Conseco new mandatory trades around par in rash of morning activity

By Sara Rosenberg

New York, May 7 - Conseco Inc.'s newly priced $600 million mandatory convertible preferred stock took the spotlight in a relatively quiet Friday convertible market as some firms saw a lot of trading in the new deal and others received a number of inquiries about the notes. Meanwhile, the market reaction to the non-farm payroll data was relatively neutral although after Friday's numbers some now think a rate hike may hit as early as June.

"Action was dominated in the morning with Conseco trading," an analyst said. "It opened around par, traded down, traded up.

"It traded around par so it wasn't a home run or anything," the analyst continued. "It was upsized, priced aggressively. People would have liked to see it price better."

"There's been a little interest in the new Conseco deal. Had some calls about it," another analyst said. "We have them around 24 7/8 versus $18, down an eighth, but my guess is they're probably trading flat."

At the close, one trader had the Conseco mandatory quoted at 241/2. The stock closed at $17.65, down $0.63 or 3.45%.

The three-year mandatory, which was upsized from $500 million, priced in line with revised price talk to yield 5.5% at an initial conversion premium of 22%. Original guidance was for a 5.75% to 6.25% dividend and an 18% to 22% initial conversion premium. Par on the issue is $25.

Goldman Sachs & Co. and Morgan Stanley were joint bookrunners. J.P. Morgan is co-manager.

The Carmel, Ind.-based insurance company also sold 44 million shares of common stock at an offering price of $18.25 per share. Goldman Sachs & Co. and Morgan Stanley are joint lead managers. Banc of America Securities is co-manager of the stock offering.

Proceeds are earmarked to take out the company's $859.7 million of 10.5% step-up payable-in-kind convertible preferreds, pay down its senior credit facility - which matures in 2009 and currently has a weighted average interest rate of 7.8% - contribute capital to subsidiaries and for general corporate purposes.

Market shrugs off payroll data

Market reaction amongst convertible players to the non-farm payroll data was pretty neutral as there was little sign of heavy trading but levels were speculated to have widened out a little.

"Obviously the bond market sold off," a market source said. "I think today confirmed peoples' thoughts. [Some economists] expect them to raise rates by 25 basis points by June. Most people expected it in August so the timeframe has moved up. The convertible market probably widened out with the bond market."

"There seems to be as many people looking to buy something as there are looking to sell," a second source said. "There's no wholesale selling going on today. It seems [like concern over rates] is more reflected in stock prices today."

In April, non-farm payroll employment increased by 288,000 compared to analysts' forecasts of around 173,000. Furthermore, the unemployment rate was about unchanged at 5.6% compared to expectations of around 5.7%. In March, non-farm payrolls increased by 337,000.

Employment rose substantially in April in several service-providing industries, construction continued to add jobs, and there was a noteworthy job gain in durable goods manufacturing, the United States Department of Labor reported.

Airlines active

The airline sector was seen as relatively active on Friday with Continental Airlines Inc. and Delta Air Lines Inc. convertibles seen trading around, according to various market participants.

Continental, a Houston-based airline company, saw its 4.5% convertible close at 79.58 bid, 80.58 offered, down about half a point, according to a trader and its 5% convertible close at 85.1 bid, 86.1 offered, down 2.4 points on the day. The stock closed at $9.80, down $0.60 or 5.77%.

Delta, an Atlanta-based airline company, saw its 8% convertible close at 54.73 bid, 55.73 offered, down 1.77 points on the day, and its 2.875% convertible close at 56.125 bid, 57.125 offered, down 2.375 on the day, according to a trader. The stock closed at $5.38, down $0.38 or 6.6%.

"Delta keeps popping up", one source said. "There are worries over the viability of the company. I've heard that negotiations with pilots are not going that well. And they have 0% hedging for next year with oil. That's weighing on the credit with [oil] prices hitting around $40 a barrel."

Nextel 5¼% active on redemption

Nextel Communications Inc.'s 5¼% convertible was a little active on Friday in reaction to the company's Thursday announcement that it would redeem all of the approximately $608 million in principal amount of its 6% outstanding notes due 2011, according to a market source.

The convertible closed unchanged at par ¼ bid, par ¾ offered, according to a trader. The stock closed at $24.35, down $0.49 or 1.97%.

The 6% notes will be redeemed at 104% of par plus accrued interest. The redemption date for the notes has been set for June 7.

However, noteholders can opt to convert the principal of their notes into class A stock at the $23.8375 conversion price.

Nextel is a Reston, Va. wireless communications services company.

UnumProvident private placement

UnumProvident Corp. sold $300 million of adjustable conversion rate equity security units in a private placement to yield 8.25% with a 15% initial conversion premium. The ACES were placed with Fidelity Low-Priced Stock Fund, Franklin Income Securities Fund, Franklin Convertible Securities Fund, Franklin Income Fund, Highbridge International LLC, Oz Master Fund, Ltd., Starq Asset Management LLC, T. Rowe Price Associates, Inc. and Bay Pond Partners, LP.

The conversion price was set at 15% above the lower of the closing price of UnumProvident's stock on May 5 and May 6 or $16.95.

The Chattanooga, Tenn. provider of disability income protection insurance will use proceeds to restore the risk-based capital of its insurance subsidiaries to the approximate overall level that existed prior to a reinsurance transaction, to reduce outstanding holding company debt and to retain additional liquidity at the holding company. The reinsurance transaction was with National Indemnity Corp. and provides $2.6 billion of further protection against potential adverse development in UnumProvident's closed block.

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