InVision deal scrapped amid summer lull, officially citing adverse "market conditions"

By Ronda Fears

Nashville, Aug. 19 - It finally feels like summer in the convertible market - now that summer is nearly over. But with the window closing in on vacation opportunities as back-to-school season approaches, the market has slowed in every corner.

Dealers were reporting a thin trading session, and it was another quiet day in the primary arena with only the small Alkermes Inc. convert getting priced - at the cheap end of price talk, as expected - while InVision Technologies Inc. yanked its deal.

"The market really has dried up this week and it probably will be slow next week," said a dealer.

"We don't expect the trading desk to do much and we're not hearing about any new deals either."

It has been a busy summer, though, with year-to-date new issuance topping the $75 billion mark on Monday as a couple of greenshoe exercises were announced, according to Prospect News calculations.

New deal activity has helped stem the tide of cheapening in the market, too, but onlookers say there still is an overall downdraft in progress with most of the market remaining for sale.

InVision pulled its deal, although capital markets sources close to it said that it may resurface later. The official reason cited was "market conditions," but one banker type said that with so many players on vacation that "it seemed best to just wait."

InVision was pitching a small $100 million deal and had sweetened guidance twice Monday after having the deal delayed last week by the blackout. But market sources said the story just failed to drum up much interest.

Several big outright funds were asked about the deal and none were interested. Some even thought it had already priced as they hadn't even been paying attention to it in the aftermarket. Hedge funds were not widely expected to participate in the InVision deal because of the difficult stock borrow.

InVision Tech was pitching $100 million of 20-year convertible senior notes - last expected to price with a 3% handle and conversion price of $30. The deal was originally set to price Thursday but due to the blackout was reslated for Monday's business. But by then it had to be sweetened from initial guidance for a yield of 2.25% to 2.75% with a 27.5% to 32.5% initial conversion premium, and still struggled to fill a book.

InVision shares closed Tuesday up 96c, or 3.96%, to $25.21.

Market sources familiar with the deal were a bit surprised that the InVision deal was pulled, noting that even under the original guidance it was not extraordinarily rich. Sellside analysts had put it 1% to 2% rich initially, at the midpoint of original price talk.

"It seemed to be an interesting story, so we didn't think about it having trouble," one source said. InVision provides Transportation Security Administration certified explosives detection systems used at airports for screening checked passenger baggage.

"Probably the trouble really was that some key accounts were on vacation so they couldn't get it placed so easy."

ConvertLand is not the only dry spot, however. High yield issuance has dried up as well, with Charter Communications Inc.'s $1.7 billion two-tranche deal getting scrapped last week.

Charter also withdrew its tender for its two convert issues on Friday and in response both issues were marked down aggressively - by 5 to 7 points. On Tuesday the 4.75s were quoted flat at 73 bid, 75 offered and the 5.75s also were quoted flat at 76 bid, 78 offered.

"With the junk bond deal falling through and dragging the [convert] tender down with it, it doesn't look good for these holders," said a distressed trader.

"Unless Paul Allen extends his support, which the market views as highly speculative, then there could be some serious trouble down the road."

Yet on Tuesday Standard & Poor's raised its ratings on Charter and said the outlook was "developing." S&P said the upgrade was due to the termination of the tenders, which S&P viewed as subpar and tantamount to a default.

Charter continues to generate negative discretionary cash flow and depends on cash and bank borrowings to meet cash needs, S&P said, noting that at June 30 the company had $202 million cash and about $1.2 billion available from various credit facilities - limited by financial covenants that tighten in subsequent quarters.

Charter has an undrawn lending commitment available through March 31 from controlling shareholder Paul Allen for up to $300 million to help meet the bank covenants. Charter is attempting to boost liquidity by selling noncore cable systems, and has an agreement to sell a small system for $91 million, but no other asset sales have been announced.

In the trading trenches, though, dealers said new issues were the biggest source of volume. Yellow Corp. and Cadence Design System Inc. were both mentioned going higher, while QLT Inc. lost ground.

Flextronics International Ltd. was the high-flyer of the session, traders said, and with decent volume.

The Flextronics 1% due 2010 soared 5.5 points on the day to 103.5 bid, 104 offered - tracking the stock, which gained $1.19, or 10.21%, to $12.84.

The stock spiked, one trader said, on headlines that Wells Fargo Securities raised their stock target to $15, which was linked to some optimistic comments by the company in its mid-quarter conference call with analysts. The converts just followed suit.

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