Despite stocks' sharp retreat, 4 new deals emerge; Amazon deal speculation resurfaces

By Ronda Fears

Nashville, May 19 - New issues were the focus Monday as the convertible market braced for what appeared to be another busy week ahead as four deals emerged, including a late launch for Tuesday by Williams Cos. Inc.

"Everyone is honed in on the primary [market], but we were watching the chips, which were slaughtered today along with pretty much the whole tech sector," said a convertible trader at a large hedge fund based in New York.

"A lot of the new issues are not designed to work well in this type of market unless you are hedged. We didn't feel any pain, but there are some people hurting right now, I suppose."

Advanced Micro Devices Inc.'s new convert and ATMI Inc. plunged on big stock losses, which were in line with the Philadelphia Semiconductor Index drop of 4.97%.

Among the more recent new deals, from last week, LSI Logic Corp. CenterPoint Energy Inc. and Northwest Airlines Corp. converts were down sharply with the respective stocks.

Triarc Cos. Inc., however, continued to gain ground, adding 1.125 points to 105.25 bid, 106.25 offered with the stock up 60c, or 2.26%, to $27.10.

Coming this week, Kaydon Corp. was pitching an overnight $150 million deal, Providian Financial Corp. launched a $150 million deal for Tuesday while Williams announced $275 million, also for Tuesday and Regal Entertainment Group has $125 million for Thursday's business.

Hartford Financial Services Group Inc.'s new $600 million mandatory also was at bat to price after the close, and buzz about a new deal from Amazon.com Inc. resurfaced as a result of a Barron's article over the weekend.

"It looks like we're in for another hectic week, if today is any indication," said a dealer.

"It's okay, though. Even after last week's onslaught [more than a dozen new deals totaling $4.4 billion, without the greenshoes], there are estimates that an excess of $15 billion to $20 billion of demand still needs to be satisfied."

Deals pending so far this week are very straightforward, sans warrant kickers or call spreads, and the terms appear to be more fair, at least relative to what's come to market recently.

Markets sources said initial reactions were very positive for all three deals launched Monday.

Hartford was said to be going nicely, as well. The existing Hartford mandatory closed down 1.03, or 2%, to 48.82 and the stock lost $1.75, or 3.68%, to $45.75.

Referring to the Kaydon overnighter, one source said: "It's going very well, there will be some smiling faces tomorrow."

Kaydon was pitching $150 million of 20-year convertibles with guidance for a 4.0% to 4.5% coupon and a 30% to 34% initial conversion premium in the Rule 144A market. Kaydon shares closed off 29c, or 1.32%, to $21.76.

Buyside sources, though, were expressing some concern about credit quality with Providian and the use of proceeds by Regal.

Providian is another repeat issuer, tapping the market with $150 million of five-year non-callable convertible senior notes with guidance for a 4.0% to 4.5% coupon and a 55% to 60% initial conversion premium.

"This is going to fly," a sellside source said about the Providian deal.

"It'll be at 105 before you know it."

Providian shares closed down 83c, or 9%, to $8.40.

While Providian did not state a use for the proceeds, traders were speculating the company is looking to pre-fund the put in August for its 3.25% convert. The Providian 3.25% due 2005 issue, putable at 101.3, closed Monday at 84 bid at one shop and at 87 another. The troubled credit card issuer's 0% convert due 2021 was quoted at 42 bid.

Providian has been troubled with investment write-offs and weak portfolio holdings, but some onlookers point to signs of a turnaround after several asset sales for support.

Regal, on the other hand, worried some with its use of proceeds.

Regal is selling $125 million of five-year non-callable convertible senior notes with guidance for a 3.75% to 4.25% coupon and a 25% to 30% initial conversion premium.

Proceeds, along with about $190 million in cash and a small revolving credit drawdown, will be used to fund a $600 million to $625 million special dividend to the Regal Entertainment shareholders. Also, Regal Cinemas Inc. is scheduled to launch a $315 million term loan D due 2009 on Tuesday, according to market source, and it is expected to fetch Libor plus 275 basis points.

Standard & Poor's assigned a B rating to the convertible and a BB- rating to the term loan, both with a stable outlook.

Regal said the one-time dividend of $4.35 to $4.55 per share will allow investors in its 2002 reorganization to cash in on their investment without selling stock. Afterward, the company said it will lower its regular quarterly dividend to 12c per share from the current 15c.

Afterward, Regal said it will reduce its quarterly dividend by about 20%.

"It's short-term paper, the coupon is a little light, but the premium is okay, in the ballpark anyway," said a convertible trader at a hedge fund in New Jersey.

"It's relatively good, considering what's hit the market recently. I won't say it's great, though. It's not something I'm going to jump at like I've got to have some of it.

"What concerns me is the use of proceeds. The key is where the common dividend will be afterward, that will eat at your returns. If there was no dividend, it would be better, but then there's the use of proceeds, this special dividend. That looks kind of weird."

Traders said many potential convertible buyers were snapping up Regal shares, however, to capture the dividend as well.

Regal shares closed up 68c, or 3.18%, to $22.09.

Williams's deal is expected to turn lots of heads, though.

Williams is returning to the convertible market, pitching a $275 million deal with proceeds earmarked to repay Warren Buffett's investment in the troubled energy firm a year ago.

"Warren Buffett's Berkshire Hathaway companies served as important strategic partners for Williams in 2002 - with both a preferred-equity investment and the exploration-and-production loan," said Steve Malcolm, chief executive of Williams.

"This group's demonstrated faith in Williams' fundamental strengths and, importantly, our future helped us weather a severe financial crisis."

The fact that Williams could repay Buffett so quickly is remarkable, Malcolm said.

The new 30-year convert, set to price after Tuesday's close, was talked to yield 5.5% to 6.0% coupon and a 38% to 42% initial conversion premium.

Williams last tapped the convertible market in January 2002 with a $1 billion mandatory. The 9% issue closed Monday off 0.19 point, or 1.54%, to 12.15 on the New York Stock Exchange.

Williams shares closed down 44c, or 5.3%, to $7.86.

Buzz also resurfaced that Amazon might be on the verge of a new convertible deal, after an article in Barron's magazine quoted analysts and investors saying it would be a good idea, traders said.

"We've heard the Amazon chatter before," said a buyside trader.

"If it comes, so be it. If not, so be it. I'm not all that excited. There's too much on my plate right now."

Calls to Amazon were unreturned Monday, but the trader said Amazon spokesman Bill Curry told Barron's that the company is always evaluating refinancing options.

Amazon's 4.75% convert due 2009 was down about 2 points, the trader said. It was quoted at 91.75 bid. Amazon shares dropped in line with the big Internet indexes, lost $1.49, or 4.5%, to $31.56. The stock reached a new 52-week high last Tuesday of $33.49.

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