Rambus convertibles add in quiet debut; LodgeNet quiet; PNC up as investors eye safety play

By Rebecca Melvin

New York, June 24 - Rambus Inc.'s newly priced 5% convertibles were seen at 103 bid late Wednesday in a mostly quiet debut after the Los Altos, Calif.-based technology company priced $150 million of five-year notes.

LodgeNet Interactive Corp.'s newly priced 10% convertible preferred shares remained quiet on their debut just as they had been in the gray market. The small $50 million "equity type deal" remained in the hands of people who wanted to stick with the name, a syndicate source said.

Back in established issues, there were only a few names that traded frequently, but there was a decidedly firmer tone to the market. But there was no defining theme, a sellsider said.

Amgen Corp. and Transocean Ltd., which are among the market's large, liquid issues, were holding up well.

PNC Financial Services Group Inc. was also a high-volume name for a second straight day, moving up 0.375 point to 0.5 point Wednesday as convertibles players eyed the 4% convertible paper as a safe spot to hide cash.

Another name that was stronger in active trade was Chesapeake Energy Corp., which saw its 2.5% convertible bonds and 2.75% convertible bonds in trade, according to a New York-based sellside trader.

The market wasn't changed after the Federal Reserve announced its decision to leave interest rates unchanged at 0% to 0.25% and made an unsurprising policy statement, market sources said.

The Federal Open Market Committee said that since it met in April, the pace of economic contraction is slowing, conditions in financial markets have generally improved in recent months, and household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth and tight credit.

While economic activity is likely to remain weak, the committee said it believed that its policy actions, fiscal and monetary stimulus and market forces will contribute to a gradual resumption of sustainable economic growth.

Rambus adds in quiet deal

Rambus' 5% convertibles were seen around 103 bid at the end of the day, just as they were at the beginning of the day, as its shares ended up just slightly at $14.90, which was up 5 cents on the day.

Even though it was $150 million of new paper, people talked of it as if it was a small deal.

"Whoever got it, wanted to keep it," a sellsider said.

Rambus priced the issue richer than talk at a yield of 5% and an initial conversion premium of 30%.

Price talk was for a yield of 5% to 5.5% and an initial conversion premium of 17.5% to 22.5%.

The notes were 102 bid, 104 offered in the gray market late Tuesday ahead of pricing.

Credit Suisse Securities (USA) LLC and J.P. Morgan Securities Inc. were bookrunners of the registered offering. There is an over-allotment option for an additional $22.5 million.

Before March 15, 2014, conversions are subject to a hurdle of 130% of the conversion price.

The notes are non-callable for the first three years, after which they may be called subject to a hurdle at 130% of the conversion price. There are no puts.

Proceeds will be used for general corporate purposes, which may include financing strategic investments, repaying a zero-coupon convertible due February 2010 and funding working capital.

Rambus is a designer of chip interface technologies and architectures.

LodgeNet quiet on debut

LodgeNet's 10% convertibles weren't seen in trade, according to sources, and a syndicate source called it "an equity type deal that was not something that people will try to flip."

Shares of the company were down 4% on the day.

The deal's size was small, and it was marketed to equity investors, who wanted to buy the stock, but the convert was a little sweeter than the stock. It was not an arb play, he said.

LodgeNet priced $50 million of series B perpetual convertible preferred stock with a 10% dividend and with an initial conversion premium of 10%. There is an over-allotment option for an additional $7.5 million.

The deal priced beyond the cheap end of talk for the dividend, which was 8% to 9%, and at the cheap end of talk for the initial conversion premium, which was 10% to 20%.

Bank of America/Merrill Lynch was bookrunner for the Rule 144A offering.

The preferreds are callable subject to a hurdle at 150% of the conversion price and a make-whole dividend payment for the first five years. Thereafter, the preferreds may be called subject to a hurdle at 125% of the conversion price.

Proceeds will be used to reduce the outstanding balance on a term loan and for general working capital.

LodgeNet is a Sioux Falls, S.D.-based provider of interactive media and connectivity solutions to the hospitality industry.

PNC quite strong

PNC's 4% convertibles due 2011 traded up to around 98, compared to 97.5 bid, 97.625 offered in good size on Tuesday.

PNC is a safer and short-dated, defensive play. People are getting into something that is money good, a sellside trader said.

The trader couldn't identify any specific names out of which investors were bailing, but the source thought that there was just more money to put to work and that people were building their portfolios.

A separate trader said: "I guess PNC is now officially a safe spot to hide cash."

The trader blamed markets for being shaky for awhile as an impetus for such behavior.

Transocean's 1.625% convertible due 2037 was 96.625 late in the day, which was up more than a point compared to 95 on Tuesday.

The Transocean 1.5% series B convertible due 2037 was at 90 compared to 90.75 on Tuesday. Transocean common stock closed at $73.33, up by 0.48% or 35 cents.

Transocean is a Vernier, Switzerland-based offshore contract drilling company.

"Paper is holding up well today," a sellsider said. Transocean was by far the leader volumewise, he said.

Mentioned in this article

Amgen Inc. Nasdaq: AMGN

Chesapeake Energy Corp. NYSE: CHK

LodgeNet Interactive Corp. Nasdaq: LNET

PNC Financial Services Group Inc. NYSE: PNC

Rambus Inc. Nasdaq: RMBS

Transocean Ltd. NYSE: RIG

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