WCI drops on liquidity concerns; financials steady on weaker stocks; Omnicare adds; TTM to price

By Rebecca Melvin

New York, May 8 - News flow was active but convertibles bond trading was not on Thursday, market sources said.

"There was a lot of news, but not a lot of trades. It's been very quiet," a Connecticut-based sellside trader said, citing earnings news from several healthcare-related companies and DRS Technologies Inc. takeover talk and market speculation.

Other sources concurred that the market was quiet, with prices mixed.

Of convertible issues trading, the WCI Communities Inc. bonds extended their losses after the builder of master-planned lifestyle communities said that it doesn't expect to have enough liquidity to satisfy repurchase requirements related to a put on the 4% paper on Aug.5.

"The bonds have dropped from about 76 to 70 in the last two sessions," a Connecticut-based sellside trader said. "They are going to have to exchange them into something, but there are so many cross-default provisions in its other debt, so it's a wildcard what they will do."

Financials held mostly steady despite stocks that were mostly lower, but which pared early losses, as everything has been "pretty much stagnant," a West Coast-based buyside trader said.

Bank of America Corp.'s convertible preferred traded at 1050 versus a stock price of $37.50. Among the more notable decliners was Fannie Mae, which saw its stocks and convertible preferred shares lower than most other members of its sector ahead of pricing of $6 billion in capital. The securities may also have been pressured by the Bush Administration's threat to veto a package of housing measures that include new rules for mortgage lenders including Fannie Mae and Freddie Mac.

Meanwhile, Countrywide Financial Corp.'s convertibles were steady even though its stock ended on the upside.

"You're pretty much throwing at a dart board with that one," the West Coast buysider said of Countrywide's convertibles.

A 12% spike in Omnicare Inc. common stock spurred trades in those convertible bonds, which are more liquid than their sister issue of convertible preferred shares.

In the primary arena, news came before the market open that TTM Technologies Inc. intended to price $125 million of seven-year bullet convertibles after the close. It was set to join Fannie Mae, which was expected to price $2 billion of mandatory convertible preferred shares after the close.

Also American International Group Inc. announced after the close that it expects to raise $7.5 billion in capital next week through offerings of common stock and convertible equity units.

WCI extends drop to 6 points

The 4% convertibles of WCI Communities due 2023 dropped another 2.5 points on Thursday after falling 3.5 points on Wednesday to about 69 bid, 70 offered, versus a closing share price of $2.40, sources said.

WCI does not expect to have enough liquidity to be able to use cash to buy back 100% of the principal amount of its $125 million of 4% convertible senior subordinated notes on Aug. 5, according to a 10-Q filed with the Securities and Exchange Commission.

WCI said the convertible noteholders have an option to require the company to repurchase the notes on Aug. 5, but to comply with amendments to some covenants included in its revolving credit facility and term loan agreements, the company must have significant liquidity to be able to use cash to buy back the notes.

If it does not have the required liquidity, WCI said it will be forced to seek an amendment or waiver from its lenders or the convertible noteholders, to issue a new security in exchange for the notes or to find another way to satisfy its repurchase obligations.

According to the filing, any acceleration of the convertible notes would also trigger an acceleration of substantially all of its other debt.

Shares of Bonita Springs, Fla.-based WCI (NYSE: WCI) closed down 22 cents, or 8.4%, at $2.40 on Thursday.

Financials mostly steady amid weaker stocks

Convertibles in the financial sector mostly held steady despite a drag on their underlying stocks especially early in the session. Bank of America's 7.25% series L perpetual convertible preferred shares closed at 1051.5 versus a stock price of $37.33, compared to 1068 versus a stock price of $38.00 on Wednesday.

Shares of the Charlotte, N.C.-based bank (NYSE: BAC) closed down nearly 2%.

Fannie Mae was among the more pronounced losers among financials. Its 5.375% series 2004-1 convertible perpetual preferred traded at 75,000 at one point in the session, according to a New York-based sellside desk analyst, but it was seen closing lower at 71,908 versus a share price of $27.63, compared to 72,104 versus a share price of $29.05 on Wednesday.

Shares of the Washington, D.C., entity (NYSE: FNM) closed down $1.42, or nearly 5%.

But Countrywide held on to its customary pricing levels in light trade, sources said. "There's a lot of noise in the name," a Connecticut-based sellside trader said.

"They had hit 93 before the latest hit with the Friedman Billings Ramsey analyst saying Bank of America should walk away or reduce the offer price," the sellsider said.

"The stock is saying they don't think it's going to get done; but the bonds are saying they think it's going to get done. There's 23% yield to put so it's still enticing."

Countrywide's three-month Libor minus 350 bps series A convertible senior debentures due April 15, 2037 traded Thursday at 91 while the Countrywide three-month Libor minus 225 bps series B convertibles due also in 2037 traded at 87.50.

Because the conversion price on these floating-rate convertible is in the $80 range it is virtually impossible for conversion to be reached, so traders don't weigh the convertible price against the stock price for valuation, according to the sellside desk analyst.

Shares of the Calabasas, Calif.-based mortgage lender (NYSE:CFC) ended to the upside by more than 2% however.

Omnicare jumps with shares

The Omnicare 3.25% convertible bonds due 2035 traded as high as 73 on Thursday, versus a share price of $22.5, according to one sellsider. But the level was mostly seen at 71.75 bid, 72.75 offered, with a close at 71.8 versus a share price of $23.57, compared to 70 versus a share price of $21.04 on Wednesday.

Shares of the Covington, Ky.-based geriatric pharmaceutical concern (NYSE: OCR) jumped $2.53, or 12%, after it posted lower first quarter profit that beat estimates.

TTM seen as strong credit

TTM saw its shares drop 12% after the Santa Ana, Calif.-based maker of printed circuit boards, or PCBs, announced that it planned to price an issue of convertible bonds.

But its leverage remains low, a Connecticut-based sellside trader said.

The risk is "some sort of downturn in the economy, and it is acquisitive, but its credit ratios are still very strong and it's free cash flow is positive," the analyst said.

The off-the-shelf offering was talked to yield 3% to 3.5% for the coupon, with an initial conversion premium of 25% to 30%. JPMorgan and UBS Investment Bank are joint bookrunning managers.

Proceeds are expected to be used to repay a term loan under its senior credit facility in full, and for general corporate purposes, including potential acquisitions.

AIG to price equity units

Also AIG said it planned to price concurrent offerings of three-year convertible equity units and common stock, totaling $7.5 billion, next week.

The equity units, with a unit price of $75 each, were talked to yield a coupon of 8% to 8.50%, with an initial conversion premium of 18% to 22%.

New York-based AIG is a provider of insurance and financial services.

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