King Pharmaceuticals trades up further after pricing; small deals join calendar

By Peter Heap

New York, Nov. 2 - The warmly anticipated King Pharmaceuticals, Inc. offering priced late Thursday - after a one-day delay - and traded up further after already having gained ground in the gray market.

Otherwise the convertibles market was mostly quiet Friday and the calendar is also looking fairly subdued with just two small-size deals currently lined up for pricing next week - despite investors' fierce appetite for new securities.

King Pharmaceuticals priced $300 million of 20-year convertible debentures at a yield of 2.75% and an initial conversion premium of 32%. The deal, priced alongside an offering of 20.5 million shares, came at the rich end of price talk, which had put the yield at 2.75% to 3.25% and the conversion premium at 28% to 32%. It had originally been scheduled for late Wednesday but pricing was put back a day.

The convertibles came to market at par but were already quoted at 102 5/8 in the gray market by the close of Thursday's session.

Friday they rose further to 104 bid, a market source said, although he added that there was little activity seen.

Indeed, the session as a whole was said to be quiet, with underlying stocks moving little, although Treasuries retraced some of their sharp gains earlier in the week on profit taking. The Dow Jones Industrial Average closed 59.60 better at 9323.50 while the Nasdaq gave up 0.57, ending at 1745.73.

Talk emerged on two deals expected to price next week.

Chesapeake Energy Corp.'s offering of $125 million convertible preferreds is talked at a yield of 6¼% to 6¾% with the initial conversion premium at 21% to 26%. Pricing is scheduled for after the market close Tuesday, according to a source familiar with the deal. Bookrunners are Bear Stearns & Co. and Credit Suisse First Boston.

Meanwhile ATMI, Inc. will sell $100 million of five-year convertible subordinated notes which are talked at a yield of 5¼% to 5¾% with an initial conversion premium of 21% to 25%, according to market sources. Bookrunner is Goldman, Sachs & Co. The Rule 144A offering is anticipated next week although exact timing could not be obtained.

Those two small deals are all the calendar items with a definite schedule at present. Both are in sectors that have been receiving good support from investors recently, energy and chipmakers for Chesapeake and ATMI respectively.

With many investors shunning the out-of-the-money securities on offer in the convertibles secondary, that $225 million total is unlikely to satisfy the current strong demand for new issues.

One analyst at a major New York investment bank said he was hearing rumors that a few firms are looking to tentatively announce deals, given the favorable response buyers are giving the kind of offerings they are looking for.

The analyst also contrasted the seemingly unending demand for convertibles with the far weaker general climate in securities markets at the moment. Convertibles set a record for annual issuance months ago and have now reached a total of $90 billion, according to Prospect News data.

"Where's all this money coming from?" he mused. "Given what the rest of Wall Street has done this year, it's made it all the more unbelievable."

In answer, he noted that convertible hedge funds have been making money this year, unlike many other asset classes.

"That's just attracting more and more capital," the analyst said.

End

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