Magnum, Scottish Re, CenterPoint emerge; Emulex, Akamai decline; Wyeth bid 0.5 over par in gray

By Ronda Fears

Nashville, Dec. 10 - Convertibles traders reported "a great day" Wednesday despite the downturn in stocks, as new paper continued to energize the convertible market. Three more deals emerged from CenterPoint Energy Inc., Magnum Hunter Resources Inc. and Scottish Re Group Ltd. after the close for another $440 million.

Meanwhile, Wyeth was at bat to price its jumbo $850 million floater.

In the gray market, buyside traders said the Wyeth floater was strong early in the session with a bid of 1.5 points over issue price, but that weakened as the day wore on. Just before the close, the issue was bid 0.5 point over. Wyeth shares closed down 91 cents, or 2.32%, to $38.34.

"We love the Wyeth deal terms, structure, credit, everything really," said a manager at a huge hedge fund in New York.

The major drug concern was peddling $850 million of 20-year convertible floaters talked to yield Libor minus 25 to 75 basis points with a 55% to 60% initial conversion premium.

Lehman Brothers analysts put the Wyeth convertible 1.45% cheap, using a credit spread of 60 basis points over Libor and a 25% stock volatility. The analysis also accounted for a 2.375 common dividend yield with the stock at $39.25.

Standard & Poor's assigned an A rating to the Wyeth convertible with a negative outlook, chiefly due to uncertainty regarding ongoing diet-drug litigation.

Convertible players getting involved in the Wyeth deal were not too concerned about the credit since "it's still a solid investment-grade name," as one put it.

The high bond floor, for one thing, makes the Wyeth issue very defensive with strong downside protection and "decent upside" potential, the New York hedge fund manager said.

A capital markets source working on the Wyeth deal said it was going well, noting that convertible buyers lately are very interested in defensive structures.

Demand in general is very high right now, though, which most market participants attribute to new capital flowing into the asset class this month.

Three more deals emerged amid the favorable climate after the close to further accommodate the market's appetite. But market sources said this is likely all that will be brought this week, although sources say there still could be something pop up. Beyond this week, sources say there's still plenty of paper that will get pushed before Christmas Eve.

CenterPoint, Scottish Re and Magnum Hunter are all slated to price after Thursday's close.

CenterPoint is returning to tap convertible investors through a $225 million offering of 20-year convertible notes talked to yield 2.75% to 3.25% with a 38% to 42% initial conversion premium. The Houston energy firm, which formed in a split with Reliant Resources Inc. in 2002, was in the convertibles market as recently as May.

The company said it will use proceeds to redeem a portion of the $250 million of 8.125% trust preferred securities issued by one of its subsidiary trusts and, pending that, will repay a portion of the borrowings under its credit facility.

CenterPoint shares closed Wednesday off 16 cents, or 1.7%, to $9.24.

The CenterPoint 3.75% convertible due 2023 issued in May dropped 1.625 points on Wednesday, according to a dealer, to 104.375 bid, 104.875 offered. The dealer said the drop was largely associated with S&P and Fitch Ratings cutting CenterPoint's credit outlook to negative from stable.

Scottish Re launched $115 million of three-year non-callable mandatory convertibles talked to yield 5.875% to 6.375% with an 18% to 22% initial conversion premium.

Magnum Hunter is pitching $100 million of 20-year convertible floating-rate notes talked to yield Libor flat to minus 25 basis points with a 45% to 50% initial conversion premium.

As expected, strong demand for the Serena Software Inc. deal led to it getting advanced and upsized to $190 million from $150 million.

Serena sold the 20-year convertible subordinated notes to yield 1.5% with a 32.5% initial conversion premium - at the middle of yield talk of 1.25% to 1.75% and at the aggressive end of premium guidance of 27.5% to 32.5%.

Merrill Lynch, a bookrunner on the deal, closed it at 101.75 bid, 102.25 offered, with the stock ending off 16 cents, or 0.96%, to $16.59.

Much of the appeal to the Serena deal was the first three years of coupons being collateralized by U.S. Treasuries.

But Hanover Compressor Co.'s deal was a hit, too, and was upsized to $125 million from $100 million.

Hanover sold the 10-year convertible notes to yield 4.75% with a 48% initial conversion premium - at the tight end of price talk of 4.75% to 5.25%, up 43% to 48%. The Houston-based natural compression company also sold $200 million of straight senior notes due 2010 at par to yield 8.625%.

The new Hanover convertible was seen closing at 102.75 bid, 103 offered, according to a buyside trader. The stock closed off 8 cents, or 0.79%, to $10.05. The old Hanover 4.75% convertible due 2008 was seen down by about 0.5 point to 89.5 bid, 90.5 offered, the trader said.

RepCon Lux SA's jumbo 4.5% exchangeable issue, which is guaranteed by Pemex and which converts into Repsol YPF SA shares, also found success. But market sources said the majority of its buyers were in Europe rather than the United States.

A sellside convertible trader in London put the Pemex/Repsol issue closing Wednesday at 100.5 bid, 100.75 offered. The underlying stock closed down €0.03, or 0.21%, to €14.54.

The Emulex Corp. and Akamai Technologies Inc. deals, which were re-offered by the underwriters below par, continued to flag, however. Buyside traders said there was little to no activity in those issues.

Akamai was pegged by a buyside trader at 94.25 bid, but bookrunner Credit Suisse First Boston closed it at 96.875 bid, 97.875 offered. Emulex, the buyside trader said, was sitting in the 95.5 area.

Sepracor Inc.'s two-parter also slowed down considerably, traders said.

The company sold $600 million of convertible notes in two parts with a portion of proceeds earmarked to redeem its 5.75% convertible notes due 2006.

Tranche A, a $200 million non-callable five-year convertible issue, was sold at par to yield 0% with a 24% initial conversion premium - at the cheap end of price talk for a 0% yield, up 24% to 32%.

Tranche B, a $400 million non-callable seven-year convertible, was sold at par to yield 0% with a 16% initial conversion premium - at the cheap end of price talk for a 0% yield, up 16% to 24%.

Morgan Stanley, lead manager on the Sepracor deal, closed tranche A at 99.375 bid, 99.875 offered and tranche B at 98.875 bid, 99.375 offered.

A buyside trader said the new Sepracor convertibles steadily lost ground all day after opening "barely above par."

Sepracor shares ended down $1.35, or 5.25% to $24.37.

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