AIG edges up in gray; EDS gains on possible HP bid; WCI extends slide; Nabors softer on lower oil

By Rebecca Melvin

New York, May 12 - American International Group Inc. was a major focus for convertibles players on Monday ahead the insurance giant's offering of convertible equity units and common stock totaling $11.9 billion seen pricing after the close, market sources said.

The upsized deal of convertible equity units traded up slightly in the gray market to 75.125; but the existing common stock dropped 5%, amid a Goldman Sachs downgrade to "neutral" from "buy" and a Wall Street Journal report that said its profit-making airplane leasing business is considering a break from the troubled insurer.

Electronic Data Systems Corp. saw its convertibles jump more than 2 points to 101 as its shares surged 28% amid rumors that Hewlett-Packard Co. was making a bid for the Plano, Texas-based information-technology consulting and outsourcing services company.

Late in the session, HP confirmed that it is engaged in advanced discussions with EDS regarding a possible business combination involving the two companies; but "there can be no assurances that an agreement will be reached or that a transaction will be consummated."

To the downside, however, was WCI Communications Inc., which continued to slide as investors "started to guess at bankruptcy and suspected that the company won't honor the put on the convertibles coming up in August," a New York-based sellside trader said.

Energy names were mostly weaker including Nabors Industries Inc., which saw its convertibles trade about a point lower as its shares fell along with the overall oil drilling sector.

In the primary arena, two new issues were announced including SBA Communications Corp.'s planned $500 million of five-year convertible senior notes, expected to price after the market close Monday, and JA Solar Holdings Co. Ltd.'s planned $300 million of five-year senior convertible notes, expected to price after the market close Tuesday.

AIG to price Monday

"AIG was clogging up my Bloomberg. That's all they were doing," a New York-based sellside trader said of Monday's trading.

The New York-based insurance and financial services company planned to price concurrent offerings of three-year convertible equity units and common stock.

The equity units have a unit price of $75 each and were talked to yield a coupon of 8% to 8.5%, with an initial conversion premium of 18% to 22%.

The units will be non-callable, with maturities staggered from February 2011 to August 2011.

The trader suggested that the activity in the gray indicated players were trying to unwind ahead of pricing in anticipation that prices would weaken.

On Friday AIG posted a $7.81 billion loss in the first quarter and on Monday Maurice Greenberg, the former chief executive and largest individual shareholder, asked in a letter to the board that the company postpone its annual meeting, which is scheduled for Wednesday, according to a regulatory filing.

He said he and other top shareholders were deeply concerned about the deterioration of the company's value and its loss of credibility. He questioned the decision to raise $12.5 billion in the capital markets rather than pursuing options such as divesting non-core assets or seeking other sources of funding.

Part of that capital raise is the equity units that are being sold via joint bookrunners Citigroup and J.P. Morgan Securities Inc. with Banc of America Securities LLC, Merrill Lynch, Morgan Stanley, UBS and Wachovia acting as co-managers.

Shares of AIG (NYSE: AIG) closed down $1.94, or nearly 5%, at $38.37.

EDS gains on HP bid

HP and EDS confirmed after the close that the two companies are in advanced discussions about a possible business combination. Ahead of that announcement, but late in the session, the Wall Street Journal had published a report that a bid was going to be made and stock trading on the New York Stock Exchange was halted pending news.

Terms of the deal weren't immediately available, but reports put the acquisition price between $12 billion to $13 billion.

The EDS 3.875% convertibles due 2023 were last around 100.5 versus a stock price of $24.13.

Early in the day, the convertibles were "wrapped around 99," a New York-based sellside analyst said.

"These [convertibles] are not traded with any sort of delta," he said, adding that late in the session "they were 101 bid away from us."

EDS five-year credit default swaps dropped to 48 to 58 basis points over Libor, from more than 100 bps, the analyst said. The better credit, Hewlett-Packard, widened to 40 to 45 bps from 33 to 38 bps.

Shares of EDS (NYSE: EDS) closed up $5.27, or 28%, to $24.13.

