Forest City moves up in gray market; PNC active; Jefferies, Navistar to sell convertibles

By Rebecca Melvin

New York, Oct. 20 - Convertibles players kept their heads down on Tuesday, focused on new issues and earnings releases related to bond issuers, sources said. But trading was fairly quiet and mostly in line with underlying shares.

Forest City Enterprises Inc., which announced a $175 million deal after the market close Monday, was seen at 104 bid, 105 offered in the gray market.

Shares of Forest City fell 12% in heavy volume in the session.

SanDisk Corp., which reported stellar earnings after the close of markets, wasn't terribly active on Tuesday but moved up after earlier trading down 0.3 point from Monday when the convertibles had been a big-volume name.

PNC Financial Services Group Inc. saw its 4% convertibles, formerly National City's 4% convertibles, trade actively in continuation of good volume on Monday.

Other new issues pending on the calendar weren't much in focus on Tuesday.

The Dole Food Co. Inc. mandatories being brought by Goldman Sachs & Co. and Deutsche Bank Securities Inc. were not expected to price for another week or so. And GMX Resources Inc., which launched a $70 million offering during Monday's session, was also not in focus due to the fact that no talk was yet available and it wasn't pricing until late Thursday.

Late Tuesday, a syndicate source said that GMX price talk would be available early Wednesday.

After the close, two new deals emerged. They were Jefferies Group Inc.'s planned $300 million overnight deal of 30-year convertible senior debentures and Navistar International Corp.'s planned $500 million of five-year convertibles, which were expected to price after the close of markets on Thursday.

Forest City gains in the gray

Forest City's $175 million of convertibles are being brought for deleveraging purposes.

Bank of America is the lead manager on the convertible, and Barclays Capital Inc. is the co-manager, a New York-based sellside analyst pointed out.

"Bank of America is the lead on the existing bank line. Barclays is not a lender on the existing bank line. Barclays is underwriting the bonds for the Barclays Arena at Atlantic Yards - a major Forest City project. Hence no surprise that Barclays is the co-manager on the convertible," the analyst said.

Forest City's deal was the only one to provide price talk on Monday. It was talked to yield 5% to 5.5% with an initial conversion premium of 22.5% to 27.5%, according to a market source.

The Rule 144A transaction has a $25 million greenshoe.

The convertible senior notes will be non-callable for life and will be accompanied by a convertible note hedge transaction.

Proceeds will be used to reduce outstanding borrowings under a $750 million revolving credit facility, to repay debt, to fund existing development projects and for general corporate purposes. A portion of the proceeds from the sale will be used to cover the cost of the convertible note hedge transactions.

Cleveland-based Forest City owns, develops, manages and acquires commercial and residential real estate.

SanDisk posts stellar earnings

SanDisk's 1% convertibles due 2013 traded late Tuesday at 79.875, which was up 1.625 points from earlier trades that were down 0.3 point compared to Monday.

SanDisk swung to a profit for its third quarter, beating estimates, and earning net income of $231 million, or 99 cents a share, compared to a loss of $166 million, or 74 cents a share, a year earlier.

Revenue was $935.2 million, up from $821.5 million, driven by strong product sales that offset a decline in license and royalty revenue.

"Not a lot of SanDisk traded. But there has been some traded in the last few days, moving with the common," a sellsider said Tuesday. "They had a huge quarter. They had just a huge beat on revenue and earnings and will probably be moving up now."

SanDisk is a Milpitas, Calif.-based maker of flash memory cards.

Jefferies to price

Jefferies launched an overnight offering of $300 million of 30-year convertibles that were talked to yield 3.625% to 4.125% with an initial conversion premium of 32.5% to 37.5%, according to a syndicate source. The deal was expected to price Thursday.

The issue was seen plus 0.5 point in the gray market.

"I think a lot of people are in it just for a flip because they think everything works that way now," a New York-based sellside trader said, adding that he thought the deal looked about 5% cheap at par using a credit spread of 400 basis points over Libor and a vol. of 40%.

There is a greenshoe of $45 million of additional debentures for the registered offering.

Jefferies & Co. Inc. is the bookrunner, and Citigroup Global Markets Inc. is a joint lead manager.

The deal will be non-callable for three years and then provisionally callable between Nov. 1, 2012 and Nov. 1, 2017 at 130% of the conversion price.

The notes are callable after 2017 at 100%. There are investor puts in years 2017, 2019 and 2024.

The convertibles also have dividend and takeover protection.

Proceeds are for general corporate purposes.

Jefferies is an investment banking group based in New York.

Navistar to price

Navistar planned to price $500 million of five-year convertibles after the market close Thursday talked to yield 3.25% to 3.75% with an initial conversion premium of 25% to 30%.

The five-year bullets also have a greenshoe of $75 million of notes.

Concurrently, Navistar plans to price $1 billion of straight notes due 2021.

J.P. Morgan Securities Inc., with Credit Suisse, Bank of America Merrill Lynch, Citigroup, Deutsche Bank Securities and Goldman Sachs are joint bookrunners of the convertible offering. Co-managers are RBC Capital Markets Corp., Scotia Capital and UBS Investment Bank.

Proceeds will be used to repay in full amounts outstanding under the company's $1.1 billion term loan and $400 million synthetic revolver senior unsecured credit facilities, which expire in January 2012, as well as for other general corporate purposes.

Also in connection with the convertible notes offering, Navistar plans to enter into convertible note hedge and warrant transactions with hedge counterparties.

Warrenville, Ill.-based Navistar is a maker of commercial trucks.

Mentioned in this article:

Dole Food Co. Inc. Nasdaq: LNCR

Forest City Enterprises Inc. NYSE: FCE-A

GMX Resources Inc. Nasdaq: GMXR

Jefferies Group Inc. NYSE: JEF

Navistar International Group NYSE: NAV

PNC Financial Services Group Inc. NYSE: PNC

SanDisk Corp. Nasdaq: SNDK

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