Ford rallies on stock sale; Alpha eases on merger; GLG makes quiet debut; new deals emerge

By Rebecca Melvin

New York, May 12 - Ford Motor Co. convertibles rallied Tuesday after the Dearborn, Mich.-based carmaker announced that it planned to sell 300 million common shares, an action that was viewed as credit positive by convertibles players.

Alpha Natural Resources Inc. convertibles were quiet, but indicated lower, after the Abingdon, Va. coal producer said it plans to combine with Foundation Coal Holdings Inc. in an all-stock transaction to form the third-largest coal producer in the United States with an enterprise value of $4 billion.

GLG Partners Inc. was at 102 bid on its debut with no trades, according to a syndicate source. The U.K.-based alternative asset manager priced an upsized $214 million of Rule 144A convertibles but eliminated an offering of Regulation S euro notes that had been planned as part of the overnight deal launched late Tuesday.

Great Plains Energy Inc., which also planned to price Tuesday - but after the close - hadn't finalized terms on its expected $250 million of convertible equity units by Prospect News' press deadline.

A syndicate source expected them to be priced later Tuesday, however.

Overall, convertibles dragged while equities sagged early but rallied into the close.

"Things seemed better for sale today. Anyone bidding on converts was able to find supply," a New York-based sellside trader said.

A second New York-based sellsider added: "The market feels way worse that an equities up day. Sentiment wasn't that good."

The trader surmised that players may be making room in their portfolios for new issuance, which has been coming at a pretty quick clip in recent weeks.

After the close, two more new deals were launched. Wyndham Worldwide Corp. said it planned to price a $200 million offering of three-year convertible notes, which were seen pricing after the close Wednesday.

And Cash America International Inc. launched a $100 million offering of 20-year convertibles that were seen pricing after the close of markets Thursday.

Ford pulling ahead

Ford's 4.25% convertible bonds due 2036 jumped to 17.5 points to 18 points over parity, trading at 72 cents on the dollar, as its underlying shares plunged $1.07, or 18%, to $5.01.

That compared to the paper being 15 points over parity on May 7 and at 13 points over parity at 67 on April 24.

The convertibles "rallied after being kind of stuck for the last several days," a sellsider said, who described trading as active for an issue that is not as liquid as it used to be following an exchange offer, but still fairly large.

The stock offering, which was seen occurring after the close on Tuesday, was viewed as credit positive and the convertibles showed a "big improvement," the sellsider said.

The ailing car company is pulling away from its peers in the aftermath of the Chrysler LLC bankruptcy filing April 30 and ahead of similar outcome expected for General Motors Corp.

The fact that Ford can do a common stock offering, which couldn't have even been considered a few months ago, was viewed as a huge positive, the sellsider said.

Ford, which is also the only major U.S. automaker that has not accepted government aid, planned to price $300 million of common shares after the close to help fund its health care trust for retired autoworkers and general operations.

The Associated Press reported that if all 300 million shares are sold at Tuesday's closing price of $5.01, the amount would cover a $1.2 billion cash payment due Dec. 31 to Ford's Voluntary Employee Beneficiary Association, or VEBA. Ford has the option to make a $610 million payment -- also due on that date -- in cash or stock.

The company owes $13.1 billion to its VEBA by 2022, of which $6.5 billion can be paid in stock, cash or a combination of both. In March, United Auto Workers members approved a new contract that, besides freezing wages and cutting benefits, allows Ford to use stock to make payments to the retiree health care trust.

Last month, Ford's exchange offer of debt for common stock depleted the Ford 4.25% convertible issue by about 90%. It was originally $4.5 billion in size.

Alpha Natural quiet

Alpha Natural's 2.375% convertible senior notes due 2015 were quiet Tuesday, but traders concurred that the issue was probably at about 81 with the stock at $27, which was down compared to 84 versus $28.50 on Monday and 84 versus $29.50 last week.

Alpha and Foundation said on Tuesday they would combine to operate 59 coal mines and 14 preparation plants and have reserves of more than 2.3 billion tons of coal.

Alpha, which supplies metallurgical coal to the steel industry, operates 50 mines, while Foundation, which produces the thermal coal used by electric utilities, has nine.

Under the agreement, Foundation stockholders will receive 1.084 shares of the new company for each share of Foundation. Each Alpha share will automatically become one share of the combined company.

