Lexington higher on debut; Edge, Covanta bid up in gray; Invacare launches deal; Yahoo! gains on results

By Kenneth Lim

Boston, Jan. 24 - Lexington Realty Trust rose slightly above its reoffered price but failed to pass par on its first day of trading Wednesday, after the offering priced near the cheap end of talk.

Edge Petroleum Corp.'s planned $100 million offering of perpetual convertible preferred stock gained slightly in the gray market after pricing was delayed by a day to Wednesday.

Covanta Holding Corp. was also bid slightly better in the gray market, although its deal is only expected to price Thursday.

Meanwhile, Invacare Corp.'s planned $125 million sale of 20-year senior subordinated debentures is expected to price the week of Feb. 5, market sources said.

Beyond the issuance calendar, Yahoo! Inc.'s 0% convertible due 2008 rose about 6 points outright on the strength of its fourth-quarter results. The convertible traded at 142.375 against a stock price of $28.625. Yahoo! stock (Nasdaq: YHOO) jumped 7.34% or $1.98 to close at $28.94 on Wednesday.

"We normally don't see them trade that much, and we saw quite a few trades today," a sellsider said.

Yahoo! on Tuesday reported fourth-quarter earnings of $268.7 million, or 19 cents per share, including tax gains of about 3 cents per share. Analysts were expecting about 13 cents per share. Sunnyvale, Calif.-based Yahoo!, a provider of online and Internet search services, also said it plans to launch its new advertising system on Feb. 5, two months ahead of an earlier-delayed schedule.

The convertible market in general has been quieter than expected, traders said Wednesday.

"Interestingly, things looked like they were for sale this morning, but it looked like they were canceled when the market opened," a sellside convertible trader said. "A lot of that's just maybe people disappointed with the lack of a calendar. I don't know if this is a picture of what's to come...There's a lack of supply, more buyers than sellers."

A buyside trader agreed that there were more buyers than sellers, noting that "there's definitely a lot of enthusiasm out there right now."

"But I don't know if, one, people are already positioned, or two, trying to figure out how to position," the buyside trader said. "Looks like some people are biding their time."

Lexington modestly higher on debut

Lexington's new 5.45% exchangeable senior note due 2027 gained about ¼ point on its first day of trading on Wednesday, after the offering arrived near the cheap end of talk and was reoffered below par.

The exchangeable was seen at 99.625 near the end of the day, as Lexington stock (NYSE: LXP) closed at $21.10. The exchangeable was reoffered at 99.375. Lexington stock improved 0.29% or 6 cents over the day, mostly after a late rally.

"They had to price it cheap to get it out the door," a buyside convertible analyst said. "We didn't get involved, though. It still wasn't interesting enough. The coupon's too low, the premium's too high, and every time you see another REIT, everyone's thinking, 'It's another REIT.' It's not really attractive at this point."

Lexington's $250 million deal priced late Tuesday with an initial conversion premium of 20%. The notes were talked at a coupon of 4.95% to 5.45% and an initial exchange premium of 17.5%-22.5%, and initially offered at par.

The notes were issued by Lexington subsidiary Lexington Master L.P., and guaranteed by the listed entity.

There is an over-allotment option for a further $50 million.

Lehman Brothers and Bear Stearns were the bookrunner of the Rule 144A offering.

Lexington, a New York-based real estate investment trust that focuses on non-residential properties, said the proceeds of the offering will be used to repay a secured credit facility that bears interest at Libor plus 175 basis points and matures August 2008. There was $549.1 million outstanding under that credit facility as of Sept. 30, 2006.

Edge delays deal, gains in gray

Edge Petroleum's planned $100 million of perpetual convertible preferred stock was bid 1/8 point above par in the gray market on Wednesday. The deal was expected to price after the market closed, a day after the original target of Tuesday.

Bookrunners JP Morgan and Raymond James could not be reached to comment on the delay, but market sources said there was no concern on the Street.

"It's not the first time I've done a bunch of work only to have the deal pushed back," a sellside convertible analyst said.

The convertible was talked at a dividend rate of 5.75% to 6.25% and an initial conversion premium of 20% to 25%. Edge stock (Nasdaq: EPEX) declined 3.78% or 55 cents and finished at $13.99 on Wednesday.

The 2 million preferred shares in the offering will be sold at par of $50.

There is an over-allotment option for a further $15 million, or 300,000 preferred shares.

There was a concurrent offering of 9.2 million shares of Edge common stock, with a greenshoe of an additional 1.38 million common shares.

Edge, a Houston-based energy company, said it will use the proceeds of the preferred and common stock offerings to finance its acquisition of oil and gas assets from Smith Production Inc. and to refinance its existing revolving loan. If the Smith acquisition is not completed, the proceeds will be used to reduce debt, fund Edge's drilling program, pay for possible other acquisitions and for general purposes.

Covanta bid up in gray

Covanta's planned $325 million of 20-year convertible senior debentures were also bid at 100.125 in the gray market on Wednesday, a day before the offering is expected to price.

The deal is talked at a coupon of 1% to 1.5% and an initial conversion premium of 17.5% to 22.5%. Covanta stock (NYSE: CVA) closed at $23.43, a gain of 1.08% or 25 cents.

"I saw the CVAs in the gray even though they don't price until tomorrow," a sellside convertible trader said Wednesday. "They were bid, but there were no offers."

The debentures will be offered at par.

There is an over-allotment option for a further $48.75 million.

Lehman Brothers, JP Morgan and Merrill Lynch are the bookrunners of the registered off-the-shelf offering.

Covanta, a Fairfield, N.J.-based waste disposal, energy and specialty services company, plans to use the proceeds of the deals and cash on hand to buy back its outstanding notes.

"The Covantas look OK," a sellside convertible analyst said, adding that they modeled about 1% cheap. "They're getting rid of some of their higher interest debt, which will help them reduce interest expense, which is good for the credit. But the pricing seems a little aggressive."

Invacare to price deal in February

Invacare's planned $125 million of 20-year senior subordinated convertibles notes are expected to price the week of Feb. 5, market sources said. Price talk has not been set.

Bank of America is the bookrunner for the offering, which is sold in the United States under Rule 144A and under Regulation S overseas.

There will also be a separate offering of senior notes due 2015.

Invacare, an Elyria, Ohio-based maker of non-acute health care products, expects will use the proceeds of the convertible deal and other debt to refinance substantially all of its existing indebtedness. Invacare, which announced its refinancing plans a week ago, expects the new financing efforts to result in total capacity of about $700 million.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.