Best Buy, Ford gain; Corporate Office prices; AmeriCredit sets talk; New Plan, Polymedica launch deals

By Kenneth Lim

Boston, Sept. 12 - Volume picked up in the convertible bond market on Tuesday, with Best Buy Co. Inc. improving outright after the company reported better than expected quarterly earnings.

Ford Motor Co. also gained outright amid broader equity rallies and anticipation of cost-cutting measures to be announced later in the week.

The primary market continued to churn out new deals, with New Plan Excel Realty Trust Inc. and PolyMedica Corp. announcing offerings that are expected to price Wednesday.

Bristow Group Inc.'s $200 million offering of mandatory convertible preferreds, which is also expected to price Wednesday, saw a modest gain in the gray market.

Price talk for AmeriCredit Corp.'s two-tranche $500 million offering was fixed near the mid-point of earlier guidance on Tuesday as investors described the deal as reasonably attractive.

Corporate Office Properties Trust, meanwhile, priced its deal within talk.

Also seen trading on Tuesday was Charter Communications Inc.'s 5.875% convertible due 2009, which was mostly unchanged despite a fall in the common stock.

That convertible traded at 89 against a stock price of $1.56, while Charter stock (Nasdaq: CHTR) closed at $1.47, down by 5.77% or 9 cents.

St. Louis, Mo.-based Charter said Monday that $450 million in principle amount of the convertible was exchanged for straight debt with a longer maturity after an exchange offer expired last week. The exchange will leave just $412.5 million outstanding in the convertible series.

"Not much change there," a sellside convertible bond trader said. "I think guys were already expecting the offer to be accepted."

Citigroup on Tuesday cut its recommendation for the cable company's shares to hold from buy, citing the lack of equity upside after the shares climbed over the past couple of months on the back of positive sentiment and the exchange offer.

Best Buy climbs on results

Best Buy's 2.25% convertible due 2022 improved about 5 points outright on Tuesday after the company reported stronger than expected second fiscal quarter results.

The convertible changed hands at 117.5 against a $48 stock price on Tuesday, while Best Buy stock (NYSE: BBY) added 9.15% or $4.37 to finish at $52.14.

Best Buy on Tuesday reported net earnings of $230 million, or 47 cents per share, for the quarter ended August, from year-ago profits of $188 million, or 37 cents per share. Analysts were expecting about 44 cents per share. The electronics retailer maintained its full-year earnings forecast of $2.65 to $2.80 per share.

A buyside convertible bond analyst said the results were "solid," but said weaker consumer spending in the months ahead could hit the stock.

"Their margins were slightly weaker...and if you think consumer spending is going to slow down then you'll want to be more cautious," the analyst said.

Ford gains in anticipation

Ford's 6.5% convertible preferred added about a point outright on Tuesday amid a broad equity rally and hopes that the company will announce positive news later in the week about its turnaround plans.

The convertible traded at 36.25 against a stock price of $8.70 on Tuesday. Ford stock (NYSE: F) rose 4.02% or 35 cents and finished the day at $9.06.

"Those traded a bit," a sellsider said. "They were mostly up with the stock ahead of Thursday's meeting."

Ford's directors are meeting on Thursday to discuss the company's turnaround plans, and speculation on the Street is that the company could be considering further job cuts.

Bristow gains slightly in the gray

Bristow Group's planned three-year mandatory convertible preferred stock was bid about an eighth-point above par in the gray market on Tuesday ahead of its expected Wednesday pricing.

Bristow stock (NYSE: BRS) closed at $35.28 on Tuesday, lower by 2.89% or $1.05.

The $200 million deal is talked at a dividend of 5.25% to 5.75% and a threshold appreciation range of 20% to 25%. Each preferred is being offered at par of $50 apiece.

There is a greenshoe option for a further $30 million, or 600,000 preferred shares.

Credit Suisse and Goldman Sachs are the bookrunners of the registered off-the-shelf deal.

Bristow, a Houston-based provider of helicopter services to the offshore oil and gas industry, plans to use the proceeds of the deal to fund aircraft purchases. Upon the completion of the offering, Bristow will exercise options it currently has to acquire additional large aircraft.

A sellside convertible bond analyst said the deal modeled just over 1% cheap at the mid-point of talk.

"It's OK," the analyst said.

AmeriCredit sets talk

AmeriCredit set price talk for its $500 million two-tranche offering within original guidance on Tuesday ahead of the market's close as analysts described the deal as reasonably attractive.

