Cal Dive, PNM rise; Vornado at 96.25; Toys better; Delta in flux; Charter 4.75s gain, 5.875s easier

By Ronda Fears

Nashville, March 24 - Chatter regarding another convertible offering from Delta Air Lines Inc. lent a small amount of support for its existing convertibles, but some of those bonds remained for sale as hedge fund holders see more downside in the story despite the Atlanta airline's effort to scrape up more liquidity.

General Motors Corp. also is looking to bolster its financial state, which the market expects in part to the take the form of requesting health care benefit concessions from its employees, and its convertibles were finding buyers Thursday following a week-long downdraft. The 4.5s rose roughly 0.25 point, the 5.25s added 0.5 point and the 6.25s gained 0.375 point, while GM shares rebounded by 2.5% to close Thursday at $29.30.

Ford Motor Co. also gained ahead of the long holiday weekend, after having declined in sympathy with GM over the past week. The 6.5% convertible trust preferred added 0.5 point to 46 as Ford shares climbed nearly 3% to end at $11.29.

Charter Communications Inc., another distressed name in the market, saw its shorter dated convertibles rise while the newer, longer dated issue came in on its latest shot at tweaking its balance sheet, a privately negotiated exchange of a junk bond series.

True to form in the market's recent unwillingness to show any mercy with regard to biotech and drug companies, Guilford Pharmaceuticals Inc. was slammed Thursday after announcing somewhat disappointing clinical trial results for its sedation drug. The convertibles dropped to 81 from 85 or 86 on Wednesday and from 91 a couple of days ago, a sellside source said. Guilford shares suffered severely, too, plunging more than a third to $2.34.

Cal Dive climbs to 101.5 bid

After pricing within original guidance, rather than tighter as some market onlookers had expected, the new Cal Dive International Inc. convertible broke above par and steadily climbed throughout the session.

The Houston-based deepwater drilling oilfield services company sold the $240 million issue with a 3.25% coupon and 42.5% initial conversion premium at the wider end of guidance for a 2.875% to 3.375% coupon and 41.5% to 46.5% initial conversion premium.

Because some sellside analysts had put the issue 5% to 6% cheap at the middle of price talk, many had expected the terms would be tightened before pricing, but that did not come to pass.

As the issue freed to trade, buyside traders said the first look early Thursday put it bid at 100.5 and that just steadily improved. Bookrunner Banc of America Securities LLC closed the new issue at 101.5 bid, 102 offered.

Cal Dive shares continued to show pressure from hedge funds setting up the convert, however. The stock closed Thursday off another $1.17, or 2.59%, to $43.93.

PNM Resources up 0.25 point

PNM Resources priced its new deal a bit more aggressively, but it also was higher in the immediate aftermarket. Buyside traders said it was bid up a half-point and traded as much as 1 point over issue price before easing back.

The Albuquerque utility sold the $215 million mandatory at par of 50 for a 6.75% dividend and 22% initial conversion premium - at the middle of dividend price talk of 6.5% to 7.0% and at the aggressive end of premium guidance of 18% to 22%.

Joint bookrunner Morgan Stanley & Co. Inc. sent it out for the long weekend at 50.25 bid, 50.75 offered.

PNM Resources stock closed Thursday up a nickel at $26.81.

Concurrently, the company sold 3.4 million shares of common stock at $26.76 a share with proceeds from both deals earmarked in part to retire debt assumed in its $1.024 billion acquisition of TNP Enterprises.

Delta 8s swing, 2.875s for sale

Following comments from Delta Air Lines Inc. chief executive Gerald Grinstein at a Goldman Sachs investor conference on Wednesday that the company is considering making another convertible offering, traders said its existing convertible issues were trading in a wide fluctuation.

If Delta were to offer another convertible, "maybe they live a little longer" and are able to forestall a bankruptcy filing, one sellside trader said. A buyside trader, who holds a position in both existing Delta convertibles, said probably any sign of Delta "being able to tap the capital markets would be a good sign."

