CEDC collapses after exchange offer; Tyson flat to higher; planned Radian reprices, gains

By Rebecca Melvin

New York, Feb. 26 - Central European Distribution Corp.'s convertibles plunged 10 points or more to the low to mid-teens after the U.S. listed Polish vodka maker and beverage distributor launched exchange offers for both the $257.9 million convertibles due next month and its 2016 senior straight notes.

The exchanges are aimed at reducing CEDC's debt by more than $750 million because the current enterprise value is insufficient to cover its debt and distributions. CEDC said it can't afford to repay the 3% convertibles next month, and neither is it likely to be able to make an interest payment on the straight notes in June.

Elsewhere, Tyson Foods Inc. shares were down, but the bonds were flat to marginally higher on a dollar-neutral, or hedged, basis after the Springdale, Ark.-based meat and packaged food producer warned that its fiscal second-quarter results could take a hit as beef margins contracted unexpectedly.

There was some focus on oil and gas names, with Penn Virginia Corp.'s convertible preferreds mostly unchanged in active trade as market players look to take positions on where oil prices are going, a Connecticut-based trader said.

The Penn Virginia preferreds were said to be 85 bid, 86 offered versus the Radnor, Pa.-based company's $4.19 closing share price.

There were buyers and sellers in the Penn Virginia preferreds, which were basically unchanged on the day. "It's a small deal, and one of the cheaper converts out there," the trader said.

In the primary market, price talk was tightened on Radian Group Inc.'s planned $200 million of convertible senior notes, but the issue was still bid significantly higher in the gray market and traded around 104 after price talk was tightened.

The deal was looking particularly strong despite lackluster debuts of other recent new deals, including Post Holdings Inc.'s and Forestar Group Inc.'s offerings last week, and Cliffs Natural Resources Inc.'s before that.

Cliffs shares have had an unbroken string of down days since the Cleveland-based mining and natural resources company priced $675 million of mandatory convertible preferred shares on Feb. 14.

"The Cliffs preferred is doing OK, but the shares closed down again today," a New York-based trader said after the market close.

Stocks rebounded Tuesday amid positive data on consumer sentiment and housing, and following a sharp equity slide on Monday. With only two trading days to tick off for February, it was still uncertain exactly where returns would shake out for the month.

"We had an interesting close," a New York-based trader said Tuesday, referring to a late upswing. In terms of convertible returns for the month, he said, "I'd guess that is was fairly flattish to up small."

CEDC converts slump

Central European's 3% convertibles due March 15, 2013 were heard to have traded as low as 12 and in the 14 bid, 15 offered context, on a flat, or without accrued interest, basis on Tuesday. That was down from the mid-20s on Monday.

CEDC shares bounced by 3 cents, or 5%, to $0.65, after a more than 50% slide on Monday.

CEDC has offered to exchange the 3% convertibles due next month for 8.86 shares of new common stock.

One New York-based trader said the offer is "a joke."

But with $257.9 million to pay out on these bonds, and only $59 million available cash on hand and about $17.7 million available under its credit facilities, the company didn't appear to have a choice.

Nevertheless, the straight note holders and Roust Trading Ltd., a major CEDC shareholder, have proposed an alternative to the company's exchange offers, and a few traders thought the alternatives would be more favorably received than the company's offers.

"Roust has about $172 million and that has more of a chance getting done, but they are running out of time to be able to salvage any value," a trader said.

In addition, the company said that it is floating a pre-packaged bankruptcy, or reorganization, plan, but there was doubt that all parties could come to an agreement on such a plan by March 15.

In a related transaction, CEDC is offering to exchange its outstanding 9.125% senior straight notes and 8.875% senior straight notes both due 2016 for shares of new common stock and new 6.5% senior straight notes due 2020.

In a trading update, CEDC said it saw only a 1% decline in volumes for the fourth quarter compared to the year earlier. The decline was related primarily to a decline in low margin economy vodka brands in Russia, the company said.

The company said there was a small decrease despite a large price increase and significant reductions in discounts that increased operating profitability.

"Our fourth quarter 2012 underlying operating profitability increased compared to the fourth quarter of 2011 reflecting relatively stable volumes, improved prices and mix, a reduction in discounts, and a reduction in general overhead cost compared to the fourth quarter of 2011," the company said in a regulatory filing.

"We expect that net profit in the fourth quarter of 2012 will be significantly impacted by a large write-down in goodwill relating to the Whitehall subsidiaries, Russian Alcohol, and our Polish operations associated with the latest assessment of future projections. This write-down is expected to be in excess of $400 million and could be significantly higher. Further, a number of additional items such as fixed asset write-downs in Russia will impact our net profit for the fourth quarter of 2012," the company said.

Tyson flat to higher on hedge

Tyson's 3.25% convertibles due October 2013 traded during the session at 133.50 versus an underlying share price of $22.16, a New York-based trader said.

That was down outright from 140.5 bid, 141.125 offered on Monday.

But Tyson shares were also lower, down 86 cents, or 3.7%, at $22.40, after the meat producer said its fiscal second quarter has been more challenging than anticipated due to margin compression in its beef and port segments.

Tyson's margins have compressed throughout the past month as the value of beef has fallen more than the price of cattle.

A New York-based trader said the convertibles were flat to marginally higher on the day.

Meanwhile the company remains optimistic about its results for the full year.

Radian price talk revised

Price talk on Radian's planned $200 million of convertible senior notes due 2019 were said to be revised to a 2.5% yield with a 30% initial conversion premium, according to a market source.

Radian underwriters could not be reached to confirm the revisions.

The original talk was for a 3% to 3.5% coupon and a 25% to 30% premium. The deal was seen pricing late Wednesday.

Even after the revision, the Philadelphia-based mortgage insurer's deal was seen trading at as high as 104.

"Given five-year CDS at 500 over, and 50% vol., they look cheap. The underwriter has 650 bps as a spread, but how mortgage insurers can come back from near dead with 2.5%, up 30% is beyond me," a trader said.

The registered deal has a $30 million greenshoe and was being sold via joint bookrunners Morgan Stanley & Co. LLC and Goldman Sachs & Co.

There is a concurrent offering of 30 million shares of common stock.

The notes are non-callable for three years and are provisionally callable if the shares exceed 130% of the conversion price.

The company plans to use the proceeds from the offerings to fund working capital requirements and for general corporate purposes, including additional capital support for their mortgage insurance business.

Mentioned in this article:

Central European Distribution Corp. Nasdaq: CEDC

Cliffs Natural Resources Inc. Nasdaq: CLIF

Forestar Group Inc. NYSE: FOR

Penn Virginia Corp. NYSE: PVA

Post Holdings Inc. Nasdaq: POST

Radian Group Inc. NYSE: RDN

Tyson Foods Inc. NYSE: TSN

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