Northwest retraces losses; Henry Schein up; Chesapeake to price $250 million deal; Dobson prices

By Rebecca Melvin

Princeton, N.J., Sept.7 - Buyers jumped into the convertibles market late in the session Wednesday, lifting Henry Schein Inc. by 0.5 point and helping the convertibles of Northwest Airlines Corp. recoup some of their earlier losses.

Ford Motor Co.'s convertible preferred also retraced earlier losses as the shares traded in heavy volume amid news that the No. 2 automaker recalled 3.8 million pickup trucks and sport utility vehicles due to potential problems with a cruise control switch suspected of causing engine fires.

Investors also eyed possible convertibles opportunities arising from the buyout news of Capital Automotive REIT, Agilent Inc.'s upcoming call, and Charter Communications Corp. The mandatory convertibles of Albertson's Inc. fell after earnings news.

A new Chesapeake Energy Corp. deal for $250 million of preferred convertibles launched after the bell may have also helped spur some activity, traders said.

Dobson sees high demand

Meanwhile, Dobson Communications Corp. late Wednesday priced $150 million of 20-year convertible bonds to yield 1.5%, with an initial conversion premium of 27.5%.

The convertible debentures were price concurrently with $150 million of senior floating-rate notes due 2012.

Sold via bookrunners Lehman Brothers, Bear Stearns and Morgan Stanley, the Rule 144A convertibles priced at the cheap end of price talk for the coupon seen at 1.0% to 1.5%, and at the expensive end for the initial conversion premium range, seen at 22.5% to 27.5%.

The issue was 2.5 times oversubscribed, according to a syndicate source.

During the trading session Wednesday, there was a gray market for the issue at 0.5 point to 0.75 point bid, although no trades were reported.

At the midpoint of price talk, Dobson Communications was seen 7% cheap, using a credit spread of 500 basis points over Treasuries and a volatility of 50%, according to a New York-based sellside shop analyst.

But a Chicago-based buyside source said that while it modeled out satisfactorily, he didn't like the Dobson deal much because the coupon seemed too small.

Northwest regains footing

Northwest's 7.625% convertibles recovered about 0.5 point to 1 point Wednesday after an early drop of at least two points.

The reversal came after the Eagan, Minn.-based airline said it has offered to meet with leadership of its striking Aircraft Mechanics Fraternal Association. The mechanics struck Aug. 20 over cost-cutting measures. Talks are tentatively scheduled to resume Thursday, according to Northwest.

The airline said that it does not stand behind its last offer to the union, however, because economic conditions are changing. Rising fuel prices are making cost cutting measures even more necessary than before, it says.

"The company remains willing to reach a consensual agreement with AMFA and thereby end the strike, but such agreement must be consistent with the changed circumstance described above," Northwest wrote in a Sept. 6 letter to AMFA.

The 7.625% convertibles traded late in the day at 32.5, compared to early trades at about 31 at the midpoint.

The 6.625% convertibles were at 36.25, compared to an early Wednesday trade at 35.

Northwest as well as other airlines started a tailspin in the aftermath of Hurricane Katrina and rising energy prices last week. Last Thursday, Northwest's 6.625% convertibles traded at 43.50, compared to a level of more than 50 on Monday; while its 7.625% convertibles traded at 36.75, compared to a recent level of 43 bid, 44 offered.

The free fall was aggravated early this week by rumors and then confirmation that the Federal Aviation Administration is investigating maintenance of aircraft at the airline during the strike.

Henry Schein moves higher

The 3% convertibles of Henry Schein gained about half a point on a delta-neutral basis as buyers came in lifting the issue price to nearly 112, while is common stock added 1.65% to $43.19. A week ago the 3s were at 109.29 bid, 109.77 offered.

"Henry Schein was better bid. It had gotten beat up, and maybe now people are thinking that post Labor Day, we're going to get some more liquidity, more volatility," a New York-based sellside trader said

Henry Schein is a medical products supplier based in Melville, N.Y.

Albertson's moves lower

Albertson's saw its convertibles gyrate Wednesday, but end lower after the food and drug retailer posted second-quarter sales that were flat at $10.2 billion and profit that increased a smaller than expected 2.9%.

The 7.25% mandatory preferred convertibles closed down 0.26, or 1.1%, at 23.81. Its shares lost 27 cents, or 1.2%, to $23.13. A day earlier, on Tuesday, the bonds were 24 versus a $23 stock price.

Last week, the bonds jumped on an outright basis after the Boise, Idaho-based company said that it was considering strategic alternatives including a sale of the company.

In its earning release Wednesday, it affirmed its intent to move even more aggressively to divest underperforming assets, or what it now refers to as "non-core" assets.

Albertson's owns 70 million square feet, or more than 60%, of its nearly 120 million square feet of real estate, across a range of its local and regional stories including Shaw's, Jewel, Sav-on, Acme, Osco and Albertsons.

Gross margins for Albertson's second quarter eased 21 basis points to 28.04%, while operating margins were off, and operating profit declined more than 8%.

Net earnings for the quarter ended Aug. 4 were $107 million, or 29 cents a share, compared with net earnings of $104 million, or 28 cents a share, for the same period last year.

Chesapeake to price deal

Chesapeake Energy is expected to price $250 million of convertible preferreds on Thursday after the markets close, a syndicate source said.

The preferred deal is being sold via joint bookrunning managers Lehman Brothers, Banc of America Securities, Credit Suisse First Boston, Morgan Stanley and Wachovia Securities.

Price talk on the deal was seen at 4.5% to 5% for a coupon, with an initial conversion premium of 30% to 35%.

Oklahoma City-based Chesapeake, an oil and natural gas producer, intends to use the net proceeds of the offering, together with the proceeds from the common stock offering, to repay debt under its bank credit facility or for general corporate purposes.

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