Equinix adds on debut; Callaway gets par bid in gray, CMS quiet; financials extend gains

By Rebecca Melvin

New York, June 9 - The convertibles market Tuesday saw continuing demand Tuesday, although trading activity continued to be fairly quiet, market sources said.

"It's a summer tone, but things are better bid," a Connecticut-based sellside trader said.

The newly price Equinix Inc. 4.75% convertibles traded consistently around 102 in early trade, and closed higher at 103 or 104, moving up in tandem with a late rise in its underlying shares.

Ahead of pricing expected after the close, Callaway Golf Co. was seen in the gray at par bid. The golf club maker planned to price $110 million of convertible preferred shares in a Rule 144A offering.

CMS Energy Inc. was quiet in the gray, however, ahead of pricing of its $150 million of 20-year convertible senior notes.

"We're starting to test the outer edges here. Things are a little longer and not as cheap. We'll see how long it lasts," a sellsider said of new issues. "I think issuers are trying to test what the market will bear."

Back in the established paper, LifePoint Hospitals Inc. bounced back after activity at lower levels on Monday. The LifePoint converts generally trade on a hedged basis, but were mostly outright on Monday, according to one sellsider.

SBA Communications Corp., which priced $450 million of convertibles on April 21, saw that paper trade flat at about 99. But its older 0.375% paper was better bid, a sellsider said.

There was notable activity among financials. KeyCorp was trading in "significant size" on better buyers, and CIT Group Inc. preferreds were also active.

Bank of America Corp. and Wells Fargo & Co. continued higher, extending a string of gains. They "just continue to climb a point a day!" a New York-based sellsider said.

But Citigroup Inc. 's 6.5% convertible preferred stock were only minimally active at marginally higher levels after news that the New York-based bank anticipates launching its exchange of preferreds for common this week with closing seen by the end of the month.

Equinix trades to 104

The newly priced Equinix 4.75% convertibles due 2016 traded at 102 for the majority of the day, and a syndicate source reported at late trade at 104 versus $72.50. Another trading source put the close at 103.

Shares of the Foster City, Calif.-based information-technology company traded in negative territory most of the session, and moved higher at mid-afternoon to close up 74 cents, or 1%, to $72.50.

The issue did pretty well on its debut, despite the fact that it was seven-year paper, which one sellsider said would be a "disincentive" to hedge players.

Equinix priced an upsized $325 million of convertibles on the cheap end of talk, with an initial conversion premium of 17.5%, putting its initial conversion price at $84.32.

Citigroup, JP Morgan and Goldman Sachs were joint bookrunners of the non-callable notes.

Callaway gets par bid, CMS quiet

Callaway's $110 million of convertible preferred shares were talked to yield 7.5% to 8% with an initial conversion premium of 12.5% to 17.5%. The relatively high yielding, low premium paper was seen at par bid in the gray market ahead of pricing. But shares of the Carlsbad, Calif.-based maker of golf clubs dropped $1.36, or nearly 19%, to $5.92.

When Callaway announced its Rule 144A convertibles offering late Monday, it also said it was cutting its second quarter dividend to just one cent from seven cents to save money.

Meanwhile, CMS, a Jackson, Mich.-based electric and gas utility, priced $150 million of 20-year convertible senior notes after the close to yield 5.5% with an initial conversion premium of 25%. The deal came at the cheap end of talk for the coupon, which was 5% to 5.5%, and at the midpoint of talk for the premium, which was 22.5% to 27.5%.

There was no gray market activity reported, however. "It's a very quiet deal," a sellsider said about CMS ahead of pricing. Another sellsider objected to its contingent conversion feature.

The convertibles are non-callable for five years, with puts in years five, 10 and 15. There is contingent conversion subject to a 130% pricing hurdle.

Financials add

KeyCorp's 7.75% convertible perpetual preferreds were up more than a point to 75, while KeyCorp common stock ended higher by 3.3% to $5.64.

The Cleveland, Ohio-based regional bank's converts traded actively amid "better buyers," which means it was easier to sell.

CIT's 8.75% preferreds were up at about 23.6 compared to 22.5 previously. Bank of America's 7.25% preferreds were up at 840 compared to about 824 on Monday and compared to 630 last month. Wells Fargo was up to 818 Tuesday from 800 Monday and higher than 705 last month.

Mentioned in this article

Bank of America Corp. NYSE: BAC

Callaway Golf Co. NYSE: ELY

CIT Group Inc. NYSE: CIT

Citigroup Inc. NYSE: C

CMS Energy Inc. NYSE: CMS

Equinix Inc. Nasdaq: EQIX

LifePoint Hospitals Inc. Nasdaq: LPNT

SBA Communications Corp. Nasdaq: SBAC

Wells Fargo & Co. NYSE: WFC

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