FPL trades steady to slightly lower on debut; Hertz gains in gray; Cephalon launches deal

By Rebecca Melvin

New York, May 20 - FPL Group Inc. launched and priced ahead of the market open Wednesday $350 million of mandatory convertible equity units at par of $50. That paper fell below par in early trade as its common stock slipped, and then held mostly steady around 49.375, sources said.

Regions Financial Corp. also launched a deal early Wednesday, with pricing after the close. The unusual mandatory was priced to yield 10% with an initial conversion premium of 10%, and a maturity of 1.5 years and callable.

It "looks like a very interesting issue. We don't see stuff like that too often!" a New York-based sellside desk analyst said of Regions.

Hertz Global Holdings Inc.'s planned $250 million of five-year convertible notes looked cheap, trading at 3.5 plus points in the gray market Wednesday.

Saks Inc., which launched an $80 million offering of convertibles Tuesday, was plus 1 in the gray market ahead of pricing set for Thursday.

After the close, two more deals hit the tape, including Cephalon Inc's planned $350 million of five-year convertibles, which were seen pricing hours later.

And CommScope Inc. also announced an offering of $200 million of six-year convertible bonds.

"It was pretty much unprecedented for 2009," a syndicate source said of the number of deals in play Wednesday.

In between looking over new paper, convertibles players traded established, investment grade names, including Amgen Inc., Transocean Inc. and Medtronic Inc.

"There was a flight to quality today, to a certain degree," a New York-based sellside trader said, adding that pricing appeared "a little better."

But Bank of America Corp.'s convertible preferreds were weaker despite the big bank's announcement that it had completed a stock offering in which it raised $13.5 billion.

FPL slips below par

FPL's newly priced 8.375% mandatories were last seen at 49.125 bid, after having traded actively through the session, mostly in the 49.375 vicinity, according to a sellsider.

But shares of the Juno Beach, Fla., electric power producer shed 3% Wednesday, to trade in the range of $53.66 to $54.66 during the session.

Another source said he had been trading some of the FPL paper, and that they were offered at 49.5 toward the end of the session.

The deal, which was launched and priced ahead of the market open Wednesday, was a bought transaction by bookrunner Credit Suisse Securities (USA) LLC.

There is a $52.5 million greenshoe.

The deal is reminiscent of the Great Plains mandatory convert that priced last week, but the Great Plains paper was priced to yield 12%, with an initial conversion premium of 20%, compared to FPL's 8.375% distribution, with the same premium.

Great Plains has a triple B rating and a negative outlook, compared to FPL's stronger rating, according to a syndicate source.

Hertz looks cheap

Hertz' convertibles, which were said to have priced after the close to yield 5.25% with an initial conversion premium of 27.5%, were in the gray market at 3 plus bid, 4 plus offered.

"Sounds like it should trade well tomorrow," a sellside analyst said.

One syndicate source said that the paper had priced, and was upsized, but this could not be confirmed by Prospect News' deadline.

B of A weaker

Bank of America's 7.25% preferred stood at 669 near the close, compared to a share price of $11.49, which was up 2% for the day.

In general stock offerings are positive news for convertibles players, who read them as a signal that others are willing to invest in the name.

"It's helpful to have equity investors. For debt buyers, it provides validation," a sellside syndication source said.

But in this case, investors viewed the stock offering as a negative, perhaps because B of A raised so much, another source said.

"The weakness said to be since they raised so much," the sellsider said.

The Charlotte, N.C.-based bank generated $13.5 billion through common-stock sales, with more than half of that amount occurring Tuesday. Total issuance of 1.25 billion shares is part of the bank's strategy to meet its requirement under the U.S. government stress test which determined that it needed to build capital by $33.9 million.

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Regions prices offerings

Also offering securities to meet U.S. government requirements was Regions Financial, which priced $250 million of 1.5-year mandatory convertible preferred and $1.6 billion in stock, for a total raise of $1.85 billion. It still needs to find an additional $650 million to meet the requirement.

The mandatories, which some convertible players won't trade, priced at the mid-point of talk which was for a yield of 10% and an initial conversion premium of 10%.

The 250,000 mandatory convertible preferred shares, with a liquidation preference of $1,000 a share, will convert into common stock on Dec. 15, 2010, unless converted earlier at the option of holders.

Goldman, Sachs & Co. and J.P. Morgan Securities Inc. were joint bookrunning managers of both registered offerings, with Morgan Keegan & Co. Inc. as lead manager.

In addition, Regions has begun an exchange offer of common shares for outstanding 6.625% trust preferred securities, under which Regions will issue no more than 112 million shares of common stock.

The cash offers and exchange offer "are the first steps of a comprehensive capital plan to satisfy the $2.5 billion Tier 1 common equity requirement prescribed by the Federal Reserve's Supervisory Capital Assessment Program, which Regions currently expects will be accomplished without further investment by the U.S. Treasury," the company said.

Regions is a Birmingham, Ala.-based financial services holding company.

Cephalon launches deal

Cephalon, which is a familiar name in the convert market, said after the close Wednesday that it planned to price $350 million of five-year convertibles.

The deal was talked to yield 2.5% to 3% with an initial conversion premium of 10% to 15%, and a syndicate source. Final pricing was expected also after the close on Wednesday.

Concurrently, the Frazer, Pa., biopharmaceutical concern planned to price $300 million of common stock.

There is a greenshoe of an additional $45 million of common stock and an additional $52.5 million of convertible notes.

The senior subordinated notes will be convertible into cash and shares.

Proceeds from the off the shelf offerings are for general corporate purposes.

A portion of proceeds will be used by Cephalon to enter into a hedging transaction on its common stock with Deutsche Bank AG, London Branch.

Cephalon also expects to enter into separate warrant transactions with the hedge counterparty, which would result in additional proceeds to Cephalon.

Deutsche Bank Securities Inc. was sole book-running manager for both offerings.

Mentioned in this article:

Bank of America Corp. NYSE: BAC

Cephalon Inc. Nasdaq: CEPH

CommScope Inc. NYSE: CTV

FPL Group Inc. NYSE: FPL

Hertz Global Holdings Inc. NYSE: HTZ

Regions Financial Corp. NYSE: RF

Saks Inc. NYSE: SKS

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