.

The Israel-based generic drug maker also plans to price $1.5 billion in high-grade debt in two series including 10-year and 30-year senior notes. The offerings will be made through several special purpose finance subsidiaries.

Of the two convertibles tranches, $750 million will be 20-year convertibles talked to price 1.5% to 2% with an initial conversion premium of 22.5% to 27.5%. They will be non-callable for five years, with puts in years five, 10 and 15.

The other tranche is $500 million of 20-year convertibles that were talked to yield 0.25% to 0.50%, with an initial conversion premium of 14% to 17%. The tranche is putable in years two, five, 10 and 15 and non-callable for two years.

The paper is being issued through several special purpose finance subsidiaries, with proceeds going to repay bridge loans for the acquisition of IVAX Corp., which is expected to close Thursday.

All of the debt will be guaranteed by Teva and the convertibles will be convertible into American Depositary Receipts of Teva.

Bookrunners for the long-term senior notes and the $750 million of convertibles are Lehman Brothers Inc., Credit Suisse Securities (USA) LLC and Citigroup Global Markets Inc.

Bookrunners for the $500 million of convertible senior debentures are Lehman Brothers Inc., Credit Suisse Securities (USA) LLC and Bear, Stearns & Co. Inc.

"The stock should get knocked down tomorrow a.m. as convertible buyers [arbitrageurs] hedge their position," said a biotech stock trader. "You see a little strength after-hours here on position squaring by risk arbs related to the merger close."

Teva shares (Nasdaq: TEVA) ended Wednesday at $40.63, off 32 cents, or 0.78%.They were higher in after-hours trade, seen at 7:30 p.m. ET higher by 42 cents, or 1.03%, at $41.05.

The launch of a convertible often sends the underlying stock lower because of hedge fund participation. But because of the Ivax merger there was heavy risk arb activity and those positions were being unwound to play the convertible, traders said.

AAR plans $100 million deal

AAR plans to price 20-year convertibles after the close on Thursday, according to a syndicate source.

The convertible senior notes were talked to yield 1.75% to 2.25% with an initial conversion premium of 17.5% to 22.5%.

Sole bookrunner for the Rule 144A deal is Merrill Lynch. There is a greenshoe of $25 million. The notes have hard call protection for seven years, with put dates in years seven, 10 and 15.

The bonds also have full dividend and takeover protection, as well as contingent conversion at a trigger of 120%.

The company also announced that in the past two weeks it exchanged 2.025 million newly-issued shares to acquire about $37.7 million, or 56%, of the principal amount of its existing 2.875% convertible senior notes due 2024.

Based in Wood Dale, Ill., AAR (NYSE:AIR) is a provider of products and services to the airline and defense industries.

Cracker Barrel gains modestly

The convertibles of Cracker Barrel added modestly as its share charged up 22% after the Lebanon, Tenn.-based restaurant company said it is looking to hire advisors to review strategic alternatives to its corporate structure.

It also said it was withdrawing its earnings outlook since some of the capital-structure initiatives under consideration could affect results.

"It could be anything from a special dividend, to a dividend increase, to consideration of its real estate holdings like lease backs," a New York-based sellside convertibles analyst said.

The company, which said it perennially conducts reviews of this nature, said it was disclosing the status of its evaluation process because it was "recently was approached by a significant shareholder" that suggested "some of the same kinds of initiatives that management has seen and discussed," the company said in a release.

"The bonds improved on a low delta of about 25, but tomorrow that delta will be higher, like around 50," the analyst said.

Also during the session, Cracker Barrel shares were upgraded to "outperform" from "market perform" by Friedman Billings.

The Cracker Barrel 0s traded at 48.375 versus a share price of $41. Near the close they were seen at 49.5 versus a share price of $43.05. The shares actually closed a little higher at $43.36, up $7.84, or 22.1% (Nasdaq: CBRL).

Calpine converts bounce higher

Calpine's convertibles initially dropped on news that the U.S. Bankruptcy Court for the Southern District of New York granted final approval for its DIP, a sellside trader said. But they subsequently jumped back up, adding a point on the day,

The financing is being provided by Deutsche Bank and Credit Suisse as co-lead arrangers; and it will consist of a $1 billion revolving credit facility, priced at Libor plus 225 basis points, a $350 million first-priority term loan, priced at Libor plus 225 bps, and a $650 million second-priority term loan, priced at Libor plus 450 bps

Calpine's 6% convertibles traded at 17, and its 4.75% convertibles were at 23 bid, 24 offered, the trader said.

Calpine shares (Pink Sheets: CPNLQ) closed just under a quarter, dropping $0.003, or 1.2%, to $0.247.

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