General Growth, Vornado, Boston Properties, ProLogis end day mixed; ADC deal generates no buzz

By Evan Weinberger

New York, Dec. 19 - After several days of heavy activity spurred by problems in an Australian real estate investment trust, General Growth Properties Inc., Vornado Realty Trust, Boston Properties Inc. and ProLogis convertibles firmed up Wednesday. Not all traded higher, however.

Advanced Micro Devices Inc. convertibles also moved up Wednesday.

Washington Mutual Inc. preferreds slipped on the day.

Trading was light and generally in a downward direction Wednesday. "Things have slowed down," one fund manager said, adding that many issues saw their prices slipping. "I think there's some scrappy buyers around that are looking to take more risk, and the dealers look like they don't want to have any inventory" as they close out the year.

A trader added that the trading day was "exceptionally slow."

ADC Telecommunications Inc. was scheduled to bring $400 million in convertible subordinated notes in two tranches Wednesday after the market close. That deal has generated very little buzz.

Stock markets struggled for direction Wednesday on waves of conflicting headlines and continued credit worries.

After vacillating throughout the day, the Dow Jones Industrial Average closed down 25.20 points, or 0.19%, at 13,207.27.

The Nasdaq gained 4.98 points, or 0.19%, for a 2,601.01 close.

And the Standard & Poor's 500 slipped 1.98 points, or 0.14%, to 1,453.00.

Market hangs up on ADC deal

Minneapolis-based telecommunications firm ADC launched $400 million in convertible subordinated notes in two tranches Tuesday after the market close.

The first tranche, due July 15, 2015, is talked at a 3.25% to 3.75% coupon and a 70% to 75% initial conversion premium. There are embedded warrants on 70% to 75% of the underlying shares of the first tranche.

The second tranche, due July 15, 2017, is talked at a 3.25% to 3.75% coupon and an 80% to 85% initial conversion premium. There are embedded warrants on 80% to 85% of the underlying shares of the second tranche.

Each tranche of the Securities and Exchange Commission registered transaction comes with a $25 million greenshoe.

The lack of buzz on the deal was deafening.

The immediate factor that jumps out is the high conversion premiums attached to both tranches. But the premium doesn't work out as high as it looks. "It's not as bad as 70% because when you add in the warrant, it's closer to 40% or 45%," a fund manager said.

The warrants, however, take out many outright investors. The deal structure heavily favors hedged investors, and their books are closed, a trader said. And outright investors aren't even looking. "Total pass for those guys," a trader said.

The trader added that the deal was only 1.5 times subscribed after the close Wednesday.

Still the fund manager said he liked ADC stock and the company's business. He also said that pricing the deal at around a 35 vol, he came with an investment value in the mid-60s because of the length of the paper.

But it's the warrants that are keeping the fund manager from jumping at the deal more than anything else. "The tradeoff is large conversion premium but attached warrants at the end of the rainbow," he said. "I like to believe in rainbows, but this one's pretty far away."

ADC plans to use the proceeds to repurchase outstanding convertibles and for general corporate purposes and strategic opportunities.

ADC stock (Nasdaq: ADCT) tumbled $2.29, or 12.92%, to close at $15.43 on the day.

REITs stabilize

REITS were traded fairly actively the past few days as investors feared problems in an Australian commercial REIT would spread to these shores, a sellside convertibles analyst said.

The Australian REIT was unable to get refinancing for some of its outstanding debt, he said.

That sent American commercial REIT convertibles into heavy activity, most of it downward.

Calm seemed to have returned some to the convertibles Wednesday. "They didn't trade great, but they didn't come in as much," the analyst said.

Chicago-based mall operator General Growth Properties saw its 3.98% exchangeable senior notes due April 15, 2027 close Wednesday at 80.99 versus a closing stock price of $41.46. They closed Tuesday at 80.547 versus a stock price of $41.51.

General Growth stock (NYSE: GGP) slipped 5 cents, or 0.12%, on the day.

New York-based office REIT Vornado's 2.85% convertible senior debentures due April 1, 2027 closed Wednesday at 88.332 versus a closing stock price of $86.18. They closed Tuesday at 89.768 versus a stock price of $85.40.

Vornado's 3.875% exchangeable senior debentures due April 15, 2025 closed Wednesday at 111.586 versus a stock price of $86.18 after finishing Tuesday at 110.832 versus a stock price of $85.40.

Vornado stock (NYSE: VNO) gained 78 cents, or 0.91%, on the day.

Boston Properties ends day mixed

Boston-based office REIT Boston Properties' 2.875% exchangeable senior notes due Feb. 15, 2037 closed Wednesday at 91.78 versus a closing stock price of $95.95. They closed Tuesday at 92.363 versus a stock price of $93.70.

The REIT's 3.75% exchangeable senior notes due May 15, 2036 closed Wednesday at 108.4 versus a stock price of $95.95 after finishing Tuesday at 107.77 versus a stock price of $93.70.

Boston Properties stock (NYSE: BXP) gained $2.25, or 2.40%, on the day.

ProLogis rises

Denver-based industrial REIT ProLogis watched its 1.875% convertible senior notes due Nov. 15, 2037 close Wednesday at 92.69 versus a closing stock price of $62.10. They finished Tuesday at 91.892 versus a stock price of $60.60.

ProLogis stock (NYSE: PLD) gained $1.50, or 2.48%, on the day.

AMD posts gains

Sunnyvale, Calif.-based semiconductor producer Advanced Micro Devices (AMD) posted gains on both its convertibles and its stock Wednesday.

AMD's 5.75% convertible senior notes due Aug. 15, 2012 closed Wednesday at 82.647 versus a closing stock price of $7.98. They closed Tuesday at 81.307 versus a stock price of $7.68.

AMD's 6% convertible senior notes due May 1, 2015 closed Wednesday at 72.712 versus a stock price of $7.98 after finishing Tuesday at 71.77 versus a stock price of $7.68.

AMD stock (NYSE: AMD) gained 30 cents, or 3.91%, on the day.

WaMu preferreds fall

Seattle-based commercial bank Washington Mutual's 7.75% series R non-cumulative perpetual convertible preferred stock closed Wednesday at $940 versus a closing stock price of $14.42. The preferreds, which have a par value of $1,000, closed Tuesday at $945.75 versus a stock price of $14.67.

Washington Mutual stock (NYSE: WM) closed down 25 cents, or 1.70%, on the day.

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