Nuveen exchangeable dips to 1/8 plus over issue in gray; El Paso preferred sees plus one offer, no bids

By Sara Rosenberg

New York, April 6 - Nuveen Investments Inc.'s planned new convertible exchangeables fell off slightly from previous levels in the gray market, although the paper did continue to move at a premium to the issue price. And, El Paso Corp.'s upcoming convertible perpetual preferred stock did get an offer in the gray market early in the session but no bid materialized to jump start activity.

Nuveen's exchangeables were seen trading at 1/8 over the issue price on both the $350 million tranche 1 and the $350 million tranche 2 and both tranches were consistently offered at 3/16 throughout the session, according to sources.

"Merrill tranche was bid about an eighth above the issue price for a very small size," one buy-side source remarked. "It had the earmark of some kind of fishing expedition."

On Tuesday, the exchangeables were seen quoted at ¼ over issue price and offered at ¾ over issue in the gray market.

The two-part $700 million exchangeable deal is scheduled to price after the close on Wednesday via joint bookrunners Morgan Stanley & Co. and Merrill Lynch & Co.

The $350 million tranche 1 of 2.5-year notes is talked to yield 6.25% to 6.75%. The $350 million tranche 2 of 3.5-year notes is talked to yield 5.75% to 6.25%. Both tranches carry a premium of 20%.

According to an analyst, the deal is theoretically overvalued by approximately $0.09, or 0.2%, based on a stock price of $33.45, volatility of 30% and a credit spread of 138 basis points.

Nuveen's stock closed on Wednesday down $0.17, or 0.50%, at $34.01.

Tranche 1 will be issued by Merrill Lynch, which will be on the left as bookrunner. Tranche 2 will be issued by Morgan Stanley, which will listed on the left as bookrunner.

The registered deals are non-callable and both carry dividend protection. The issues are expected to be rated Aa3 by Moody's Investors Service and A+ by Standard & Poor's.

The offerings are part of The St. Paul Travelers Cos. Inc.'s divestiture of its stake in money manager Nuveen as the property and casualty insurer tries to free up cash for other uses. St. Paul announced a three-pronged plan recently to sell its 78% equity stake, or roughly 73.4 million shares, in Nuveen.

St. Paul is selling 39.6 million Nuveen shares in a secondary public offering. In addition, Nuveen is repurchasing $600 million of stock from St. Paul. Then, St. Paul is selling its remaining Nuveen stake, about 13.5 million shares, in forward sale agreements to Merrill and Morgan, which is the source of the stock underlying the exchangeable.

As part of the secondary public offering, Nuveen announced guidance for the first quarter. Based on assets under management of $119 billion at the end of February, Nuveen forecasts first-quarter revenues of about $135 million and earnings of between 42 cents and 44 cents per share.

El Paso sees offer, no bid

El Paso's convertible perpetual preferred stock found an offer at plus one to the issue price on Wednesday morning in the gray market but no one jumped at the bait to get some trading activity going on the paper, according to a trader.

"I saw [the] offering and then I never saw anything else on that," the trader added.

"When there's no bid, the offering doesn't mean anything," a second trader remarked.

El Paso's $750 million of convertible perpetual preferred stock, which are scheduled to price after the close Thursday, are talked to price with a 4.375% to 4.875% dividend and 25% to 30% initial conversion premium.

The Rule 144A is coming via joint leads Bank of America and Deutsche. Also in the syndicate is Citigroup, Credit Suisse First Boston, Morgan Stanley, Merrill Lynch, Goldman Sachs, ABN Amro, BNP Paribas, Scotia Capital, SG Cowen, Hypo and Fortis.

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

There is a $150 million greenshoe.

El Paso, a Houston-based energy company, plans on using proceeds to redeem the outstanding 8.25% cumulative preferred stock of its subsidiary, El Paso Tennessee Pipeline Co., in the amount of $300 million plus accrued dividends, and prepay its Western Energy Settlement obligations, estimated to be approximately $442 million.

Any shortfall in the amounts required to repay these obligations from the net proceeds of the sale of the preferred stock will come from by existing cash on hand.

The company's tock ended the day down $0.11, or 1.03%, at $10.55.

JetBlue up on traffic report

JetBlue Airways Corp.'s convertibles were stronger on the day as the company announced that traffic in March increased 33.7% from March 2004, on a capacity increase of 24.1%.

The company's 3.5% convertible due 2033 closed up nearly half a point at 86.04 bid, 87.04 offered and the 3.75% convertible due 2035 closed up about an eighth of a point at 99.75 bid, 100.25 offered, according to a trade.

The company' stock closed up $0.08, or 0.41%, at $19.52.

JetBlue is a Forest Hills, N.Y.-based low-cost passenger airline.

Men's Wearhouse stronger

Men's Wearhouse Inc.'s 3.125% convertible due 2023 improved by about a quarter of a point to 111.62 bid, 112.62 offered during the session probably because of improved demand for the paper, according to a trader. The stock closed up $0.20, or 0.48%, at $41.90.

"It had kind of weakened over the past couple of weeks. Somebody probably looked at it and decided it looked interesting," the trader said.

However, almost immediately after the close on Wednesday, the company announced that based on better than expected net sales and comparable store sales during the first two months of the first quarter, it now expects to exceed the upper end of its $0.49 to $0.50 quarterly earnings per share guidance that was given in early March.

The earnings per share guidance given in March excludes the Eddie Rodriquez results.

For the fiscal month ended April 2, total company sales was $159.5 million compared to $135.6 million last year, U.S. sales was $146.4 million compared to $123.7 million last year and Canada sales was $13.1 million compared to $11.9 million last year.

For the quarter-to date, total company sales was $275.3 million compared to $237.3 million last year, U.S. sales was $253.3 million compared to $217.7 million last year and Canada sales was $22 million compared to $19.6 million last year.

Men's Wearhouse is a Houston-based specialty retailer of men's suits.

Market tone improves

Overall, the convertible market felt better on Wednesday with more volume spotted, according to sources.

"It seemed like there was definitely more activity," one source said.

"The market had a better tone to it today. People looked like they were stepping in and initiating or adding to positions," another source added.

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