AmEx at 100.875 on buying; General Cable bid +3 in gray; Apria gains as stock slammed

By Ronda Fears

Nashville, Nov. 18 - Complaints aside, dealers involved with American Express Co.'s jumbo $1.8 billion convertible said it saw a lot of buyers. General Cable Corp.'s small deal also was finding lots of buyers, as it was bid up 3 points in the gray market just before pricing after the close Tuesday.

Also after Tuesday's closing bell, Millennium Chemicals Inc. launched $125 million of 20-year convertible notes, non-callable for seven years, talked to yield 4.25% to 4.75% with a 35% to 40% initial conversion premium. There will be a full day of marketing, though, with pricing after the close Wednesday.

Outside of activity in new issues, traders said Apria Healthcare Group Inc.'s converts held up very well on swap, even gaining ground, while the stock suffered a sharp drop on a downgrade by Legg Mason. Some activity was noted in Ciena Corp.'s convertible Tuesday, too, moving it upward after Ciena called the old ONI Systems Inc. convert that was assumed in its June 2002 acquisition.

Apria's stock saw a sell-off, losing $2.44 on the day, or 8%, to $28.07. On an outright basis, the April 3.375% convertible due 2033 dropped 3.5 points with the stock.

But on swap, the issue gained 1.25 points to 112.5 bid, 113 offered, a dealer said.

But the dealer expected that Apria would either hold steady "or come in a little bit tomorrow," noting that in addition to concerns about valuation on the underlying stock, some watchers are skeptical that the dialysis company will be able to meet the Street's expectations for fourth quarter earnings.

Also, a buyside trader said that Apria is feeling pressure due to a tentative compromise on Medicare prescription drug benefits that will boost revenues for the drug companies, whereas healthcare providers like Apria may feel a pinch due to more restrictions on reimbursements in that area.

Other potential losers from Medicare reform, she said, include convertible issuer Lincare Holdings Inc.

New issues caught most of the market's attention, though.

American Express was at the top of the list, largely due to its size, according to sellside traders moving the paper.

"We traded a lot of this [American Express], mainly buying, and by the end of the day we saw very little offerings," said one dealer.

American Express sold the 30-year cash-to-zero convertibles at par to for a yield-to-maturity of 1.85% with a 58% initial conversion premium - at the cheap end of guidance for 1.35% to 1.85%, up 58% to 62%.

Joint bookrunner Lehman Brothers closed the issue at 100.875. One trader noted that the issue expanded by 0.5 point on a delta-neutral basis alone, as American Express shares gained 55c, or 1.25%, to close at $44.48.

The complicated structure kept some away from the American Express convert, though, and some just thought it was not cheap enough. It was issued with warrants plus has a variable conversion price and ratio, which are capped. Sellside analysts put the issue at about fair value, and noted that the warrants added as much as 4 points of value to it.

"It's a complicated structure. There are no standard models for these things, but the parts can be separated. The problem with these structures is liquidity," said Mike Revy, who manages the Nuveen Preferred and Income Fund.

"It's a chance for American Express to use its credit to do a little fancy financing with the derivative boys. I like to get involved when use of proceeds is more interesting."

American Express said proceeds would be used for the standard "general corporate purposes."

Dealers involved with the American Express deal said it was very active, dispelling some concern among buyside sources that the issue would be illiquid in the aftermarket, such as the jumbo Wells Fargo & Co. convertible that was sold with attached warrants and is rarely seen in the market.

Small deals are usually not very active, either, but General Cable's $75 million offering drew a lot of attention, getting bid up in the gray market even after the guidance was tightened.

General Cable's convertible preferred, which was at bat after the close, was tightened to a yield of 5.75% to 6.25% from 6.5% to 7.0%, but the premium is still expected in a range of 18% to 22%.

The convertible was pricing on the heels of General Cable selling an upsized $285 million of seven-year senior unsecured notes, at par to yield 9.5%, plus $50 million of common stock. The junk bond issue was boosted from $275 million, and sold aggressively against price talk in the neighborhood of 9.75%.

A $240 million senior secured asset-based revolving credit facility is also part of General Cable's refinancing plan.

Pricing after Wednesday's close along with Millennium is Amerada Hess Corp., which is bringing $500 million of mandatory convertibles talked to yield 7.0% to 7.5% with an 18% to 22% initial conversion premium. Sellside analysts put the Amerada Hess mandatory about 2.25% cheap at the middle of price talk.

The company said proceeds would be used for general corporate purposes, including reduction of debt. The oil firm said it plans to purchase up to $594 million of its 5.3% notes due 2004, 5.9% notes due 2006 and 9.25% notes due 2005, as well as the 8.875% notes due 2007 of Triton Energy Ltd. and Triton Energy Corp. that were assumed by Amerada Hess.

There is market buzz that there could be a couple of more new deals before Thanksgiving and a few deals scattered throughout December, but for the most part the new deal train has left the station, it seems.

"I'm hearing the forward calendar doesn't look so good," said John Siebel, head of trading at Silverado Capital Management.

With year-end approaching rapidly, too, most players don't expect much action outside of some surprise of the magnitude to upset the normal December lull.

"I think things are slowing down for Thanksgiving," said Anu Sahai, portfolio manager of the ING Convertible Fund.

That said, she added, "All the new deals are well oversubscribed, so it looks like they'll trade well on opening tomorrow."

On the slowdown in secondary flow, Siebel said: "People don't want to give up what they've made this year, not so close to year-end. Besides, the bond market has rallied so much that you don't have much room for risk if interest rates go up," so unless you are holding something you feel is vulnerable, you sit tight.

Dealers have noted more sellers this week, but still say that is linked directly to the relatively heavy new issue slate.

There have been rumblings in the market about heavy redemptions at a couple of big hedge funds, but dealers said most of that was probably done over the summer.

"If paper is hitting the Street for sale, and I don't think that's the case, then it's no huge amount, no more than usual," said the head convertible trader at one of the big sellside shops.

"Anyway, given the way people are chasing paper [in convertibles] these days, like AmEx, it would take a long time for the market to absorb all of it, to make a ripple. Certainly, it would take more than a couple of hedge funds blowing up, even huge ones, to depress prices, because there's just so many buyers."

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