Maverick Tube $100 million convertibles talked to yield 3.875-4.375%, up 40-45%

By Ronda Fears

Nashville, June 2 - Maverick Tube Corp. launched $100 million of 30-year convertible senior notes with talk putting the yield at 3.875% to 4.375% with a 40% to 45% initial conversion premium. The Rule 144A deal, led by JPMorgan, is set to price after the close Tuesday.

The notes will be non-callable for five years, then with a 130% hurdle.

There will be puts in years 8, 10, 15, 20 and 25.

There is a 120% contingent conversion trigger. There is a contingent payment trigger of 130%.

There is a $20 million greenshoe available.

Lehman Brothers analysts put the deal 0.76% cheap at the midpoint of guidance, with the stock at $19.42, using a credit spread of 700 basis points over Treasuries and 42% stock volatility.

Deutsche Bank Securities Inc. analysts put it 5.185% cheap at the midpoint of guidance, with the stock at $19.42, using a credit spread of 550 basis points over Libor and 40% stock volatility.

St. Louis-based Maverick, which produces welded tubular steel products used in energy and industrial applications, said proceeds would be used to reduce amounts outstanding on its existing senior credit facility.

Maverick shares closed down 60c, or 3%, to $19.42.

Earlier Monday, Maverick lowered its guidance for second quarter, but stood by its full year projections.

Earnings for the quarter are anticipated to be in the range of 3-5c per share, depending on shipping levels in the last month of the quarter, versus the company's forecast of 10-15c in April.

For the year, the company still projects EPS of 75-90c.

Second quarter earnings will be less than previously anticipated primarily due to a deeper and more sustained spring break-up that significantly slowed demand for energy products in Canada, the company said.

However, Maverick also pointed out that it anticipates that the second quarter Canadian drilling shortfall will be offset by stronger than expected activity in both the U.S. and Canada during the balance of the year, bringing full year activity in line with previous estimates.

"While Canadian drilling activity has seen recent improvement, it is well below our previous expectations for the quarter," said Maverick chief executive Gregg Eisenberg.

"However, recent published market forecasts for the number of wells to be drilled in Canada for the year as a whole show increased activity from 17,500 to 18,300 wells. The increase in the rig count in Canada over the last two weeks tends to support this forecast.

"This suggests that Canadian demand will be stronger in the second half of the year and shipments can catch up to expected levels for the year. While second quarter earnings will fall short of market expectations, I am optimistic that full year expectations can still be met."

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