Anixter, Illumina soar on debuts; Wyeth gains on report; Waste Connections up on results; IVG prices

By Kenneth Lim

Boston, Feb. 13 - New convertibles by Anixter International Inc. and Illumina Inc. burst ahead on fresh legs, as their stocks' gains provided a tail wind on Tuesday.

Anixter, which drew enthusiastic response in the gray market, did not disappoint, even after its offering priced at the rich end of talk.

Illumina also gained early, although trading was less active amid grumblings about the low coupon and high premium.

Meanwhile, Wyeth gained slightly following a bullish recommendation on the convertibles from a sellside broker.

In Europe, IVG Immobilien AG priced its €400 million offering within talk, and the deal was expected to be well received, wrote Barclays Capital's convertibles research team in a note.

Waste Connections Inc.'s 3.75% convertible due 2026 gained about 3 points outright following the company's fourth-quarter results and an approved stock split. The convertible traded at 111.25 against a stock price of $46. Waste Connections stock (NYSE: WCN) closed at $45.65, up by 6.48% or $2.78.

"We were trying to get in on some of the WCNs today," a sellside convertible trader said. "The stock's way up on that stock-split and their results."

Waste Connections, a Folsom, Calif.-based solid waste services company, on Monday reported a fourth-quarter net profit of $20.6 million, or 44 cents per share, in line with Street expectations. The company also approved a 3-for-2 stock split, which will be done in the form of a dividend to be paid on March 13. For 2007, Waste Connections expects revenue of $920 million to $930 million, and operating income of $195 million to $197 million.

Anixter shoots up

Anixter's new1% convertible senior note due 2013 jumped more than 3 points outright on Tuesday, quoted at 103.5 bid, 103.625 offered against a stock price of $55.20 on its debut.

The note was offered at par. Anixter stock (NYSE: AXE) rose 4.67% or $2.58 for a close of $57.78.

"We traded a lot of the AXEs," a sellside convertible trader said.

Anixter priced the $300 million deal - which includes a $25 million greenshoe that was immediately exercised - on Monday after the market closed with an initial conversion premium of 15%.

Price talk guided for a coupon of 1.25% to 1.75% and an initial conversion premium of 12.5% to 17.5%.

Merrill Lynch was the bookrunner for the Rule 144A offering.

Anixter, a Glenview, Ill.-based distributor of communications and specialty wire and cable parts, plans to use the proceeds to concurrently buy back $100 million of its common stock, to fund general purposes and for convertible note hedge and warrant transactions.

"It was a small premium, so even with the small coupon you can set them up as heavy as you want," the trader said. "You got six years and a small enough premium that your hedge can be pretty heavy. I'm actually a fan of something that's a little more equity oriented, and because of the small premium, I prefer this a lot."

The offering's unusually low premium was a pleasant surprise for others as well.

"I kept thinking that something must really be wrong here, because it looked really cheap," a sellside convertible analyst said of the price talk, adding that the deal priced roughly fair. "It's no call for the whole time and no puts, but it's only six years so it's not too long, and the low premium is the strangest part."

The analyst said the low conversion premium threw the spotlight on the volatility of the stock.

"The big story here is what the vol will turn out to be," the analyst said. "It's currently around 31%, but the options are showing it could fall to the mid-to-low 20s...It's really a vol story for hedgers. The vega where it priced is around 0.65, so it's going to really be determined by where the vol ends up."

Anixter stock has potential on the upside, but there are some overhangs that could continue to weight on the stock, the analyst said.

"Their stock looks really undervalued, but it will probably be range bound for some time," the analyst said. "They're impacted when copper prices fall, and there's some uncertainty there at the moment, so when the market sees some stability we might see some upside."

Illumina shines with stock

Illumina's new 0.625% convertible senior note due 2014 also gained more than 3 points outright in its secondary market start, although volume was thinner with Anixter getting most of the attention.

The new Illumina convertible traded at 103.125 versus a stock price of $36.50 on Tuesday. It was offered at par. Illumina stock (Nasdaq: ILMN) ended at $37.19, up by 6.47% or $2.26.

"The Illuminas didn't trade all that much that I saw," a sellside trader said. "It did well, but I never saw anything trading today."

The upsized $350 million deal priced with an initial conversion premium of 25%. It was talked at a coupon of 0.5% to 1% and an initial conversion premium of 22.5% to 27.5%.

The size of the deal was originally $325 million. The over-allotment option remains at an additional $50 million.

Goldman Sachs was the bookrunner of the Rule 144A offering.

Illumina, a San Diego-based developer of genetic research tools, said it will use $200 million of the proceeds to concurrently buy back its common stock in privately negotiated transactions, to fund general purposes and to fund convertible note hedge and warrant transactions.

"I think the deal was OK," a buysider said. "I would say it priced fair. It was attractive enough."

The buysider said the gains in the stock on Tuesday helped pull the convertible higher, although at current levels the paper was looking fairly valued.

"The low coupon makes it a little harder to set up if you're hedged," the buysider said. "But they have some interesting products and they're a solid company, so it's not a bad investment if you're outright."

Wyeth gains on report

Wyeth's Libor minus 50 basis points convertible due 2024 moved modestly higher by about ¼ point as volume picked up on Tuesday, following a positive report by J Giordano.

The convertible, which currently carries a coupon of about 4.88%, was bid at 107.375 and offered at 108.5 against a stock price of $50. Wyeth stock (NYSE: WYE) gained 0.48% or 24 cents, to close at $49.84.

Wyeth's floater is an "attractive alternative to a common stock that appears to have significant upside potential," wrote analysts Paul Berkman and Cathy Reese in a note on Tuesday.

Wyeth, a Madison, N.J.-based drug maker, is facing a number of events that could boost its fundamentals, the analysts wrote. Problems with a Puerto Rico plant could be resolved during the first quarter of 2007, and a strong late-stage pipeline could launch five new products during the year, the analysts said. Wyeth is also sitting on enough reserves to cover expected diet drug litigation, could face improved tax rates and is expected to meet its guidance for the year.

For the convertible, Wyeth's stock price gains and rising interest rates have created a relatively cheap piece of paper, the analysts wrote.

"With the exception of a handful of other floaters, you just don't find 5% coupons these days on an A3/A rated convertible," the analysts wrote.

The analysts estimate that a 25% gain in Wyeth stock could translate into an 11% gain in the convertible, while a 25% fall in the stock would lead to a 6% drop in the convertible.

IVG prices within talk

Germany's IVG priced its €400 million of 10-year convertible bonds within talk on Tuesday, at a coupon of 1.75% and an initial conversion premium of 30%.

The convertibles were offered at par, and talked at a coupon of 1.5% to 2% and an initial conversion premium of 27% to 32%.

Dresdner Kleinwort and JP Morgan were the bookrunners of the Regulation S offering.

IVG, a Bonn-based real estate investment company that focuses on office buildings in European cities, said the proceeds of the deal will be used to finance further growth and acquisition opportunities.

"Overall, we think the new convertible is attractive if it prices nearer the best end of the range for investors, fair on mid-terms and challenging on worst," wrote Barclays Capital convertible analysts Luke Olsen, Haidje Rustau and Heather Beattie. The analysts used a credit spread of 80 basis points over swaps and a volatility of 28%.

The company did not disclose whether there was takeover protection on the deal, but the analysts said takeover protection would be important in this case.

"The takeover protection, if any, and depending on specification, could be attractive for holders given that the convertible is fairly long-dated and the company is not too large to be immune from event risk, in our view," the analysts wrote. "Overall, and subject to adequate protection features, we expect the bond to price on or around mid-terms and to be well supported there."

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