Convertibles mixed in active trade; CMS Energy, Callaway receive quiet receptions; UAL weaker

By Rebecca Melvin

New York, June 10 - Convertibles were mixed in fairly active dealings Wednesday, although two newly priced issues were quiet in trade, and contrary to a recent trend, there were no pending new issues to evaluate during the session.

The newly priced CMS Energy Inc. 5.5% convertibles closed at 101.75 bid, 102.75 offered, according to one syndicate source, and higher at 102.5 bid, 103.25 offered, according to another syndicate source. But they weren't heard in trade during the session.

CMS's existing 2.875% convertibles due 2024 traded near 101, which was steady to down 0.5 point from Tuesday.

The newly priced Callaway Golf Co. 7.5% convertibles weren't heard in trade, although they were indicated higher early on at 103.25 bid, 103.75 offered, according to a Connecticut-based sellside analyst.

A trader at Lazard Capital, bookrunner of the Callaway deal, said no comment could be made on the closing sale price Wednesday because it was a private deal.

There was an absence of new issue launches in the U.S. market late Tuesday or Wednesday.

"It was a welcome break," a New York-based syndicate source said.

Last Tuesday, three new issues launched, including JetBlue Airways Corp. Biovail Corp. and Steel Dynamics Inc.

The week before, on May 26, Allegheny Technologies Inc., and Alliance Data Systems Corp. were launched, with pricing set the following day on Wednesday. And on May 19, Saks Inc. and Hertz Global Holdings Inc. were launched after the close.

In the overall secondary market, north of $2 billion Trace eligible bonds traded, which compares to $1.6 billion average daily volume this year, a New York-based sellsider said, referring to the session as "very busy."

Hertz, which priced its new issue three weeks ago, was up a point versus its underlying stock price, which was higher by only a dime at $7.00.

But Allegheny, which priced two weeks ago, was down 2 points as its stock slipped a dollar to $41.50 from $42.50.

UAL Corp.'s convertibles were weighed down by a credit downgrade by Fitch Ratings on revenue concerns and as the airline sector dipped overall on higher oil prices.

CMS mostly quiet

CMS' newly priced $150 million of 20-year convertible senior notes didn't get a whole lot of interest from convertibles players. The deal wasn't upsized, contrary to the general trend, and it priced at the cheap end of talk for the coupon and at the midpoint for the premium.

The Jackson, Mich.-based utility company also priced $300 million of straight notes.

Both offerings will be used to retire existing debt and for general corporate purposes.

"What a relief not to have new deals; we're dealing with the pipeline," a sellside analyst said about overall new issuance. The analyst said there was very little interest in CMS and he hadn't heard it mentioned in trade.

Barclays Capital was the bookrunner of the CMS convertibles offering. Joint lead managers were Deutsche Bank; Merrill Lynch, Pierce, Fenner & Smith; and Wachovia Capital Markets LLC.

The convertibles are non-callable for five years and have puts in years five, 10 and 15. There is contingent conversion at a 130% pricing hurdle.

CMS shares settled higher by 14 cents, or 1%, to $11.71.

Callaway upsizes

Callaway priced an upsized $125 million of series B cumulative perpetual convertible preferred stock after the market close Tuesday with a 7.5% dividend and an initial conversion premium of 19.1%.

Until June 15, 2012, Callaway can force conversion of some or all of the preferreds if its stock price exceeds 150% of the conversion price for 20 out of 30 consecutive trading days. There is a make whole provision for dividend payments if this mandatory conversion option is exercised.

"People were confused by the provisional call. They didn't know how the up and out worked, and when they found out there was a make whole, they were happy," a sellside analyst said.

The deal was initially going to be $110 million in size. It came at the rich end of 7.5% to 8% talk for the dividend and richer than the 12.5% to 17.5% talk for the initial conversion premium.

Proceeds will be used to pay down a portion of the company's revolving line of credit.

Carlsbad, Calif.-based Callaway is a maker of golf clubs and equipment.

UAL weighed by downgrade

UAL's 5% convertibles due 2021 moved down a couple of points to 47.50 bid, 48.50 offered from 50 early on. The 5% convertibles have a call/put in February 2011 and have been a little stronger than the UAL 4.5% convertibles, which are also due 2021.

The UAL 4.5s, which have a put in June 2011 and a call in July 2011, traded at 42, which was flattish compared to recent levels.

Chicago-based UAL shares fell 29 cents, or 6.2%, to $4.37.

Fitch downgraded the credit of United Airlines and its parent UAL to CCC from B- due to "extreme pressure" from declining revenue.

The rating agency cited depressed passenger volume. "Despite preliminary signs of a moderation of year-over-year deterioration in passenger yields and revenue per available seat mile in April, the revenue picture appeared to worsen again in May as H1N1 flu concerns depressed industry bookings further," Fitch said.

"Although domestic leisure-oriented demand is holding up reasonably well....passenger yield and RASM trends in premium business travel markets will likely improve only slowly as the economy strengthens somewhat moving into 2010."

UAL also faces upcoming debt maturities of $655 million in the second, third and fourth quarters.

Meanwhile, oil prices hit a seven-month high, with crude oil settling above $71 a barrel, which is up from about $32 in January.

Mentioned in this article:

Allegheny Technologies Inc. NYSE: ATI

Alliance Data Systems Corp. NYSE: ADS

Biovail Corp. NYSE: BVF

Callaway Golf Co. NYSE: ELY

CMS Energy Inc. NYSE: CMS

Hertz Global Holdings Inc. NYSE: HTZ

JetBlue Airways Corp. Nasdaq: JBLU

Saks Inc. NYSE: SKS

Steel Dynamics Inc. Nasdaq: STLD

UAL Corp. Nasdaq: UAUA

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