Convertibles gain in busy session loaded with new deals

By Ronda Fears

Nashville, Tenn., Oct.10 - Convertible traders said it is increasingly busy on their desks these days, what with a full slate of new issues and an upturn in stocks. Nearly $1 billion of new paper was put into circulation early Wednesday and although no deals were officially set to price after the close, there was buzz that the TXU Corp.'s deal had been priced. There had been speculation that Performance Food Group Inc. might price early, but market sources said it may wait until after Thursday's close as originally planned.

"There is very strong demand for new issues right now," said a convertible trader at one of the major investment banks in New York. "We've seen our customers doing well and there's a lot of stuff going on in the market to keep us all busy. People continued to have money to put to work. They're looking for cash coupons."

There also is an upswing in mandatory convertible new issues, although a low stock market typically is not a favorable time to trot this structure out.

Stocks are improving, however, and on Wednesday the Dow Jones Industrial Average gained 188.42, or 2.08%, to 9240.86 and the Nasdaq rose 56.07, or 3.57%, to 1626.26.

Meanwhile, it was a revival time for the primary market as all remnants of the forward calendar before the Sept. 11 tragedy were cleared as the Finisar Corp. and J.C. Penney Co. Inc. deals got priced. Brinker International priced its deal late last week, and Cablevision Systems Corp. cancelled its deal although a Cablevision-linked deal has been launched by AT&T Corp.

And the turn-out was incredible for all the deals. Orders were five times higher than deal amounts, or more, sources said.

Finisar sold a revised new deal late Tuesday, pricing $100 million of seven-year convertible subordinated notes at par to yield 5.25% with a 22.5% initial conversion premium. The Rule 144A deal originally was to price the week of the Sept. 11 tragedy and the fiber optic company intended to raise $200 million. It was chopped and the premium guidance lowered to 20% to 25% from 30% to 35%, and reset to price after the market close Thursday but was advanced, according to a market source close to the deal. Original yield price talk was not amended, at 5.0% to 5.5%, so the issue priced in the middle of revised pricing guidance.

In the immediate aftermarket, the Finisar convertible shot up 7.1875 points from par to 107.1875 bid, 107.6875 offered as the underlying stock gained 49c to $5.

J.C. Penney sold its deal with no revisions to the original pricing guidance, but upsized the deal amount to $600 million from $500 million although the greenshoe amount was cut from $100 million to $50 million. The seven-year convertible senior notes sold at par to yield 5.0% with a 27% initial conversion premium. The deal priced at the aggressive end of price talk, which put the yield between 5.0% and 5.5% and the initial conversion premium at 23% to 27%.

In the immediate aftermarket, the J.C. Penney convertible added 0.5 point from par to 100.5 bid, 101 offered as the underlying stock gained 12c to $22.29.

Community Health Systems Inc. sold $250 million of seven-year convertible subordinated notes at par to yield 4.25% with a 25% initial conversion premium. The registered deal sold richer than price talk on the yield and at the aggressive end of premium guidance. Community Health Systems also sold 12 million shares of common stock at $26.80 each, fetching $321.6 million. Price talk, which emerged before Sept. 11, had put the yield between 4.5% and 5.0% and the initial conversion premium in a range of 21% to 25%.

In the immediate aftermarket, the Community Health convertible added 1.75 points from par to 101.75 bid, 102.25 offered as the underlying stock slipped 5c to $26.75.

After the bell, market sources said the TXU mandatory convertible was seen pricing at 8.75% yield with a 22% initial conversion premium. TUX is pitching $750 million of mandatory convertibles with quidance that puts the yield at 8.75% to 9.25% and initial conversion premium at 18% to 22%. TXU shares closed down $1.05 to $45.64.

Performance Food is selling $125 million of seven-year convertible subordinated notes with price talk of 5.5% to 6.0% yield and a 20.5% to 24.5% initial conversion premium.

Some market sources anticipated the Performance Food deal might get priced after the close Tuesday, but sources working on the deal said that was unlikely. It might price as early as Wednesday, but probably not until Thursday as originally planned. There is a conference scheduled in New York with potential investors on Thursday, prior to pricing the deal, another source working the deal pointed out. Performance Food stock ended down 2c to $26.38.

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