September convertible issuance totals $2.67 billion in 12 deals, Citigroup report says

By Rebecca Melvin

Princeton, N.J., Sept. 30 - With 12 new convertibles brought to market in September, the month was the most active of the third quarter in terms of number of new issues, according to Citigroup Smith Barney's September '05 Convertibles New Issue Monthly.

But due to the number of smaller deals, proceeds of the new issues, at $2.67 billion, totaled only about 60% of August's level, at $4.5 billion.

The weighted average yield climbed to 4.5% in September, up from 2.6% in August, mostly due to the 5.6% yield (including a dividend pass-through) attached to the largest deal of the month, the mandatory exchangeables issued by Citigroup Funding Inc. and exchangeable into Genworth Financial Inc.

The weighted average conversion premium also continued to inch higher to 26.5%, up from 23.3% in August. Half of the new issues in September came with premiums of 30% or higher, the New Issue report said.

A third of September's new issues were upsized due to strong demand. The Genworth mandatory was the one downsized deal. But even that one - which was cut to $860 million from an initial $900 million - wound up at a larger $989 million after the $129 million greenshoe was filled, Citigroup said.

As of the report's writing, five of the September convertibles had filled overallotments.

Three of the deals came at the aggressive end of their price talk, an increase compared to recent months on a percentage basis, the Citigroup report stated.

The deals included: on Sept. 7, Dobson Communication's $150 million of 1.5% convertibles; on Sept. 8, Chesapeake Energy's $300 million of 4.5% convertibles; on Sept. 14, Encore Capital Group's $90 million of 3.375% convertibles; on Sept. 15, Midway Game's $75 million of 6% convertibles; on Sept. 21, four deals including Genworth Financial's $989 million of 1.652% mandatories, Wesco International's $150 million of 2.625% convertibles, Cyberonics $125 million of 3% convertibles, Toreador Resources' $75 million of 5% convertibles; on Sept. 22, Nektar Therapeutics' $315 million of 3.25% convertibles; on Sept. 28, two deals including Euronet Worldwide's $155 million of 3.5% convertibles, and US Airways' $143.75 million of 7% convertibles; and on Sept. 29, TriZetto's $100 million of 2.75% convertibles.

"We remain guardedly optimistic about convertibles issuance," the report stated. "The level of activity has been good, if not frenetic, and in September included a number of upsizings, a high percentage of filled overallotments and a few relatively aggressively priced issues."

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