US Bancorp brings $2.5 billion overnighter; Conseco prices; investors eye Maxtor, NII Holdings

By Rebecca Melvin

Princeton, N.J., Aug. 9 - If exclamation points on e-mail messages can be translated to eyes widening, then that's what happened to convertibles players when they saw the new deal from U.S. Bancorp for $2.5 billion of convertibles, set to price ahead of the open on Wednesday. Also set to price ahead of Wednesday's open is a $300 million convertible deal from NII Holdings Inc.

Meanwhile two breakfast deals emerged Tuesday, taking the focus for much of the session ahead of the close.

Both breakfast deals were for $300 million, one from Maxtor Corp. and the other from Conseco Inc., which had had its deal on the calendar for two weeks.

In the secondary market, Delta Air Lines Inc. continued to see a slide in its paper, which weighed on other airline paper like Northwest Airlines Corp.

General Motors Inc. and auto parts maker American Axle & Manufacturing Holdings Inc. were also active in Tuesday's secondary market, trading in line with their underlying stocks. But otherwise it was pretty quiet, traders said.

"Everybody is just dissecting the deals," a New York-based sellside analyst said.

U.S. Bancorp offering

Minneapolis-based U.S. Bancorp, a financial holding company, said it will price an offering of 30-year floating-rate convertible senior debentures. There is an over-allotment option for $375 million.

Price talk for the Rule 144A bonds via sole bookrunner Lehman Brothers was for a coupon set quarterly at 168 basis points below the three months Libor rate. The initial conversion premium was expected to be 20%.

The debentures were set to price ahead of the opening of the markets Wednesday.

The convertibles will be putable on Aug. 21, 2006, and U.S. Bancorp may redeem them on or after that date.

U.S. Bancorp may use a portion of the net proceeds to fund repurchases of its common stock simultaneously with the convertibles offering, and the remainder of the proceeds is expected to be used for general corporate purposes.

Conseco models out 2.5% rich

Conseco priced $300 million of 30-year convertibles at 99 to yield 3.5%, at the high end of price talk for the coupon, and with an initial conversion premium of 27.5%, the low end of price talk.

The Rule 144A deal via bookrunners Goldman Sachs, Morgan Stanley and JP Morgan Securities was initially talked to yield 2.75% to 3.25% for the coupon and 27.5% to 32.5% for the initial conversion premium.

During Tuesday, the price talk was widened to up to a 3.5% coupon, a syndicate source said.

It was seen modeling out 2.5% rich at the middle of the price talk range using an 18% volatility and a credit spread of 300 bps over Treasuries, according to Merrill Lynch analyst Tatyana Hube, who published a comment on the proposed convertible during the day.

At the ends of talk, Hube said she saw it at a range of 0.4% rich to 4.7% rich at the issue price of 100, based on the common price of $21.15.

There is a $30 million greenshoe on the notes, which are non-callable for five years, with puts in years 5, 10, 15, 20 and 25.

Conseco is a Carmel, Ind.-based insurer. It plans to use proceeds to repay part of a $797 million term loan, which is being renegotiated with bankers to make it a $475 million term loan.

Investors eye Maxtor

Of the two breakfast deals, Maxtor's $300 million of seven-year convertibles, talked for a yield of 1.875% to 2.375% and for an initial conversion premium of 23% and 27%, appeared to be the favorite by a mild lead.

But it was debatable whether they could be compared in that way. "That's kind of like asking if I like apples or bicycles better," said a Connecticut-based buysider, when asked which deal he preferred.

No gray market was reported on either deal.

Maxtor's older 6.8% convertibles due 2010 traded up to 99.50, while the Maxtor 5.75% bonds due 2012 traded at 85.50 on Tuesday.

The Milpitas, Calif.-based supplier of hard disk drives was liked by several sources, one of whom saw the Rule 144A deal via sole bookrunner Citigroup at fair value using a volatility of 45% and a credit spread of 600 bps over Libor.

A buyside source in Chicago said he liked the Maxtor deal using a volatility of 38% and a credit spread of 540 bps over Libor.

Merrill Lynch is a joint lead manager of the Maxtor deal, and Goldman Sachs is a co-manager. The proposed deal includes a $45 million greenshoe.

The notes are non-callable for five years and include dividend and takeover protection.

Maxtor plans to use proceeds to retire outstanding debt and for other general corporate purposes.

NII Holdings on deck

NII Holdings, Inc. launched its $300 million offering of 20-year convertible notes after the bell Tuesday. The Rule 144A deal was talked to yield 2.25% to 2.75% with an initial conversion premium of 30% to 35%.

The notes via sole bookrunner Goldman Sachs were expected to price before the open Wednesday. There is a $50 million greenshoe.

Based in Reston, Va., NII provides digital wireless communication services in Latin America.

NII intends to use proceeds mostly for general corporate purposes, which may include expansion of its existing network, either through capital expenditures for internal expansion or acquisitions of other operators, refinancing or repayment of outstanding debt, or other purposes.

Downgrade crushes Delta

The battered convertibles of Delta fell yet lower on Monday, with the 8% convertible due 2023 trading down a point to 18 after slipping about 2.5 points from Friday to Monday. The Atlanta-based airline's stock plunged 28 cents, or 12.56%, to $1.95, to a new low.

On Tuesday Merrill Lynch analyst Michael Linenberg cut his rating on the stock to "sell" from "neutral," saying the upward trajectory of oil prices increases the chance of a bankruptcy filing in the next two months.

In addition, Delta said Tuesday it is delaying for up to five days the filing of its quarterly report to the Securities and Exchange Commission, and its pilots union postponed plans to elect new officers to its executive committee and to fill a position on its negotiating committee.

The news whammy sent other carriers down in sympathy. Northwest Airlines' 6.625% convertibles traded at just below 40 early in the day, when their underlying stock was $4.00. Later in the session, it traded at 38.7. Northwest shares ended the session down six cents, or 1.47%, to $4.03.

GM lifts lightly

The $25 convertible bonds of General Motors were lifted on Tuesday, with the company's 6.25% bond up 0.30, or 1.40%, at 21.70, while GM shares gained 44 cents, or 1.26%, to $35.39.

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