Citi bid higher in gray market; GenCorp, Titan also plus bid; PNC up; Host Hotels on tap

By Rebecca Melvin

New York, Dec. 15 - Citigroup Inc.'s $3.5 billion convertible mandatory preferred offering was seen in the gray market Tuesday at plus 0.5 point bid, plus 1.5 point offered, sources said.

During the session, the deal was rumored to be pricing a day early on Tuesday. But a syndicate source later said that it would be pricing as planned on Wednesday.

Of three other new deals on the calendar, two were seen in the gray market Tuesday, including GenCorp Inc., which was seen plus 1 point bid in the last hour of trade, and then 1.5 point bid after the close, according to market sources.

Titan International Inc.'s deal was seen plus 0.5 point bid and later plus 1 bid, according to sources.

After the close, Titan priced an upsized $150 million of convertibles at the midpoint of talk.

Both Titan and GenCorp were seen coming cheap, a Connecticut-based sellside trader said. "They both have [credit] spreads of around 1,000 [basis] points over and low vol.," the sellsider said.

Host Hotels & Resorts Inc., which was also expected to price after the close, after launching earlier in the day, wasn't seen in the gray market.

"The terms look aggressive," a sellsider said of Host Hotels. The sellsider hadn't modeled the offering but said the terms with a coupon talked at 2.5% at the midpoint looked aggressive.

"It's not a great credit. It's 20-year paper, with a put and a call in year six," the sellsider said. Host is rated BB-.

Late Tuesday, Griffon Corp. launched an offering of $100 million of convertible subordinated notes to mature 2017.

In secondary dealings, PNC Financial Services Group Inc. convertibles looked steady at higher levels Tuesday, after adding on Monday.

The Pittsburgh-based financial services company is seen as a good credit, and the PNC 4% convertibles due February 2011, formerly owned by National City Corp., have been in trade for the last several weeks. On Tuesday, they traded at 101.625 to 102, which was similar to Monday.

International Game Technology's convertibles were subject to a recent put date on the 2.6% convertibles. One sellsider theorized that PNC's strength may have derived from International Game investors putting money back to work in PNC, a "cash surrogate."

International Game announced after the close that $710.35 million will be delivered to holders tendering the 2.6% convertibles, leaving only $5.78 million remaining outstanding.

International Game's new 3.25% convertibles due 2014 traded at 122.25 versus a share price of $18.75. "It was the same price on both days," a New York-based sellside desk analyst said.

Citi appeal seen as limited

Citigroup's $3.5 billion of convertible mandatory preferred shares was expected to appeal to convertible players but also go to many equity players who want to take some of the preferreds along with their common stock.

Given that it's a mandatory, its appeal to convertible players will be limited, a New York-based sellside trader said.

"It's empty calories," he said when it was suggested that the deal would make a difference to the convert market and boost league tables.

Despite rumors that the Citi offerings of stock and mandatory preferreds would come a day early, the deals were set to price Wednesday as originally expected, according to a syndicate source.

There was a small chance that it could price early but it was a matter of securing orders for $17 billion of stock, a sellsider said.

Citi was plus 0.5 point bid, and one source said it was bid higher at plus 1, and may have traded at that level.

Citi's planned $3.5 billion of mandatory convertibles was talked to yield 7.5% to 8% for the dividend with an initial conversion premium of 20% to 25%.

After the offerings are completed, Citi will have boosted its shares outstanding to about 28 billion from about 5 billion in a year.

"The stock is pretty cheap stock here. Nobody owns this and they are increasing shares outstanding from 5 billion to 30 billion in a year," a New York-based outright buyside analyst said.

"The government is letting them exit the loss sharing agreement. That's good news. If there was a real chance of disaster, I don't think they would have agreed to that."

"I think if they get $3.50 [a share], and you include the 900 million shares of new tangible common, the book value is $4.03 per share," the buysider said.

"The stock probably could go up that high at some time," the buysider said.

"I've done my best to ignore it because it's been so disappointing; it's hard to get too excited," the buysider said of Citi. "But if you followed this for a long time, it could be interesting. The question is can they clear the equity."

"AGO [Assured Guaranty Ltd.] did a mandatory, and the stock went down 11% in one day. The stock was struck at $11, and stock rallied back into the 20s," the buysider said.

"There may be a technical opportunity here," the buysider said.

Titan doubles deal to $150 million

Titan International priced an upsized $150 million of seven-year convertibles at the midpoint of talk to yield 5.625% with an initial conversion premium of 37.5%.

Originally the deal was expected to be $75 million in size.

The deal was seen cheap, according to one sellsider, who put the deal either 6% to 7% cheap, using a credit spread of more than 1,000 bps over Libor and a low vol.

The Rule 144A deal priced at the midpoint of talk, which was 5.375% to 5.875% for the coupon with a 35% to 40% premium.

The deal was brought by Goldman Sachs & Co. as bookrunner, with co-managers KeyBank, Oppenheimer & Co. and Sterne Agee Group Inc.

The notes will be non-callable until Jan. 20, 2014 and then provisionally callable if Titan's stock price is 130% of the conversion price for 20 or more trading days in a 30-day trading period.

There are no investor puts.

The notes will be subordinate to Titan's existing 8% senior notes due 2012.

Titan International is a Quincy, Ill.-based maker of wheels, tires and assemblies for off-highway vehicles, including tractors and combines.

GenCorp shares unchanged to better

GenCorp's existing convertibles were unchanged to slightly better on Tuesday.

The GenCorp 4% convertibles due 2024, which are putable in a few weeks on Jan. 16, 2010, and which will be financed by the new debentures, have been trading around par, and were at 99.875 on Tuesday, which was little changed.

The GenCorp 2.25% due 2024 were seen a little better.

The new debentures can be put on Dec. 31, 2014, 2019, 2024, 2029 and 2034.

GenCorp's planned $125 million of convertible subordinated debentures were talked to yield 3.75% to 4.5% with an initial conversion premium of 20% to 25%.

The debentures are provisionally callable for life at a price hurdle of 150%. If they are called within the first five years, the coupon has a make-whole provision that will be equal to the present value of the first five years of coupons at a 2.5% discount rate.

The Rule 144A offering, which was being brought by bookrunner Morgan Stanley & Co., hadn't yet priced by Prospect News' deadline.

GenCorp is a Rancho Cordova, Calif.-based defense company.

Mentioned in this article:

Citigroup Inc. NYSE: C

GenCorp Inc. NYSE: GY

Host Hotels & Resorts Inc. NYSE: HIS

International Game Technology NYSE: IGT

PNC Financial Services Group Inc. NYSE: PNC

Titan International Inc. NYSE: TWI

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.