General Cable, upsized Millennium climb on trading debuts; Medis locked up; Disney slides on results

By Kenneth Lim

Boston, Nov. 10 - New deals dominated activity on the convertible bond market Friday, with General Cable Corp. gaining after it priced within talk.

Millennium Pharmaceuticals Inc. also improved despite a decline in the stock, after the deal was upsized and arrived at the rich end of talk.

Medis Technologies Ltd.'s delayed offering also priced at the cheap end of talk, but it did not trade with the deal going to just a handful of investors.

Meanwhile, Walt Disney Co.'s 2.125% convertible due 2023 fell about 3 points outright, in line with its stock, amid concern about the company's growth outlook.

The Disney convertible traded at 116 against a stock price of $32.45. Disney stock (NYSE: DIS) closed at $32.40, down by 3.51% or $1.18.

"A bunch of them traded in the morning," a sellside convertible bond trader said. "Their results were strong, but it looks like the stock's down on some profit taking and guys worried that they won't be able to maintain its growth."

Disney, a Burbank, Calif.-based media conglomerate, said its fiscal fourth-quarter net income doubled to $782 million, or 36 cents per share, from the year-ago profit of $379 million, or 19 cents per share. Net profit for the full year was $3.37 billion, or $1.64 per share, from $2.53 billion, or $1.22 per share, a year ago.

Despite the strong quarter, the market was more cautious about the company's outlook. Credit Suisse was more bullish about the company, rating the common stock at outperform.

"We believe that the potential delta drivers versus Street expectations are ESPN, theme parks, ABC and consumer products," wrote Credit Suisse equity analyst Bill Drewry in a note. "We continue to rate Disney outperform and believe it will be a media/entertainment peer group leader in terms of stock performance and growth rates."

General Cable rises on debut

General Cable's new 0.875% convertible senior note due 2013 gained just over a point on Friday, after the deal priced within talk.

The convertible, which was offered at par, traded at 101.25 against a stock price of $39.65 on Friday. General Cable stock (NYSE: BGC) was down for most of the day but eked out a gain at the close, improving 0.35%, or 14 cents, to end at $39.64.

"I thought it looked OK," a sellside convertible bond analyst said. "It looked like it was about a point cheap where it came. They may not have been able to get it any richer because of the low coupon."

General Cable priced its $315 million deal Thursday after the market closed, at coupon of 0.875% and an initial conversion premium of 27.5%.

The notes were offered at par and talked at a coupon of 0.75% to 1.25% and an initial conversion premium of 22.5% to 27.5%.

The over-allotment option was reduced to $40 million from $45 million.

Merrill Lynch and Credit Suisse were the bookrunners of the registered off-the-shelf offering.

General Cable, a Highland Heights, Ky.-based maker of electrical and electronic wires and cables, said about $61.4 million of the proceeds will be used to repay an outstanding senior secured debt that matures in 2010. It will also use the proceeds to fund convertible note hedge and warrant transactions.

"It was the more interesting of the two," said a sellside convertible analyst, comparing the deals by General Cable and Millennium.

Millennium gets strong start

Millennium's freshly priced 2.25% convertible senior note due 2011 also rose on Friday, improving against its stock contrary to critics who felt the deal was too aggressively priced.

The convertible was quoted at 100.125 bid, 100.25 offered versus a stock price of $11.12. Millennium stock (Nasdaq: MLNM) slipped 0.71%, or 8 cents, to close at $11.17.

"They're doing OK," a sellside convertible bond trader said.

Millennium upsized the deal to $225 million from $200 million late Thursday and priced the deal at the rich end of talk, at a coupon of 2.25% and an initial conversion premium of 37.5%.

The notes were offered at par, and price talk guided for a coupon of 2.25% to 2.75% and an initial conversion premium of 32.5% to 37.5%. The over-allotment option was reduced to $25 million from $30 million.

Morgan Stanley and JP Morgan were the bookrunners of the registered off-the-shelf offering.

Millennium, a Cambridge, Mass.-based drug maker, said the proceeds of the deal will be used to acquire other drugs and for general purposes.

The convertible trader said one driver for Millennium's strong performance on Friday was a market starved of new paper.

"Even though they priced with a small premium, like every freaking issue is these days, there's huge demand out there," the trader said. "The most important event out there in the convertible universe this year was Amaranth when the first thing they liquidated was their convertible portfolio, and there wasn't a bump in the market. Not a bump. It tells you the absolute demand that's out there."

Medis quiet from start to finish

Medis' new 7.25% perpetual convertible preferred did not trade on Friday, after the deal finally priced Thursday to end a weeklong delay.

The $50 million deal priced with an initial conversion premium of 28%. It was talked at a dividend of 6.5% to 7.25% and an initial conversion premium of 28% to 32%. Medis common stock (Nasdaq: MDTL) fell 13.71%, or $3.35, on Friday to close at $21.09.

The 5,000 preferred shares were offered at par of $10,000 apiece. There was a concurrent offering of 1.5 million shares of Medis common stock to facilitate a stock borrow facility.

There is an over-allotment option for a further $7.5 million, or 750 preferred shares, in the convertible deal.

Citigroup was the bookrunner for the Rule 144A offering.

Medis, a New York-based maker of fuel cell batteries used in consumer and military electronics, said the proceeds of the offering would be used for developing and commercializing products, which may include capacity expansion, and for general purposes. The deal was quietly postponed on Nov. 2 for undisclosed reasons, and the detailed terms of the offering have not been disclosed.

"I think this deal was placed in just a few hands, and those who got it are probably going to hold on to it, so you're not going to see any of it trading," a sellsider said.

A convertible bond trader noted that there was very limited interest in a convertible with such a structure.

"A $10,000 face preferred? Nobody will even admit to owning it," the trader said. "The idea that there's going to be a $10,000 preferred trading in the secondary is just ridiculous. The $10,000 preferreds have never ever traded that fluidly."

"If I were the bookrunner I probably went to guys perhaps who own the common already who are familiar with the company's story," the trader added. "After that, I would find guys who would be very open to investing in this company."

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