The $250 million series of five-year notes was priced at a coupon of 0.75% and an initial conversion premium of 15%, within the original price talk of 0.625% to 1.125%, up 13% to 17%.

The equally sized series of seven-year notes was priced at 2.125% with an initial conversion premium of 25%. The seven-year tranche was talked at a coupon of 2% to 2.5% and an initial conversion premium of 23% to 27%.

Each series has an over-allotment option for a further $25 million.

JP Morgan, Credit Suisse and Deutsche Bank are the bookrunners of the Rule 144A deals.

AmeriCredit, a Fort Worth, Texas-based sub-prime consumer finance company, said it will use the proceeds of the offering to buy back $200 million of its common stock and to enter into convertible note hedge and warrant transactions. The rest of the proceeds will be used for general corporate purposes.

AmeriCredit stock (NYSE: ACF) closed at $24.41 on Monday, an 8.83% or $1.98 gain.

A sellside convertible bond analyst said the deal modeled cheap at the mid-point of talk, with both tranches comparable in terms of valuation. But the analyst noted that AmeriCredit's heavy dependence on used car loans "may have scared investors a little bit."

"There's a kind of a stigma against companies like that because of the problems sub-prime companies had a few years ago," the analyst said.

The analyst added that investors who are worried about the outlook for the economy would also be concerned about AmeriCredit's prospects.

"But having said all that, they've had remarkably steady results, their earnings have been really solid, and their credit hasn't changed much," the analyst said.

Corporate Office deal seen as fair

Corporate Office Properties' planned $175 million of 20-year exchangeable senior notes was seen as a fairly talked offering, although interest may be dampened by the abundance of new real estate investment trust deals.

The deal was priced within talk with a coupon of 3.5% and an initial exchange premium of 20% on Tuesday after the market closed. Price talk was for a coupon of 3.125% to 3.625% and an initial exchange premium of 20% to 25%, and pricing was expected Tuesday after the market closed.

Corporate Office Properties stock (NYSE: OFC) closed at $45.25 on Tuesday, down by 2.06% or 95 cents.

There is a greenshoe option for a further $25 million.

Bank of America and JP Morgan were the bookrunners of the Rule 144A offering.

Corporate Office Properties, a Columbia, Md.-based developer of suburban office properties, said it will use the proceeds of the deal to repay several construction loans and an unsecured revolving credit line.

"The most positive part of this deal is that the yield on the common was relatively low," a convertible bond analyst said. "It was relatively easier to set up on a hedge than some of the others [recent REIT issues]."

"The company doesn't look too bad, but it doesn't have a credit rating so it might have to trade slightly wider," the analyst added. "And there's been a lot of REIT issuance, and most of it has the same structure, so there's perhaps going to be just an oversupply of REIT paper."

But at 2% to 3% cheap at the midpoint of talk, the convertible seemed reasonably during price talk, the analyst said.

New Plan, PolyMedica launch deals

Adding to the recent slew of new REIT issues, New Plan Excel on Tuesday launched a $175 million offering of 20-year convertible senior unsecured notes talked at a coupon of 3.7% and an initial conversion premium of 20% to 22%.

There is an over-allotment option for a further $25 million.

Merrill Lynch and Bank of America are the bookrunners of the Rule 144A offering.

New Plan, a New York-based real estate investment trust focusing on community and neighborhood shopping centers in the United States, said it will concurrently buy back $50 million of its common stock with the proceeds of the deal. It will also repay a $350 million revolving credit line and fund general corporate purposes.

New Plan stock (NYSE: NXL) closed at $27.07 on Tuesday, gaining 1.27% or 34 cents before the deal was announced.

Healthcare services provider PolyMedica also announced a $150 million offering of five-year convertible subordinated notes talked at a coupon of 1% to 1.5% and an initial conversion premium of 10% to 14%.

There is an over-allotment option for a further $30 million.

Bank of America and Deutsche Bank are the bookrunners for the Rule 144A offering.

Wakefield, Mass.-based PolyMedica said it will use the proceeds of the offering to concurrently buy back about $29 million of its common stock from convertible purchasers, representing the 705,000 shares remaining in its current stock repurchase program. The proceeds will also be used to fund convertible note hedge and warrant transactions, and to pay off about $94 million of outstanding bank debt.

PolyMedica stock (Nasdaq: PLMD) gained 0.66% or 27 cents before the deal was announced, and closed at $41.15 on Tuesday.

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