Keane $125 million convertibles yield 2%, up 47.5%

Nashville, June 12 - Keane Inc. priced $125 million of 10-year convertible subordinated notes after the close Thursday to yield 2% with a 47.5% initial conversion premium.

The deal came at the middle of talk which put the yield at 1.75% to 2.25% with a 45% to 50% initial conversion premium.

Keane said the securities convert into 54.4989 shares.

The deal was launched before the market open Thursday.

Morgan Stanley is lead manager of the Rule 144A deal. Co-managers are Wachovia Securities and FleetBoston.

At the midpoint of price talk, sellside analysts put the deal from right around fair value to 3% cheap.

The issue will be non-callable for five years and there is a put in year five.

Contingent conversion is triggered if the stock is 120% of the conversion price, or the bonds are trading at 98% of parity or below.

There is a contingent payment trigger of 120% after year five.

Merrill Lynch & Co. analysts put the deal 0.2% cheap, at the midpoint of guidance with the stock at $12.75, using a credit spread of 570 basis points over Treasuries and a 40% stock volatility.

Lehman Brothers put it 1.13% cheap, at the midpoint of guidance with the stock at $12.66, using a credit spread of 600 bps over Treasuries and a 47% stock volatility.

Deutsche Bank Securities put it 3% cheap, at the midpoint of guidance with the stock at $12.66, using a credit spread of 450 bps over Libor and a 45% stock volatility.

There is a $25 million greenshoe available.

Keane, a Boston-based IT consulting firm, said it would use proceeds to buyback stock and general corporate purposes.

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