Energy XXI higher; new Continental at par; Hologic slides; International Game in focus

By Rebecca Melvin

New York, Dec. 9 - Energy XXI (Bermuda) Ltd.'s newly priced 7.25% convertible perpetual preferreds were mostly quiet on their debut Wednesday, sources said. But the issue closed out the day strong at 103.75 bid, 104.25 offered even though its underlying shares sunk on the day, a syndicate source said.

Energy XXI's deal was upsized to $100 million from $75 million and priced at the rich end of talk, which was for a dividend of 7.25% to 7.75% and an initial conversion premium of 15% to 20%.

Continental Airlines Inc.'s newly priced 4.5% convertibles, which debuted on Tuesday, were quoted at 100 bid, 100.25 offered versus a share price of $15.50 - a little lower on the day.

AMR Corp. extended a pullback, trading at 97.5 versus a share price of $7.00 on Wednesday, compared to 99.75 versus a share price of $7.25 on Tuesday.

Hologic Inc., which has been seen in trade often lately, continued to sell off Wednesday, with the convertibles down 0.5 point while its underlying stocks were down 30 cents.

Meanwhile, International Game Technology remains in focus, with its newer issue, the 3.25% paper due 2014, gaining a little strength in recent sessions ahead of an anticipated put date next week for the older International Game 2.6% convertibles.

The older 2.6% convertibles now have about 31% premium compared to mid-20% premium about a month ago, a New York-based sellside desk analyst said.

The secondary market was quiet overall. "I just don't see a lot shaping up. There's not a lot trading, or a lot framing in the Street," a West Coast-based sellside trader said, noting that Wednesday's session was slower than Tuesday's, which isn't typically the case.

Energy XXI quiet, but higher on debut

The newly priced Energy XXI 7.25% convertible preferreds were seen closing out their debut on Wednesday at 103.75 bid, 104.25 offered, according to a syndicate trading source.

Shares of the Hamilton, Bermuda-based oil and natural gas company extended Tueday's slide, ending down 9 cents, or 4.6%, at $1.89.

The upsized $100 million convertible preferred deal, which priced on the rich end of talk, wasn't seen much in trade. Interest lagged due to the size of the company and the deal, sources said.

Nevertheless, "they increased the size and sold it at the most expensive price, so some people cared. It's just that the majority of the funds, especially the big ones, don't put research or other resources toward it if they aren't going to get enough allocation," a sellsider said. "They recognize the situation for what it is."

Most sources said they had no good color on the deal. But the syndicate trading source said the issue was "pretty active."

Concurrently Energy XXI priced 90 million shares of common stock at $1.90 a share. The stock was offered at a discount of about 4% to the closing stock price of $1.98 late Tuesday.

UBS Investment Bank and Credit Suisse Securities (USA) LLC were joint bookrunners for the offerings. Proceeds from both offerings are to be used to fund Energy XXI's previously announced MitEnergy acquisition.

The convertibles are non-callable until Dec. 15, 2014 and then provisionally callable if the daily VWAP of the common stock is 150% of conversion price for at least 20 out of 30 consecutive trading days.

Energy XXI has properties in the U.S. Gulf of Mexico.

New Continental at par

Continental's newly priced 4.5% convertibles due 2015 traded right at par versus a share price of $15.50 early Tuesday, which compared to its debut when it moved a bit above par right out of the chute Tuesday, and was seen offered at 101.75 versus a share price of $16.00.

The new deal was seen at only 1% cheap in valuations using a credit spread of 1,400 basis points over Libor and a 45% vol. and was plus 1 bid, plus 2 offered in the gray market.

Shares of the Houston-based commercial airline reversed early losses Wednesday to end up 7 cents, or almost a half of percentage point, to $15.98.

International Game stronger ahead of put

International Game's 3.25% convertibles due 2014 were seen around 119.25 versus a share price of $18.00 on Wednesday and also at 120.25 versus a share price of $18.25, which compared to Tuesday when the newish paper traded at 119.5 versus a share price of $18.00.

International Game's older 2.6% convertibles due 2036, which are putable next week, were seen right around 99.9 to par.

The 2.6% paper is likely to get put back by holders - parity is about 24, according to one sellsider. But it will represent a further loss of investment-grade paper from the space. While it would be nice to keep the paper outstanding, and wait for the next put date in another two years, it's likely that if they are not put back they will go lower, sources said.

The newer International Game 3.25% issue has been bid higher recently, possibly indicating that the holders of the 2.6% convertible are planning to put those and keep some exposure to the name, a New York-based sellsider said.

Mentioned in this article:

AMR Corp. NYSE: AMR

Continental Airlines Inc. NYSE: CAL

Energy XXI Inc. Nasdaq: EXXI

International Game Technology NYSE: IGT

Hologic Inc. Nasdaq: HOLX

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