The per-share consideration is valued at $32.73 based on Alpha's closing price on May 8, a company news release said.

About 50 million shares of the new company's common stock will be issued, and the combined company will assume approximately $530 million of Foundation net debt.

Once the transaction is complete, Alpha stockholders will own approximately 59% of the new company on a fully diluted basis and Foundation stockholders will own approximately 41%.

The merger agreement includes termination rights for both companies, including an Alpha termination fee of $75.4 million and a Foundation termination fee of $53.1 million.

Alpha said in conjunction with the merger it will use cash on hand to repay its existing senior secured credit facility, preserve its 2.375% convertible senior notes and seek to upsize its $85 million accounts receivable securitization facility.

Foundation, based in Linthicum Heights, Md., has $298 million of 7.25% senior notes and its senior secured credit facility will remain outstanding.

The companies expect about $45 million a year in annual revenue and cost savings starting in 2010 and for the deal to add to earnings and cash flow next year.

The takeover comes after a purchase of Alpha Natural by Cleveland-Cliffs Inc., initially valued at $10 billion, didn't come to fruition last year as commodity prices were plunging.

Michael Quillen, Alpha Natural's chairman and chief executive, would become chairman and Alpha's president. Kevin Crutchfield, currently Alpha's president, would be chief executive officer.

Kurt Kost, Foundation's president and chief operating officer, would become president of the combined company. James Roberts, Foundation's chairman and chief executive, would be a member of the combined company's board of directors, which would consist of six directors from Alpha Natural and four directors from Foundation.

Both boards approved the deal, which is expected to close later this year, making the third largest coal producer in the United States, behind Peabody Energy and Arch Coal.

GLG prices upsized deal

The newly priced GLG 5% convertibles weren't seen in trade, but were bid at 102 as the company's shares rose 19 cents, or 6%, to $3.29.

The U.S.-listed, U.K.-based alternative asset manager priced an upsized $214 million of five-year convertible subordinated notes in an overnight deal to yield 5% with an initial conversion premium of 20%.

The Rule 144A deal was originally expected to be $180 million in size.

The issue size was revised through the day, first reported at $200 million, then $220 million and finally at $214 million. Meanwhile, a euro-denominated offering was scuttled.

About $30 million of the U.S. deal was purchased by company insiders, including Noam Gottesman, GLG chairman and co-chief executive, Emmanuel Roman, GLG co-chief executive, and Pierre Lagrange, senior managing director of GLG Partners LP.

The bonds will be non-callable for three years, and provisionally callable after that subject to a 150% price hurdle.

There is a change of control put via a make-whole table, but no make whole upon delisting.

Joint bookrunners of the offering were Credit Suisse and Citigroup.

Proceeds are earmarked to repurchase a portion of GLG's credit agreement, or about $285 million of $570 million loans outstanding, which are being acquired at 60% of par.

Another deal expected to price post close Tuesday was Great Plains Energy's $250 million of convertible mandatories, which were talked to yield 12% to 12.5% with an initial conversion premium of 15% to 20%.

Another couple of deals

Cash America said it planned to price $100 million of 20-year convertibles, which were talked to yield 5.25% to 5.75% with an initial conversion premium of 20% to 25%.

Jefferies & Co. is bookrunner of the Rule 144A offering, with JMP Securities acting as co-manager.

The bonds will be non-callable for five years, with investor puts in years 2014, 2019, and 2024.

Fort Worth, Tex.-based Cash America is an owner and operator of pawnshops in the United States and Mexico.

Parsippany, N.J.-based hospitality company Wyndham Worldwide planned to price $200 million of three-year convertible notes after the close Wednesday that were talked to yield 3.25% to 3.75%, with an initial conversion premium of 17.5% to 22.5%.

Concurrently, Wyndham plans to price five-year senior unsecured straight notes.

Credit Suisse Securities (USA) LLC, J.P. Morgan Securities Inc., Merrill Lynch & Co. and Citi are acting as joint bookrunners managers for the convertible notes offering.

They are non-callable with a standard change of control put.

Wyndham also plans to ender into convertible note hedge and warrant transactions with affiliates of one or more of the underwriters.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Cash America International Inc. NYSE: CSH

Ford Motor Co. NYSE:F

GLG Partners Inc. NYSE: GLG

Great Plains Energy Inc. NYSE: GXP

Wyndham Worldwide Corp. NYSE: WYN

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