KeyCorp edges up in debut; Lehman finds footing; Cameron lower; Energy Conversion on tap Wednesday

By Rebecca Melvin

New York, June 13 - The KeyCorp convertible preferred stock sale, which was oversubscribed and priced at the cheap end of talk, gained between 0.125 point to 0.375 point on Friday after it was released for secondary market trading.

The Cleveland-based regional bank priced $650 million of perpetual convertible preferred stock with a dividend of 7.75% and an initial conversion premium of 20%.

A small trade was done late in the day at 99.5, according to an East Coast-based sellsider; but, the issue closed at 100.375 bid, 100.5 offered versus a share price of $11.70, a West-Coast buysider said.

Meanwhile, Cameron International Corp. "came in about a point" on rumors of a possible takeover bid from Halliburton Co., with a cash or stock takeout looking like it would cost the bonds about three points, a New York-based sellside trader said.

Lehman Brothers Holdings Inc. regained ground on Friday after its stock lost nearly a third of its value, starting last week. Short covering was said to be behind the 13.7% snap back in its shares on Friday.

The Lehman 8.75% mandatories, which priced on Monday, were called 944.9 at the close, compared with 834.5 at the close Thursday.

The convertibles market was described as soft on Friday after trading choppily for much of the week and following the broader markets, which have been spooked by heady oil prices and concerns that inflation may cause the Fed to raise interest rates.

The latest data weighed by investors included a higher-than-expected inflation report and a lower-than-expected consumer sentiment index. Nevertheless, investor fears seemed assuaged by the fact that prices didn't appear to be running out of control. Still some suspect inflation is rearing its head and rates will be heading higher.

"This morning it was a little better, but this afternoon it headed lower again," a trader said.

"It was a little better, and there was some small stuff to do. But with this light volume and a lot of people out, you really can't get anything going," he said.

The Labor Department's Consumer Price Index showed the biggest one-month gain since November, growing 0.6% in May, which was above the 0.5% economists had expected. However, the core inflation reading, which excludes volatile food and energy prices, edged up a more moderate 0.2%, as expected.

The other widely watched piece of data was the University of Michigan preliminary reading on consumer sentiment for June that fell to 56.7 from 59.8 last month.

The week's new issuance was bracketed by Lehman Brothers' $2 billion of mandatory convertible preferreds, or 2 million preferred shares, priced Monday, and KeyCorp's $650 million of convertible preferreds on Friday.

In between was Insulet Corp.'s $75 million of five-year convertibles, Sotheby's $175 million of five-year convertibles; Bristow Group Inc.'s $100 million of 30-year convertibles; and Power-One Inc.'s $75 million of five-year convertibles.

But market players had complaints. "I'm not enthralled by the recent new deals: it's been either large financials or very small issuance. There's no end to the financial stuff coming out, and convert guys typically don't want to see their books dominated by one thing," said Mark Henriquez, director of convertibles trading at Kellogg Partners Institutional Services in New York.

"What I'd like to see are deals that are about $400 million in size, from regular corporate, non-financial issuers, with proceeds going for general corporate purposes and not for Tier One capital," he said.

Regarding anticipation of a summer lull, Henriquez said: "When guys want to do stuff, the time of year isn't really going to make a difference. A lot of people say that things slow down in the summer, but there are so many people in the convert space now, and they aren't going to stop writing tickets for two months just because it's summer!"

KeyCorp edges up on debut

The new KeyCorp 7.75% preferred stock was 99.875 bid, 100.125 offered right out of the gate, and it edged up to 100 bid, 100.125 offered versus a share price of $11.70, but then hung there in thin trading for most of the session, according to trading sources.

Its shares (NYSE: KEY) fell 25 cents, or 2.1%, to $11.73, so dollar neutral the new convertible preferreds were up about 0.125 point to 0.375 point.

"We didn't get involved. We are being more selective in our participation right now. Things are soft," a buyside trader said.

The series A preferred stock was priced at the cheap end of talk, which was for a dividend of 7.25% to 7.75% and a premium of 20% to 25%.

Concurrently, KeyCorp priced $1 billion, or 85.106 million shares, of common shares at $11.75 a share for a combined capital raise of $1.65 billion.

The combined registered offerings were "significantly" oversubscribed, KeyCorp chief executive Henry Meyer said in the release.

The convertibles have a par price of $100 per share and a greenshoe of $97.5 million. Citigroup was the bookrunner.

As far as structure, they are non-callable for five years, with forced conversion thereafter at a price hurdle of 130%.

They are to be listed on the New York Stock Exchange under the ticker symbol KEY-PrG.

Cameron loses on takeout rumors

Cameron's 2.5% convertible senior notes due 2026 traded at about 165.5 versus a share price of $53.85, which reflected expectations that a takeover in cash or stock would result in the loss of about 3 points of value. Recently the convertibles of the Houston-based oil and gas services provider had been at 162.5.

Cameron stock (NYSE: CAM) closed up $1.17, or 2.2%, at $55.03.

Sources said a rumor circulated shortly after the session open that larger rival Halliburton was a suitor for Cameron.

Earlier this week Halliburton signed a deal to acquire the interest in WellDynamics BV that it did not already own from Shell Technology Ventures Fund. Halliburton, which has corporate headquarters in Dubai and Houston, has been acquiring smaller rivals in a bid to beef up technology offerings amid record crude oil prices and high natural gas prices.

Halliburton Co.'s 3.125% convertible senior notes due 2023, which are rarely seen in trade, were seen at 256.9 versus a share price of $48.14 on Friday, compared to 258.72 versus a share price of $48.36 on Thursday.

Halliburton stock (NYSE: HAL) shed 22 cents, or less than 1%.

Oil field services typically follow crude oil prices up or down, but on Friday the sector was mostly higher despite a dip in oil prices.

Hercules Offshore 3.375% convertible senior notes due 2038, which was a new issue May 30, traded at 99.75 versus a stock price of $34.75, which was up about 0.75 point from the last time the paper traded June 3 at 99.

"It still looks really cheap to me; but the market's the market, so I'm probably too tight," a Connecticut-based sellside analyst said.

Shares of the Houston-based company, with drilling, lift boat and barge services, (Nasdaq: HERO) closed up $1.655, or 4.95%, at $34.96.

Meanwhile Parker Drilling Co.'s 2.125% convertible senior notes due 2012 were seen at 98 versus a closing share price Friday of $9.30, compared to 97 versus a share price of $9.12 on Thursday.

Shares of the Houston-based oil-services company (NYSE: PKD) closed up 18 cents, or 1.97%, at $9.30.

"Seventy percent of the movement is the price of oil," the analyst said of the oil-services sector. "Oil is down, but oil-field services are up and exploration companies are down or flat."

Energy Conversion pricing seen Wednesday

Energy Conversion Devices Inc.'s $225 million offering of five-year convertible senior notes, which was announced last Thursday, is expected to price on Wednesday following the release of price talk on Monday, according to a syndicate source.

Concurrently Energy Conversion plans to price 4.709 million shares of common stock.

The company, based in Rochester Hills, Mich., is in the solar space, with an interesting technology for making the photovoltaic or PV modules used in solar roof panels, a Connecticut-based sellside analyst commented. But the deal wasn't yet being looked at in terms of valuation, the analyst said.

Credit Suisse Securities (USA) LLC and UBS Securities LLC are bookrunners for the offerings, with JPMorgan Chase & Co., Deutsche Bank Securities, and Lazard Ltd. serving as co-managers.

Net proceeds will be used to expand the company's solar laminate production in connection with plans to reach a capacity of one gigawatt by 2012 and for general corporate purposes.

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