The 8% convertibles were a little better early Thursday, up about a quarter-point at 41.5, but then came in as the day wore on. Meanwhile, one sellside trader noted that the 2.875% convert was still for sale; a trader at another sellside shop pegged that issue off about a half-point at 40 bid, 40.5 offered.

Delta shares on Thursday dropped 13 cents, or 3.1%, to close at $4.07.

Delta CEO Grinstein suggested a new convertible would help the Atlanta-based airline with its lingering liquidity woes, but there were no further details about a new deal circulating in the market.

"There has been talk about a Delta deal for months now, going back to December, I think," said a capital markets source. "Nothing firm has been established, though."

Charter exchange a plus/minus

Charter Communications Inc.'s exchange on a series of junk bonds was getting mixed reactions in the convertible market.

"Basically, they pushed out a maturity, which is good," a sellside trader said. "But they also are having to pony up more coupon to get that extension. So, the shorter dated converts traded up, because they are in a better position to getting paid off now with less [debt] in front of them. The [5.875%] '09s, though, came in; that issue is right in the 'Dead Zone' of where they will be in a big crunch to meet maturities."

On Thursday, Charter said in a Securities and Exchange Commission filing that its Communications Operating LLC subsidiary had entered into agreements with a small number of institutional holders of the 8.25% senior notes due 2007 of Charter Communications Holdings LLC. The agreement calls for Charter Operating to issue in a private placement $269.8 million of new notes with terms identical to Charter Operating's 8.375% senior second-lien notes due 2014 in exchange for $282.8 million of the 2007 notes.

Charter's 4.75% convertible due 2006 traded up 2 points on the news from Wednesday's close, while the 5.875% convertible due 2009 dropped 1.25 points just during the session, sellside traders said.

Charter shares ended Thursday at $1.56, up 12 cents on the day, or 8.33%.

Vornado seen easing to 96.25

The new convertible of New York-based Vornado Realty Trust, a player in the bid for Toys 'R' Us Inc., was seen by a buyside trader easing back to 96.25 on Thursday from 96.75 on Wednesday as Toys 'R' Us bonds also retreated. A sellside market source, though, saw the new 3.875% convertible, which was reoffered at 97 by underwriter Citigroup, at 97.

In any event, market sources said there was very little, if any, of the Vornado convertibles traded Thursday. Vornado shares closed up 61 cents, or 0.88%, at $69.61.

Vornado is partnering with Kohlberg Kravis Roberts and Bain Capital in a $6.6 billion bid to buy Toys 'R' Us - a deal which itself has elicited mixed reactions in the market.

Toys 'R' Us 6.25s higher yet

News of a tender-offer clause in the merger agreement came as a welcome surprise for bondholders, sending some of the bonds shooting up 5 to 10 points on Wednesday. But the bonds snapped back after the company admonished the market that no definite plans had been made to tender for the old bonds.

Meanwhile, the Toys 'R' Us 6.25% mandatory continued to rise, finding buyers for the issue that matures in August. On what one sellside trader described as "real decent volume still," the issue added another 0.125 point on Thursday to 62.25 as the underlying stock ended off by a penny at $25.90.

"The recently announced agreement and plan of merger with Global Toys Acquisition LLC requires the company to make a tender offer for outstanding debt securities only at the request of Global Toys Acquisition LLC," Toys 'R' Us said in a statement. "The company has not received any such request from Global Toys Acquisition LLC and does not know if such a request will be made."

The Toys 'R' Us bonds had weakened in recent weeks in anticipation that a buyout of the company would result in the issuance of new bonds senior to existing ones, while the mandatory has steadily risen.

"This highly unusual series of events puts bondholders back in the position of wondering what will happen next," said Credit Sights analysts in a report Thursday. "However, we believe the potential for a tender will provide support for the bonds. At the same time, the terms of the possible tender are unknown and a complete tender is not guaranteed. As a result, we are taking a wait-and-see approach and moving to a marketweight recommendation on the name."

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