Rambus up in gray, deal seen cheap; Alliance One, LodgeNet quiet; Actuant gains as stock dips

By Kenneth Lim

Boston, June 23 - Rambus Inc.'s planned $150 million of five-year convertible notes was bid above par in the gray market Tuesday on views that the offering looked cheap.

The company's existing convertibles held firm on hopes that some of the new proceeds could be used to take out the older paper.

Actuant Corp. improved dollar-neutral after the company announced a stock offering that caused the equity to fall.

The convertible market in general had a more active session, but prices mostly ended flat in line with underlying equities, market sources said.

"Things were busy," a sellside convertible trader said.

Transocean Ltd.'s 1.625% convertible due 2037 was up a point outright at 95 against a common stock price of $73.50. Its 1.5% series B convertible due 2037 was unchanged at 90.75 versus the same stock price. Transocean common stock closed at $72.98, up by 0.86% or $0.62.

Transocean is a Vernier, Switzerland-headquartered offshore contract drilling company.

New deals stay quiet

LodgeNet Interactive Corp. remained quiet in the gray market amid a narrow following for its small $50 million offering.

"It's a really small deal," a sellsider said. "It might be cheap, but it's a really small company that's raising a lot of money. As an investor, there's no shortage of new paper out there if you're looking for something."

The company planned to price $50 million of series B perpetual convertible preferred stock Tuesday after the market closed with price talk at a dividend of 8% to 9% and an initial conversion premium of 10% to 20%, market sources said.

LodgeNet common stock slipped 3.66% or $0.13 to close at $3.42 on Tuesday.

There is an over-allotment option for an additional $7.5 million.

Bank of America/Merrill Lynch is the bookrunner for the Rule 144A offering.

Proceeds will be used to reduce the outstanding balance on a term loan and for general working capital.

LodgeNet is a Sioux Falls, S.D.-based provider of interactive media and connectivity solutions to the hospitality industry.

Alliance One International, Inc.'s $100 million offering was also quiet in the gray with price talk only expected to be announced Wednesday. Its offering of five-year senior subordinated notes is slated for pricing Thursday after the market closes, market sources said.

Credit Suisse, Deutsche Bank and Goldman Sachs are the bookrunners of the Rule 144A offering. There is an over-allotment option for an additional $15 million.

Alliance One is concurrently offering $600 million of seven-year senior notes.

Proceeds of both deals will be used to finance a cash tender offer for outstanding debt due 2011 to 2013, to fund convertible note hedge transactions, to repay a $305 million senior secured credit facility and for other general corporate purposes.

Alliance One is a Morrisville, N.C.-based leaf tobacco merchant.

Rambus moves up in gray

Rambus's planned five-year convertible senior notes were at 102 bid, 104 offered in the gray market late Tuesday ahead of expected pricing for the $150 million deal after the close.

Price talk was at a coupon of 5% to 5.5% and an initial conversion premium of 17.5% to 22.5%.

The notes will be offered at par.

Rambus common stock closed at $14.85 on Monday, lower by 16.71% or $2.98.

Credit Suisse Securities (USA) LLC and J.P. Morgan Securities Inc. are the bookrunners of the registered offering. There is an over-allotment option for an additional $22.5 million.

Rambus is a Los Altos, Calif.-based designer of chip interface technologies and architectures.

Proceeds will be used for general corporate purposes, which may include financing strategic investments, repaying a zero-coupon convertible due February 2010 and working capital.

The 2010 convertible was seen at 101 at the close on Tuesday.

"It's way out of the money," one convertible trader said.

Convertible analysts said the new convertibles appeared about 3% to 5% cheap, based on a credit spread of about 1,200 basis points above Treasuries and a volatility of 40% to 45%.

"The vega is pretty big, so it really depends on what you use for volatility," one analyst said.

One sellsider said taking out the 2010 convertibles could be good for Rambus in terms of liquidity.

"This is good news in terms of liquidity," the analyst said. "The company can take out the zeros in 2010 and now won't face another debt maturity until 2014."

But the sellsider was more concerned about the company's profits and fundamental outlook.

"It seems to me that this company hinges entirely on their success with litigation," the sellsider said. Rambus on Monday lowered its second-quarter revenue outlook to between $26.7 million and $27.2 million from the initial guidance of $27 million to $30 million. The company, which has launched several lawsuits against other chipmakers, also said its litigation expenses could rise to $15 million to $17 million, from the earlier forecast of $12 million to $16 million.

"The credit is not very attractive at all," the sellsider added. "Negative EBITDA and getting worse. They're spending a lot of money in court and so as long as they win these cases, things should be fine. But if they don't, the business doesn't appear to be getting better in the near future...If they don't make money they will likely burn through cash pretty quickly."

Actuant improves dollar neutral

Actuant's 2% convertible due 2023 slipped two points outright to 93.5 versus a common stock price of $12.50, but the common stock was down about 13.65% or $1.98 at the close at $12.53.

"It spread out after they announced the stock offering," a sellside convertible trader said.

Actuant, a Butler, Wis.-based maker of industrial products and systems, said Monday that it will sell 9 million common shares through a public offering to reduce debt and for general purposes. Underwriters J.P. Morgan Securities Inc. and Merrill Lynch & Co. have an over-allotment option for an additional 1.35 million shares. The offer has not been priced.

Actuant has about 56.3 million shares outstanding.

Mentioned in this article

Actuant Corp. NYSE: ATU

Alliance One International, Inc. NYSE: AOI

LodgeNet Interactive Corp. Nasdaq: LNET

Rambus Inc. Nasdaq: RMBS

Transocean Ltd. NYSE: RIG

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