Convertibles mostly solidly higher; Countrywide, EMC, Medtronic add; WCI, Six Flags down

By Rebecca Melvin

New York, March 18 -The convertible bond market was solidly higher for the most part Tuesday - and more active - as it chased higher stock markets, which reversed course after Lehman Brothers and Goldman Sachs reported better-than expected earnings, and then surged to the close after the Federal Reserve cut its federal funds rate target by 75 basis points, market players said.

The S&P 500 Index and the Nasdaq Composite Index both rose 4%, reversing an abysmal downturn related to the near collapse of Bear Stearns Cos.

Some convertibles players had predicted an inflection point would occur after the investment banks reported earnings Tuesday. But others were surprised the difference a day made when fundamentals hadn't really altered that much from Monday.

Whatever the reason behind it, there was no question the upturn was much appreciated.

"It was relief," a Connecticut-based sellside head trader said, citing the higher stock prices of Lehman and Goldman as spurring "optimism."

Fed moves over the weekend granting investment banks access to the same funding privileges as commercial banks was seen as effectively removing the liquidity issue from the table as of Sunday. But the market Monday was still depressed because "people were still digesting the news; the news was new on the tape at that point," according to a New York-based sellside analyst,

"I think that people will be able to start focusing on individual names and not so much on macroeconomic news that's been such a distraction," he said. "Things were moving around so much, it was difficult to focus. Now people are able to begin to look at individual valuations and see if there is anything to pick."

Another sellsider concurred: "Everything was moving together."

On Tuesday, financials were swept higher, including Countrywide Financial Corp., which saw its convertibles jump by 4 to 5 points, a Connecticut-based sellsider said.

Also higher were EMC Corp. and Medtronic Inc., which saw their convertibles gain about 2 points each on 3.25% and 2% rises in their underlying stocks, respectively.

But lower on the day were the convertibles of WCI Communities Inc. and Six Flags Inc., which fell despite gains in their underlying shares.

Meanwhile on the primary arena, two new issues materialized after the close. MGIC Investment Corp. plans to price $325 million of convertible junior subordinated debentures next week. And Alexandria Real Estate Equities Inc. plans to price $250 million of convertible preferred stock at par $25 on Wednesday after markets close. Also seen pricing after the close Wednesday is the previously reported convertibles deal of Medical Properties Trust Inc.

Medical REIT should 'find a home'

The $125 million of five-year exchangeable senior notes should "find a home," given favorable price talk and the credit quality of the Birmingham, Ala.-based real estate investment trust focused on healthcare facilities, according to a Connecticut-based sellside trader.

"And that's a pretty bullish statement coming from me," the sellsider said.

The Rule 144A deal was talked to price with a coupon of 8.75% to 9.25% and an initial conversion premium of 15% to 20%, the source said.

There is an over-allotment option for an additional $18.75 million of notes.

Concurrent with the offering, Medical Properties plans to sell about 11 million shares of common stock, with an over-allotment option of up to 1.65 million additional shares.

UBS Investment Bank is bookrunner of the notes, while the stock offering is being sold via bookrunner UBS, with KeyBanc Capital Markets and RBC Capital Markets acting as co-lead managers and Deutsche Bank Securities, JPMorgan, and Raymond James Bank acting as co-managers, according to a company release.

MGIC talk similar to Medical Properties

The proposed $325 million of convertible debentures that MGIC has similar price talk to that of Medical Properties.

The Rule 144A deal was talked to yield 8.5% to 9% for the coupon, with an initial conversion premium of 20% to 25%.

Also like Medical Properties, the convertibles are pricing concurrent with an offering of common shares, in this case, $350 million of common stock, with an over-allotment option for up to $53 million of additional. Banc of America Securities will act as book-runner for both offerings.

The debentures will mature in 2063. There is an over-allotment option for up to an additional $65 million.

Net proceeds of the convertibles offering will be used to increase the capital of Mortgage Guaranty Insurance Co., MGIC's principal insurance subsidiary, to enable it to expand new business volume and for MGIC's general corporate purposes.

MGIC (NYSE: MTG) a Milwaukee-based mortgage lender.

Alexandria preferreds are perpetual

The 10 million shares of series D cumulative preferred stock of Alexandria Real Estate were talked at a dividend of 6.5% to 7%, with an initial conversion premium of 15% to 20%.

There is an over-allotment option of up to an addition $37.5 million, or 1.5 million shares.

J.P. Morgan Securities Inc., Citigroup and Merrill Lynch & Co. are joint bookrunning managers.

The preferreds are call protected for five years, with a soft call protection after that at a 150% hurdle. There are no investor puts. The preferred stock has standard dividend and takeover protection, and no contingent conversion.

The real-estate investment trust intends to use proceeds to pay down an unsecured line of credit and for general corporate purposes that includes acquisitions and property development.

Alexandria is a Pasadena, Calif.-based real estate investment trust that focuses on offices and laboratories.

EMC, Medtronic add

EMC's 1.75% convertibles due 2011 and 2013 moved up to 117.053 and 117.706, respectively, versus a stock price of $14.94.

EMC shares (NYSE: EMC) gained 47 cents, or 3.25%.

The Hopkinton, MA data-storage company raised its proposed buyout offer for Iomega Corp., a storage-technology company, to $3.75 a share. Iomega said Monday it considered the EMC bid superior to an alternative deal.

Medtronic's 1.5% convertibles due 2011 and its 1.625% convertibles due 2013 closed at 105.3 and 105.1, respectively, which were up from about the 103.5 level on Monday. Medtronic shares (NYSE: MDT) closed up 95 cents, or 2%, to $48.34.

The Minneapolis based medical device maker has been a convertibles stalwart, like a "convertible toy," according to a sellsider. Issues like Medtronic and Amgen, "can be traded all day long, scalping a few nickels here and there."

WCI, Six Flags lower

WCI Communities' 4% convertibles of due 2023 were down more than 2 points to 73 versus a stock price of $3.42, compared to 75.9, versus a stock price of $3.16 on Monday. Its shares (NYSE: WCI) gained 8.2%.

The Bonita Springs, Fla.-based integrated homebuilding and real estate services company said on Monday that it would likely need to extend the Aug. 5 put date, exchange the notes or find another mutually agreeable solution to problems related to the company's limited ability to meet the upcoming put date.

The company's activities primarily include single- and multi-family (traditional) homebuilding, and mid- and high-rise (tower) homebuilding, as well as the provision of real estate services primarily in Florida. It designs, constructs, and operates leisure-oriented and master-planned communities.

Six Flags' convertibles were also losers despite the higher stock market. Six Flags' 4.5% convertibles 2015 closed at 56, versus a stock price of $1.66, compared to a close of 57, versus a stock price of $1.61 on Monday.

Shares of the New York-based amusement park company (NYSE: SIX) closed up 3%.

"The name is certainly fatigued; there are questions about its capital structure," a Connecticut-based sellside trader said of Six Flags.

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