Convertible primary revives; Level 3, Volcano up in gray market; AngloGold launches bonds

By Rebecca Melvin

New York, Sept. 14 - Two new issues launched in the convertible bond market late Monday were up in the gray market Tuesday, while a third deal launched Tuesday morning was quiet. After the market close, a fourth deal was launched, and all four deals were set for pricing late Tuesday.

Level 3 Communications Inc. launched an offering of $175 million of six-year convertible senior notes, which was up to 101 in the gray market by midday Tuesday.

Volcano Corp. launched an offering of $100 million of five-year convertibles, and that deal was seen plus 0.25 point in the gray market early on, but near the close, the Volcano deal saw a plus 0.75 point bid for $1 million in the gray market, a market source said.

Tower Group Inc. launched early Tuesday a planned offering of $135 million of four-year convertible senior notes. That deal was not seen in the gray market, sources said.

After the market close, AngloGold Ashanti Holdings Finance plc, a subsidiary of AngloGold Ashanti Ltd., launched an offering of about $740 million of mandatory convertible bonds that was expected to see accelerated bookbuilding, with pricing late Tuesday.

Proceeds of the AngloGold deal were expected to be used to eliminate the company's gold hedge. The new paper is not intended to be used to redeem AngloGold Ashanti's existing issue of 3.5% convertibles due 2014, a syndicate source said.

Back among established issues, the Best Buy Co. Inc. 2.25% convertibles due 2022 were in trade after the consumer electronics retailer reported earnings that topped estimates. The Best Buy bonds traded up to 108 before retracing gains to end closer to the unchanged mark at 105.

Western Refining Inc. was also mentioned in trade, with those convertibles up 5 or 6 points from last week to the 80 to 81 market, along with a rally in the underlying shares.

The Western Refining bonds are traded both outright and on hedge. The delta on the names is wide-ranging, but with shares where they are now, the delta was called around 60%.

Overall there was a pick up in convertible market activity, sources said.

Level 3 adds in gray market

Level 3's offering of six-year convertible senior notes, expected to price after the close of markets Tuesday, was up a point in the gray market, some sources said. While others called the market plus 0.375 point to plus 1 point.

Level 3's existing 5.25% convertibles, which may be redeemed with proceeds of the new paper, moved up to par from about 98.

"Those are money good now," a Connecticut-based sellside trader said.

Level 3's 3.5% convertibles saw a wide market of 94 bid, 98 offered, a New York-based sellside trader said.

Level 3 also has other convertible issues that don't trade often, sources said.

Shares of the Broomfield, Colo.-based internet backbone services provider plunged 21 cents, or 18%, to $0.95.

Proceeds are for general corporate purposes, including working capital, capital expenditures and potential repurchase or redemption of its 5.25% convertible senior notes due 2011 and other existing debt from time to time.

Bank of America Merrill Lynch is the bookrunner of the registered deal, with Citigroup Global Markets Inc. the lead manager. Co-managers are Deutsche Bank Securities Inc. and Morgan Stanley & Co. Inc.

There is a greenshoe for a further $26.25 million.

The convertibles will be non-callable for three years and then provisionally callable if the stock exceeds 150% of the conversion price.

It's a "prudent move" for Level 3 to build up capital to be able to handle debt maturities upcoming in the next three or four years, a Connecticut-based convertibles analyst said.

The analyst said that the company has $442 million of cash on its balance sheet currently and that the company has given guidance that it is going to be cash flow positive this year.

Volcano rises in the gray

The five-year convertibles that Volcano planned to price late Tuesday moved up to plus 0.75 bid in the gray market.

Shares of the Rancho Cordova, Calif.-based maker of vascular measurement products fell $2.40, or 9%, to $23.25 after news of the offering.

Volcano's proposed senior notes were talked to yield 3% to 3.5% with an initial conversion premium of 22.5% to 27.5%.

The registered, off-the-shelf deal of $100 million plus a 15% greenshoe is being sold via bookrunner J.P. Morgan Securities.

There is a greenshoe of $15 million.

Concurrently Volcano plans to enter into convertible bond hedge and warrant transactions with affiliates of the underwriter.

Proceeds may also be used to expand Volcano's manufacturing capabilities and invest in complementary products, technologies or businesses. The balance of the net proceeds is expected to be used for working capital and general corporate purposes.

Tower quiet in gray

Tower Group's proposed convertibles were talked to yield 4.75% to 5.25% with an initial conversion premium of 25% to 30%, according to a market source.

Shares of the New York-based insurance products and services company concluded the session down 60 cents, or nearly 3%, at $21.56.

Bank of America Merrill Lynch, JPMorgan and FBR Capital Markets are joint bookrunners of the Rule 144A offering.

In connection with the offering, the company plans to enter into convertible note hedge and warrant transactions. The hedge transactions are aimed at reducing potential dilution of stock and offset potential cash payments in excess of the principal amount of converted notes.

Proceeds will be used to repurchase common stock concurrently with the offering, to purchase a call spread, to repay debt and for general corporate purposes.

AngloGold to price

AngloGold plans to price an offering of about $740 million of mandatory convertible bonds plus a 15% greenshoe, according to a syndicate source.

The American Depositary Shares of the Johannesburg-based gold producer fell more than 5% in after-hours trading, after ending the session 5% higher at $46.72.

The global offering is registered in the United States and being sold via joint bookrunners UBS Securities LLC and Morgan Stanley.

The bonds, which will mature in 2013, were expected to price late Tuesday and were talked to yield 6% to 6.5% with an initial conversion premium of 20% to 25%.

AngloGold is also pricing a concurrent offering of ADS for about the same dollar amount, the syndicate source said.

Mentioned in this article:

AngloGold Ashanti Holdings Finance plc NYSE ADS: AU

Best Buy Co. Inc. NYSE: BBY

Level 3 Communications Inc. Nasdaq: LVLT

Tower Group Inc. Nasdaq: TWGP

Volcano Corp. Nasdaq: VOLC

Western Refining Inc. NYSE: WNR

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