Convertibles ride out stock drop; two more deals added to calendar

By Peter Heap

New York, May 6 - The convertibles market managed to survive another gloomy day in the stock market relatively unscathed - indeed it performed so much better relative to equities that one analyst declared the day a "moral victory."

Meanwhile, two more new deals were added to the calendar for a total of $375 million of new issuance.

Although major stock indexes fell about 2% during the session, convertibles participants reported relatively little damage to their market - and some price increases.

"As bad as the stock market has been, almost everything we own has got a better bid on it," said a hedge fund trader in New Jersey.

"A lot of people like ourselves are riding the arbitrage down on a rather heavy stock hedge."

Convertible traders at Salomon Smith Barney saw very little selling, added Stu Novick, analyst with the firm.

"It was a moral victory" for convertibles, he said, adding that it even extended to the telecom sector.

In stocks, the Dow Jones Industrial Average dropped 198.59 to 9,808.04, a 1.98% loss, while the Nasdaq fell 34.55 to 1,578.48, also off 1.98%.

But in convertibles, Adelphia Communications Corp.'s 6% due 2006 added ¼ point to 67 while the 31/4s due 2021 held steady at 791/2. Meanwhile the stock fell 8 cents to $5.97.

Tyco International Ltd.'s 0s of 2021 slipped only ¼ point to 69¾ even as the stock plunged $2.30 to $19.35.

Cendant Corp.'s 0% convertibles due 2021 (with a temporary extra interest payment) were also off slightly, about ½ point lower at 101 while the stock dropped 41 cents to $17.82. The company said during the session a mere $150,000 of its convertibles were put back to the company after it sweetened the terms to encourage investors to hold on to the securities.

Among recently sold issues, Lennox International Inc.'s 6¼% convertible due 2009 continued its ascent. Late Monday it was seen at 104 7/8, up from 102½ at mid-afternoon Friday and well above par where it priced after the close Thursday. The stock climbed 25 cents Monday to $15.25; it was at $14.47 when the convertible came to market.

The session also saw two new deals announced, both for pricing after the close on Thursday.

Ikon Office Solutions will bring a $250 million offering of five-year convertible subordinated notes (expected: Baa3/BB+) with talk putting the yield at 4.75% to 5.25% and the initial conversion premium at 23% to 27%. Deutsche Bank Securities Inc. is the lead manager.

The New Jersey hedge fund manager said the investment-grade rating and likely good demand might make up for the office equipment company being in "not the greatest sector" and encourage him to get involved.

Ikon stock fell $1.64 during the day to close at $11.36.

The other deal announced is $125 million of 30-year convertible bonds from Horace Mann Educators Corp. The securities will be sold at a discount with a coupon of 3% of issue price for the first five years. Talk is for a yield of 2¾%-3¼% and an initial conversion premium of 27½%-32½%.

Merrill Lynch & Co. is lead manager for the Rule 144A offering.

Horace Mann, which announced the deal after the market close, saw its stock close at $22.87 Monday, down 49 cents.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.