Navigant trades north of 107 on lack of supply; Actuant up 2 points in gray market action

By Ronda Fears

Nashville, Nov. 4 - Amid a lack of supply of new paper, even the tiny deals circulating in the convertible market were seeing lots of action Tuesday. The Actuant Corp. deal at bat after the close was bid 2 points over par in the gray market and Navigant International Inc.'s new convertible zoomed past 107.

"These deals [particularly Navigant] were priced to move so they traded spectacularly, but it's sort of nuts," said a buyside trader at a huge hedge fund in New York.

Another buyside trader at a huge fund in New York added: "There's a lot of pressure on managers to put money to work."

The Actuant convert was not modeling out considerably richer than what the market has been seeing lately, but many were getting involved for lack of any other new deals.

"We thought it was kind of rich. There seems to be a wide disparity on how to model this one," said a hedge fund trader in New York.

"We are getting in, but we're not real excited about it. The market really needs some larger deals."

Actuant was on tap with $100 million of 20-year convertible notes, non-callable for seven years, talked to yield 2.0% to 5.25% with a 30% to 35% initial conversion premium. The underlying stock closed Tuesday down $3.44, or 10.42%, to $29.56.

Sellside analysts put the Actuant deal at fair value to slightly rich, as well, but buyside traders said it closed out the session in the gray market with a bid of 2 points over issue price.

Merrill Lynch analysts put the Actuant convert 0.15% rich, at the middle of price talk with the stock at $30.87, using a credit spread of 440 basis points over the five-year Treasury and a 30% stock volatility.

Tatyana Hube, convertible analyst at Merrill, said despite the scarcity of new issues recently, she expects the Actuant convert will be priced at the cheap end of price talk.

Actuant plans to use some portion of the convertible proceeds to repay its senior bank facility and possibly to buy back some high yield bonds. Still, Hube said the company is still effectively taking on more leverage so she used a conservative spread to model the new issue.

Lehman Brothers analysts put the Actuant convert at fair value, at the middle of guidance with the stock at $33, using a credit spread of 450 bps over Treasuries and a 34% stock volatility.

At the other end of the model, Navigant's convert priced about 7% cheap.

Navigant sold $60 million of 20-year convertible notes, with seven years of hard call protection, at par to yield 4.875% with a 24% initial conversion premium - at the aggressive end of yield talk for 4.75% to 5.25% and in the midrange of premium guidance for 20% to 27%.

The Navigant convert closed at around 107.625 bid with lots of action, according to a buyside trader. The stock ended up 32c, or 2.4%, to $13.65.

In the trading trenches, dealers said the convert market still seemed "a bit firmer" although stocks ended slightly lower amid rising layoff figures and concern about valuations following gains for several weeks running.

Amkor Technology Inc. was mentioned in that vein. The Amkor convertibles were 2 points higher, or more, whilst the stock closed unchanged.

"Amkor has made quite a run of it," over the past year and a half, said one dealer busy in the name.

"Sometimes you've just got to hold your nose and jump in."

Amkor's 5% convertible due 2007 added 2 points on Tuesday to 98 bid, 99 offered and its 5.75% convertible due 2006 climbed 2.625 points to 100.625 bid, 101.625 offered. In January 2002, both converts were trading at about 25, but the stock was at about $1.50 at that time. The stock closed Tuesday at $19.35.

"A couple of years ago, Amkor's securities were in the tanks, for sure," said a buyside convert trader.

"If you were reaching for yield, and there were some people willing to reach that far, and got involved at that time, then you are really happy today. They've done a lot of work, though, with their banks and now they are going to sell some stock to take out some debt, so the picture is looking better and better."

Amkor announced after the close Monday that it planned to sell 7 million shares of common stock, with the proceeds earmarked to pay down debt. Proceeds are estimated in the $130 million neighborhood.

Standard & Poor's said the stock offering wouldn't immediately affect Amkor's rating or outlook (B/stable) but continued improvements in operating profitability, combined with some reduction in debt levels, could lead to a positive outlook over the next few quarters.

Elan Corp. plc's new convert was certainly an example of reaching for yield with the kicker of it being a new issue as well. But it softened a bit Tuesday, dealers said, on some headline risk.

"The stock took a knock on some nervousness about the asset sale [by Elan to aaiPharma Inc.] and the convert tracked that lower," said a dealer.

A Dow Jones story reported the termination of aaiPharma's plans to acquire cash-rich Cima Labs Inc. wouldn't affect aaiPharma's ability to pay for the four drugs it bought from Elan last month, but the market reflected some leeriness about the situation.

Elan shares dropped 14c, or 2.69%, on the day to $5.06, nudging the convert down by 0.75 point to 110.875 bid, 111 offered.

Traders said there was a considerable amount of odd lots of recently issued convertibles moving, including Valero Energy Corp., Quanta Services Inc., Placer Dome Inc. and Eastman Kodak Co.

Kodak was the only one heading north by much, and it was higher by just 1 point.

Kodak's new 3.375% convertible was quoted by a dealer at 107.5 bid, 108 offered with the stock at $24.30. Kodak shares closed up 10c, or 0.41%, at $24.31.

"I don't know that there was a lot of activity in the [Kodak] converts, there were some fresh bids, but they moved mostly with the stock," said a buyside trader.

The stock seemed to be moving on news that high-profile investor Carl Icahn was moving to boost his stake in Kodak, he said.

The U.S. Federal Trade Commission granted Icahn approval recently to buy another $500 million of Kodak shares under the Hart-Scott-Rodino antitrust laws, which would increase his holdings in the filmmaker to around 7%.

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