Shares of Palo Alto, Calif.-based Hewlett-Packard (NYSE: HPQ) closed down $2.30, or nearly 5%, to $46.83.

Nabors convertibles slip a point

The convertibles of Nabors Industries were down by about a point, with the Nabors 0.95% bonds at 106.5 versus a stock price of $38.60 on Monday, compared to 107.7 versus a stock price of $39.66 on Friday.

The Nabors' 0% convertibles due 2021 were at 64 compared to almost 65 on Friday, and the Nabors' 0% convertibles due 2023 were at 112 compared to 113.4 on Friday.

Energy was softer, a New York-based sellside desk analyst said of convertibles names on Monday as crude oil declined for a second day in energy markets.

Speculation or where oil goes from here continues, however, with some anticipating a continued push upward to as high at $150 per barrel or more in the near term, while others look to lower Chinese imports as a catalyst to pull oil prices back from recent highs in the $126-a-barrel range.

Hamilton, Bermuda-based Nabors (NYSE: NBR) shares fell $1.06, or 2.7%, to $38.60 on Monday.

WCI slide continues

Continuing the alphabet soup of companies in the news on Monday, the convertibles and stock of WCI extended a downward spiral, with the 4% convertibles of the builder of master-planned lifestyle communities dropping another 10 points or more to 55 bid, according to a New York-based sellside trader.

In the middle of last week the bonds were at about 76 before the company announced that it does not expect to have enough liquidity to satisfy repurchase requirements related to a put on the 4% paper on Aug. 5.

Raymond James on Thursday downgraded the stock to "underperform" from "market perform" and at that time said the Bonita Springs, Fla.-based company faces the risk of bankruptcy due to the deteriorating liquidity position, potential revaluations of deferred tax assets and likely losses through 2009.

WCI said it does not expect to have enough liquidity to be able to use cash to buy back 100% of the principal amount of its $125 million of 4% convertible senior subordinated notes and that if it doesn't have the required liquidity, it will be forced to seek an amendment or waiver from lenders or the convertible noteholders to issue a new security in exchange for the notes or to find another way to satisfy its repurchase obligations.

According to WCI, any acceleration of the convertible notes would also trigger an acceleration of substantially all of its other debt.

Shares of Bonita Springs, Fla.-based WCI (NYSE: WCI) closed down 51 cents, or 25%, at $1.54 on Monday.

SBA to price $500 million of convertibles

Boca Raton, Fla.-based SBA, an owner and operator of wireless infrastructure, said it planned to price $500 million of five-year convertible senior notes, with a greenshoe of $50 million.

A syndicate source said pricing of the Rule 144A notes was seen Monday after the market close.

The notes were talked to yield 1.375% to 1.875% with an initial conversion premium of 20% to 30%, and they are non-callable, with no puts. There is contingent conversion subject to a 130% hurdle.

Citigroup, Deutsche Bank and Lehman Brothers are underwriting the offering.

According to one source, SBA's existing 0.375% convertibles traded lower at 112 versus a share price of $33.25. But another sellsider said the 0.375% convertibles were higher at 114.875 versus a stock price of $34.55 at the end of the session.

Shares of SBA (Nasdaq: SBAC) closed up 58 cents, or 1.7%, at $34.55.

JA Solar to price $300 million of convertibles

The American Depositary Receipts of JA Solar Holdings (Nasdaq: JASO) responded in the opposite direction, falling $1.44, or 6.1%, after reporting a better-than-expected quarter and announcing it would price $300 million of senior convertible notes plus issue American Depositary Shares.

The notes were talked at a coupon of 4% to 4.5% and an initial conversion premium of 32.5% to 37.5%, and were being sold via Lehman Brothers Inc. and Credit Suisse Securities (USA) as joint bookrunners, with Needham & Co. and Piper Jaffray & Co. as co-managers.

The notes are non-callable for three years and provisionally callable thereafter subject to a 130% hurdle. There are no puts, other than a change-of-control put.

Based in Ningjin, China, JA Solar designs, makes and markets solar cells and sells its products to solar-module makers.

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