RadioShack, China Medical gain; Ferro quiet; Boston Properties plans deal; Transocean, Massey rebound

By Kenneth Lim

Boston, Aug. 13 - New deals and energy names dominated activity in the convertible market on Wednesday, with RadioShack Corp. taking off on its secondary market debut.

RadioShack was up a few points in the morning, but a weak stock dragged its new convertible lower outright later in the day.

China Medical Technologies Inc. was seen doing better after its deal was significantly upsized and priced at the midpoint of price talk, but trading was confined to the desks of its underwriters.

Ferro Corp.'s planned convertibles were quiet in the gray market as its stock took a hit on Wednesday, but observers said the company's credit will be healthier after the deal.

Meanwhile, Boston Properties, Inc. planned to offer $500 million of exchangeables after the market closed.

In energy, Transocean, Inc. and Massey Energy Co. were active gainers as high oil prices pulled up the sector.

RadioShack gains

RadioShack's new 2.5% convertible senior notes due 2013 traded up a couple of points early Wednesday before afternoon weakness in its common stock dragged the paper lower.

The convertibles closed around 100.5 against a stock price of $17.45, but were seen around 102 to 102.5 earlier in the day. RadioShack common stock (NYSE: RSH) closed at $17.48, lower by 4.48% or $0.82.

"We bought a little bit in the secondary," a buyside convertible trader said. "The stock's off...but I don't think it's in too much."

RadioShack priced the upsized $325 million of notes after the close Tuesday with a 32.5% initial conversion premium. The deal was increased from $300 million and came at the rich end of talk, which guided for a yield of 2.5% to 3% and a conversion premium of 27.5% to 32.5%.

The Rule 144A deal was brought to market via joint bookrunners Citigroup and Banc of America Securities LLC.

There is a $50 million over-allotment option.

RadioShack, a Fort Worth, Texas-based retailer of consumer electronics goods, said $40.1 million of the proceeds will be used to pay for the convertible note hedge and warrant transactions that will raise the effective conversion premium from the company's perspective to 100%. RadioShack will also use $100 million of the proceeds to buy back stock. The remainder will be used for general corporate purposes, including as working capital to replace the company's $300 million revolving credit facility.

"It priced at the aggressive end," a sellsider said. "I think people were hoping for it to come around the midpoint. It dropped over the day. I think the excitement over the deal kind of waned over the day. I didn't really see anything after midday. But it was good deal, I guess."

China Medical seen higher

China Medical's 4% convertible senior notes due 2013 were seen trading higher with the deal pricing in the middle of already-cheap price talk.

China Medical upsized the deal to $240 million from $150 million, and bookrunners Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. have a greenshoe for a further $36 million.

The deal priced with an initial conversion premium of 22.5%, placing in the middle of price talk, which was 3.75% to 4.25% for the coupon and 20% to 25% for the initial conversion premium.

China Medical common stock (Nasdaq: CMED) fell 7.89% or $3.92 to close at $45.74 on Wednesday.

Concurrently, China Medical priced up to 4.7 million of American Depositary Shares, at $48 per ADS, which are being purchased by affiliates of the underwriters of the notes under an issuance and repurchase agreement.

China Medical, a Beijing-based maker of medical devices, said it will use proceeds for general corporate purposes and for acquisitions of businesses, products and technologies.

"I heard it did well at the underwriters, but we didn't see any of it over here," a sellside convertible trader said. "They had a borrow facility, so most of the guys who got it are going to be trading with the underwriters to get that borrow."

But the trader said the deal appeared to be cheap.

"I think they priced it pretty cheap, which isn't a surprise," the trader said. "It's not a well followed company, the borrow's limited, and it's in China."

Ferro dragged by poor stock

Ferro's planned $150 million of five-year convertible senior notes was muted in the gray market on Wednesday ahead of pricing after the close, with analysts saying the decently priced deal was likely affected by its stock's drop.

Ferro common stock (NYSE: FOE) fell 13.52% or $3.16 on Wednesday to close at $20.21 on news of the deal.

Price talk on the offering was at a coupon of 6% to 6.5% with an initial conversion premium of 60% to 65%.

There is an over-allotment option of 15%, or $22.5 million.

Citigroup Global Markets, Credit Suisse Securities and J.P. Morgan Securities Inc. are joint bookrunners of the registered offering.

Ferro, a Cleveland-based supplier of specialty materials and chemicals, said it will use the proceeds to buy back or redeem all of its outstanding 9.125% senior notes due 2009.

"I think it may have to come cheaper just because of how far the stock fell today," a sellside convertible analyst said.

But the analyst said the deal already looked cheap.

"It's cheap," the analyst said. "It has to be. They need the money to take out the straight debt, and their credit isn't the best. I think the credit's actually going to be better if they can take out the straights. Obviously in terms of interest expense the convert is going to cost less. There's some uncertainty, though, about whether they're going to be raising more money, which would bring the spread out again."

Boston Properties plans deal

Boston Properties planned to price $500 million of six-year exchangeable senior notes on Wednesday after the market closed, with price talk at a coupon of 3.125% to 3.625% and an initial exchange premium of 20% to 25%, according to market sources.

The exchangeables were being offered at par. They are issued by Boston Properties LP, a subsidiary of Boston Properties.

There is an over-allotment option for an additional $75 million.

Banc of America, JPMorgan and Morgan Stanley were the bookrunners of the Rule 144A offering.

Boston Properties, a Boston-based real estate investment trust that focuses on office properties, plans to use the proceeds to repay debt, fund real estate development opportunities, acquisitions and other investment opportunities.

Energy names gains

Transocean Inc. gained outright on Wednesday, marking its first climb after a weeklong decline.

The Transocean 1.625% convertible due 2037 gained about 2 points outright to trade at 105.5 against a stock price of $131. The series B 1.5% convertible due 2037 added about 1 point outright to trade at 105, while the series C 1.5% convertible due 2037 also increased a point to change hands at 105.25, all versus the same stock price.

Transocean common stock (NYSE: RIG) closed at $131.43, up by 4.76% or $5.97.

The common stock gained on Wednesday on the back of gains in the price of oil and optimism that oil supplies in the United States were lower than expected.

"We traded a lot of the RIGs, they were super-active with a bounce in the stock finally," a sellside desk analyst said. "The RIG Bs were really active, a little better interest on swaps."

Massey Energy's new 3.25% convertible senior notes due 2015 also improved on the strength of the underlying common stock.

The convertible traded at 102 against a stock price of $60.75 on Wednesday, while Massey common stock (NYSE: MEE) rose 6.53% or $3.70 to close at $60.31.

"MEE bounced back too," the desk analyst said. "They'd been weak the last couple of days, were a little better today."

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