CMS new deal bid at issue; Dress Barn bid up 3.5 points; Seacor launches overnighter

By Ronda Fears

Nashville, Dec. 7 - New issues continued to trickle into to the convertible market, with a drive-by for $200 million from CMS Energy Corp. pitched during the session Tuesday for pricing after the close and Seacor Holdings Inc. peddling a $200 million overnighter.

Players are expecting a steady, albeit slow, stream of new deals through year-end, or at least through the Christmas holiday.

With a bit of new life breathed into the European convertible market recently, as well, sources in London reported interest in the euro convert market was alive and well with particular focus on technology and telecommunications issues, mirroring much of the activity in the United States.

Action in the United States on Tuesday still involved lots of tech and telecom issues, but the drug sector took center stage Tuesday on noise that Johnson & Johnson is in the final stages of talks to buyout Guidant Corp. for $24 billion - a deal that has been abuzz for some time.

Takeover risk due to the consolidation trends in the drug and biotech sector pressured virtually the entire pack of convertibles in that area, which is a sizable number, but sellside traders said there also were plenty of buyers for biotech paper. Several buyside sources have commented recently about looking at the biotech group for opportunities.

CMS 1.5% rich to 2% cheap

CMS Energy's drive-by $200 million of 20-year convertible notes - talked with a 3.0% to 3.5% coupon and 40% to 45% initial conversion premium - was modeled anywhere from about 1.5% rich to 2% cheap, which might account for it catching a bid of just issue price in the gray market.

The offer for the new CMS convertible was just a half-point over issue price, a buyside trader said, suggesting potential buyers thought the indicative terms were "pretty tight for a double-B credit."

At the midpoint of price talk, one sellside shop put the new issue 1.5% rich, using a credit spread of 225 basis points over Treasuries and a stock volatility of 28%.

Another sellside shop put the issue, at the middle of guidance, 2% cheap, using a credit spread of 250 basis points over Treasuries and a 25% stock volatility.

The Jackson, Mich.-based power company said proceeds would be used to redeem its 7% extendible tenor rate-adjusted securities, X-TRAS, due in January 2005.

CMS CoCo exchanges pending

CMS' existing convertibles, the 4.5% preferreds and 3.375% bonds, are both the subject of exchange offers to eliminate contingent conversion features in order to avoid having to report diluted earnings per share as if both issues were converted.

There has not been any ill-boding scuttlebutt about the CoCo exchange offers, which another buyside market source said may indicate that it doesn't have any strong opposition. He said, in fact, that the company's offer looked "fairly reasonable compared to some of the others."

CMS Energy is offering the existing holders new notes and new preferred stock with a net share settlement feature and a change-of-control provision plus a cash payment of $2.50 per note and $0.125 per preferred exchanged.

The exchange offers will expire at 5 p.m. ET on Dec. 9, unless extended by CMS.

CMS 4.5s, 3.375s easier

The CMS convertibles were quoted lower as the stock declined Tuesday on hedge fund short selling related to the new convertible deal. Volume in the stock suggested heavy hedge fund participation, as 7 million shares traded, compared with the three-month running average of 1.75 million shares.

CMS' 4.5% convertible preferreds were quoted off 0.625 point to 61.75 bid, 62 offered, and the 3.375% convertible bonds were pegged at 116.5 bid, 117.5 offered, down by 1 point.

CMS shares closed Tuesday off by 18 cents, or 1.74%, to $10.17. In after-hours trading, the stock was seen up a penny.

Dress Barn up, Seacor at bat

Houston offshore oilfield workboat operator Seacor Holdings' overnighter was talked to yield 2.75% to 2.875% with a 40% to 42% initial conversion premium.

Seacor, which also operates inland river barges as well as providing oil spill remediation services, said proceeds would be used for general corporate purposes, including possible debt repayments. Seacor shares closed Tuesday down 95 cents, or 1.79%, to $52.25.

Meanwhile, Dress Barn Inc.'s tiny new deal, which wasn't set to price until after Wednesday's close, was seen bid 3.5 points over issue price in the gray market. The $100 million issue - talked with a 2.75% to 3.25% coupon and 25% to 30% initial conversion premium - might be advanced to price a day early, some traders speculated, but that couldn't be confirmed by deal managers.

Dress Barn's shares ended Tuesday down by $1.19, or 7.07%, at $15.65 and were seen up by 15 cents in after-hours trading.

J&J convertible falls 2 points

On market chatter Tuesday that Johnson & Johnson is in the final stage of talks to buy Guidant for an estimated $24 billion, the drug giant's convertibles - which were acquired in its acquisition of Alza Corp. - dropped in tandem with the stock.

J&J shares dropped $1.42, or 2.3%, to $60.41 while Guidant shares climbed 6% or more.

The J&J convertibles, a zero-coupon issue that matures in 2020, plunged 2 points on the day to 83 bid, 83.125 offered.

Equity analysts view the long-rumored deal as a win-win transaction for both J&J and Guidant, a trader said, but noted that each time a merger occurs it puts additional pressure on the biotech sector.

According to a New York Times report, unnamed executives close to the talks cautioned that negotiations could still fall apart over price and other unresolved issues. But the newspaper article said the executives were hoping to reach a final agreement in the next week.

Biotech issues suffer en masse

Consolidation or takeover risk, in general, put severe pressure on the biotech group, traders said.

"Every time there is a deal announced, there is another squeeze for convertible market," a buyside trader said. "None of the old [convertible] issues have the takeover protection like the new deals. But, that may all change with all the [CoCo] exchanges taking place, which should provide some insulation to situations like this."

Some of the hardest hit biotech names Tuesday, he said, were companies that have been in turmoil for one reason or another - executive changes, accounting probes, difficulty or delays in drug approvals - or have already been speculated as takeover targets. Those included Guilford Pharmaceuticals Inc., Medarex Inc., Elan Corp. plc and Human Genome Sciences Inc.

Bucking the downdraft in biotechs was Advanced Medical Optics Inc., which roughly a month ago announced its $1.3 billion acquisition of laser eye surgery firm VISX Inc. The Advanced Medical Optics 2.5% convertible due 2024 gained 1.25 points to 110.5 bid, 111 offered, while the underlying stock on Tuesday rose 96 cents on the day, or 2.34%, to close at $42.01.

Euro convertible market livens up

With three or four recent new issues to its credit, the euro convert market was looking more lively, sources abroad said Tuesday.

"The market does seem to have picked up quite a bit here in Europe," a sellside source in London said. "The last three weeks saw issuance totaling €1.8 billion, so the convertible market appears to have reopened and the market appears to be receptive to a variety of structures."

Citibank NA's 2.875% exchangeable, which converts into shares of Bank Handlowy w Warszawie, was trading Tuesday around 100.5 bid, 100.75 offered.

Millicom International Cellular SA's new 4% convertible due 2011, in U.S. dollars, was quoted by another sellside source declining with the underlying stock to 100.625 bid, 101.625 offered. Millicom shares in the U.S. closed Tuesday down 58 cents, or 2.41%, to $23.47.

Still pending in Europe is a new issue from OMV, Austria's largest oil company. The company is selling a €550 million four-year convertible bond, with pricing to be determined on Dec. 16 in conjunction with a pre-emptive rights offering.

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