Transocean, Oil States slide on oil concerns; Amgen gains on upgrade; Cameron premium meets resistance

By Kenneth Lim

Boston, May 22 - The convertible market saw limited action on Monday, with investors seeking volatility plays particularly in the oil and gas sector.

A trio of new deals are also due Tuesday, with an overnight offering by Cameron International Corp. set to price before the open, and drawing cautious reaction to its high 55% initial conversion premium.

Global Crossing Ltd., which announced its deal two weeks ago, set the talk on its $125 offering ahead of a post-market close pricing Tuesday. CBIZ Inc.'s planned $85 million issue is also expected to price Tuesday after the market closes.

Oil and gas names were active as oil futures rebounded from a six-week low early in the day. Transocean Inc.'s 1.5% convertible due 2021 was in line on a dollar-neutral basis and about a point lower outright from the previous week at 110 bid, 111 offered versus a stock price of $78.25. Shares of Transocean (NYSE: RIG), a Houston-based offshore contract drilling services provider, closed at $78.35, down 11 cents or 0.14%.

Oil States International Inc.'s 2.375% convertible due 2025 traded at about 128.875 against a stock price of $34. That was about 12 points lower on an outright basis from the week before, when the stock traded at $38.50. Shares of Oil States International (NYSE: OIS), a provider of specialty products and equipment to oil and gas drilling companies, closed at $34.43 on Tuesday, down by 95 cents or 2.69%.

In the biotechnology sector, Amgen Inc.'s 0.125% convertible due 2011 was slightly higher but in line at 96 bid, 97 offered versus a stock price of 67.75 as Amgen stock (Nasdaq: AMGN) inched up 0.15% or 10 cents to close at 67.79 after a stock upgrade.

Amgen stock was upgraded to outperform from market perform by Wachovia Securities equity analyst George Farmer on Monday. Farmer said in a research report that he expects Thousand Oaks, Calif.-based Amgen to report positive trial data on its osteoporosis drug denosumab at a conference in June, and he valued Amgen stock at $75 to $82.

Trading on Monday was focused on a handful of names, traders said.

"The story is that for a lot of those names that have stocks that moved, people are bidding for them hard because people are so starved for volatility," said a sell-side convertible bond trader. "Right now it's specific to the names that are moving [in the stock market] as people model these vega-type names."

"People are walking from the credit names," the sell-side trader added. "What I take away from the last week or so in converts is...the drivers are still the hedge guys, the guys who are in these to trade volatility."

A buy-side convertible bond trader said much of the action on Monday was focused on the usual "balance" names, with people adjusting their hedges on a handful of convertibles such as Amgen as global credit markets are "replacing risks."

Cameron deal's premium a concern

Cameron International's proposed $500 million overnight offering of 20-year convertible senior notes was seen as cheap but potentially encumbered by a high premium, analysts said late Monday.

"It's modeling a little cheap, but the premium's high," a sell-side analyst said.

The offering is being reoffered at a level talked at between 98.25 and 98.75, with a coupon set at 2.5% and an initial conversion premium of 55%. Final pricing is expected on Tuesday before the market opens. Shares of Cameron (NYSE: CAM), which was formerly called Cooper Cameron Corp., closed at $45.65 on Monday, down by 2.02% or 94 cents before the deal was announced.

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

Morgan Stanley is the bookrunner of the Rule 144A deal.

Cameron, a Houston-based supplier of flow-equipment products and services to the oil and gas industry, will use the proceeds of the deal to redeem all of its $200 million outstanding 2.65% senior notes due 2007, to buy back its shares and for general corporate purposes.

The sellsider thought that the offering was looking more than 2% cheap at the mid-point of the reoffer range, considering that the company has a reasonably solid credit rating. The fact that Cameron is using the proceeds of the deal to redeem its outstanding debt at a lower coupon is also unlikely to hurt the company's credit.

The analyst added that a number of equity analysts had outperform ratings on Cameron stock, possibly making the deal more interesting for outright investors.

Cameron is in a "good position in a good business in a good industry," the analyst said. "It might make sense for outrights."

But the sellsider speculated that the deal may meet resistance from investors because the 55% initial conversion premium was "very high."

"That premium might be a problem," the sellsider said.

A buy-side analyst dismissed the deal as simply not attractive from an outright perspective because of its structure.

"I'm just not interested at 2.5%, up 55%," the analyst said. "It's just not enough. You can find better use for your capital."

Global Crossing sets price talk

Global Crossing plans to price on Tuesday a $125 million offering of five-year convertible senior notes, talked at a coupon of 4% to 5% and an initial conversion premium of 20% to 25%.

The convertibles will be priced after the market closes. The first three years of interest payments for the convertibles will also be collateralized by a portfolio of U.S. Treasury securities, which a syndicate source said "should be helpful for the credit."

There is a greenshoe option for a further $18.75 million.

The convertible bonds will be sold concurrently with an upsized offer of 9 million shares, which excludes an additional 1.35 million shares in an over-allotment option. The share offer was originally for 6.75 million shares.

Goldman Sachs is the bookrunner for the registered off-the-shelf deal.

Global Crossing is a Bermuda-headquartered provider of internet-based telecommunications solutions. It will use the proceeds from the convertible and stock offerings to fund general corporate purposes, which may include buying assets and businesses. Part of the proceeds will also be used to buy the portfolio of U.S. Treasury securities to pay for the first three years' interest payments for the convertibles.

Global Crossing stock (Nasdaq: GLBC) closed at $19.40 on Monday after the upsizing of the stock offer was announced, lower by 7.35% or $1.54.

CBIZ proposes $85 million deal

CBIZ Inc. also expects to price $85 million of 20-year convertible senior subordinated notes on Tuesday after the market closes, with price talk guiding for a coupon of 2.875% to 3.375% and an initial conversion premium of 30%-35%.

CBIZ shares (Nasdaq: CBIZ) closed at $7.91 on Monday, lower by 0.75% or 6 cents before the deal was announced.

There is an over-allotment option for a further $15 million.

Banc of America is the bookrunner of the Rule 144A offering.

CBIZ is a Cleveland-based business services provider. It said half of the proceeds will be used to buy back CBIZ shares from some hedge buyers of the convertible notes. The rest of the proceeds will be used to repay part of the outstanding $48 million balance under CBIZ's $100 million unsecured loan, and for general corporate purposes.

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