Terex, UAL Corp. higher; Wesco jumps on exchange news; USEC slumps; Sybase, THQ to price

By Rebecca Melvin

New York, July 28 - Terex Inc.'s convertible bonds were firmer Tuesday as its shares slipped, while UAL Corp.'s 4.5% convertibles jumped in active trade amid no particular news, market sources said.

Wesco International Inc. convertibles jumped in active trade after the company announced an exchange offer for those bonds, including its 1.75% convertible senior debentures due 2026 and 2.625% convertible senior debentures due 2025.

USEC Inc. dropped after news that the U.S. Department of Energy denied the Bethesda, Md., company's $2 billion loan guarantee to build a uranium-enrichment plant in southern Ohio.

Like Monday's session, Tuesday was a mixed bag. United States Steel Corp., Massey Energy Co., and Ceradyne Inc. saw little activity despite earnings reports from those companies, sources said; while distressed names remained firm, with no evidence of softening despite weaker equities.

"Everything was still better to buy," a Connecticut-based distressed sellside trader said.

In fact, investors would probably welcome a break in the equities action, another distressed sellsider said, "since they feel like they have been chasing since last spring, and all the buyers poured in and everything moved up."

"It's tougher to find cheap things. A lot of big players have bought a ton of bonds," the sellsider added.

In the primary market, Sybase Inc. launched an offering of $250 million of 30-year convertibles, which will price late Wednesday and which will be used to take out $200 million of existing debt, with $50 million to buy back stock.

In addition, THQ Inc. plans to price $90 million of five-year notes, also after the close Wednesday, with proceeds earmarked for general corporate purposes.

Terex adds

Terex's 4% convertible notes due 2015 traded at 112 versus a share price of $14.25 on Tuesday, and also at 110, with a New York-based sellside desk analyst calling them up a point on the day, while their underlying shares slipped 1%.

According to an 8-K filing, the Westport, Conn.-based industrial company borrowed about $66 million from J.P. Morgan Chase International Financing Ltd. on Friday under an incremental term loan assumption agreement.

The company will also borrow the dollar equivalent of roughly €48 million from some of the Italian lenders of Fantuzzi Industries Sarl. This agreement will be funded once certain bonds issued by Fantuzzi Finance SA have been discharged in full, which Terex expects to occur in the second half of 2009.

Interest on both loans is Libor plus 375 basis points, and they mature on July 14, 2013.

U.S. Steel steady

Meanwhile U.S. Steel, which also priced 4% convertibles due 2014, but about a month earlier than the Terex deal at the end of April, traded at 145.932 on Tuesday, which was little changed after the Pittsburgh-based steel producer reported a second-quarter loss as demand for steel products remains low

U.S. Steel's net loss was $392 million, or $2.92 per share, while sales dropped 69%.

In its earnings report, the company said it expects each business segment also to report an operating loss in the third quarter since operating rates will remain low, and it bears the burden of idled facility carrying costs and lower average realized prices.

On the bright side, there are signs that de-stocking has ended in North America and Central European steel markets amid increased orders across the industry, the company said.

But the outlook for overall demand remains uncertain and the timing and magnitude of sustained economic recovery remain difficult to forecast, the U.S. Steel added.

UAL higher in active trade

UAL's 4.5% convertibles due 2021 were called "very active," and gained during the session from early trades in the 32 bid, 33 offered area and late trades moving up to about 34.5, or 34.625 last.

Shares of the Chicago-based air carrier gained 24 cents, or 6.5%, to $3.96.

"It's never a super active name, but it was pretty active today," a New York-based sellside trader said, although he hadn't heard of any news promoting trades.

"Just the stock being up, and I did see a headline on jet fuel hedging," the sellsider said.

A second sellsider also said the UAL 4.5% convertibles were active.

Wesco jumps on exchange news

Wesco 1.75% convertibles due 2026 jumped to 98.875, which was up 11 points or 12 points on the day, from about 87.

The Wesco 2.625% convertibles due 2025 traded around par, up from 96 last.

The Pittsburgh-based distributor of electrical construction products and supplies announced late Monday the start of an exchange offer for its outstanding 1.75% convertible senior debentures due 2026 and its 2.625% convertible senior debentures due 2025.

The company is offering to exchange $960 principal amount of its new 6% convertible senior debentures due 2029 for each $1,000 principal amount of the 1.75% debentures. It is offering $1,010 principal amount of the new 6% convertibles for each $1,000 principal amount of 2.625% debentures.

Wesco said it will issue a maximum of $345 million of the new securities, and the deal is conditioned on at least $100 million being issued.

Tenders for the 1.75% debentures will be accepted before the 2.625% debentures.

The offer ends at midnight ET on Aug. 21.

If the initial conversion price of the new 6% debentures is determined to be the minimum conversion price of $26.25 because the volume-weighted average price would result in an initial conversion price of less than $26.25, Wesco said it will extend the offer by two business days.

The initial conversion price of the 6% debentures will be equal to 125% of the average VWAP, with the floor of $26.25. The maximum initial conversion rate is 38.0952 shares per $1,000 principal amount.

Standard & Poor's said it assigned an issue-level rating of B to Wesco's offering based on preliminary terms.

The agency said it also assigned a recovery rating of 6 to these notes.

All other ratings on Wesco and wholly owned subsidiary Wesco Distribution Inc. remain unchanged, the agency said.

USEC slumps on aborted loan guarantee

USEC 3% convertible senior notes due 2014 traded at 62 versus a share price of $4.25. The bonds were down from 74 on Monday.

Shares of the Bethesda, Md.-based company the uranium producer crumbled $2.14, or 35%, to $4.05.

The company announced that it's loan guarantee application, which has been pending for a year, has been denied by the U.S. Energy Department for its American Centrifuge Plant construction in Piketon, Ohio, about 65 miles south of Columbus.

Enriched uranium from the plant would be used in generating electricity at nuclear power plants.

"We are shocked and disappointed by DOE's decision. The American Centrifuge met the original intent of the loan guarantee program in that it would have used an innovative, but proven, technology, reduced greenhouse gas emissions and created thousands of immediate jobs across the United States," according to a company release.

The company said that it had invested $1.5 billion dollars in the project.

"It is unclear how DOE expects to find innovative technologies that assume zero risk, but the American Centrifuge clearly meets the energy security and climate change goals of the Obama administration."

"With DOE's decision, we are now forced to initiate steps to demobilize the project. We deeply regret the impact this decision will have on all those affected, but as we have stated in the past, a DOE loan guarantee was the path forward to completing financing for the project," the release stated.

The company said that it was pursuing strategic alternatives, but that despite this setback, its core existing business remains strong, with its Paducah plant running at its highest efficiency and $78 million in cash at the end of its second quarter.

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Mentioned in this article:

Sybase Inc. NYSE: SY

Terex Inc. Nasdaq: TEX

THQ Inc. Nasdaq: THQI

UAL Corp. Nasdaq: UAUA

USEC Inc. NYSE: USU

Wesco International Inc. NYSE: WCC

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