CMS, Seacor new paper at par; Dress Barn up 3.75 points; Leucadia off on stock dividend

By Ronda Fears

Nashville, Dec. 8 - New paper from CMS Energy Corp. and Seacor Holdings Inc. hovered around par in the immediate aftermarket Wednesday, but the tiny deal at bat from Dress Barn Inc. continued to trade well over issue price in the gray market.

Nothing else popped up on the new deal front, and, yet, volume in the secondary also was described as a bit lackluster.

The surge in oil prices on supply concerns gave attention to several issues in the sector, but more so on drilling and oilfield services names, like Schlumberger Ltd. and BJ Services Co. Also mentioned higher was Eastman Kodak Co.'s 3.375% convertible, which gained about a half point to the 124.375 area.

Sirius Satellite Radio Inc., however, was brought back to earth on a couple of downgrades to the stock, asserting the rocket ride in the stock since early October was way overdone. The convertibles erased all and more of gains from the last couple of weeks.

Leucadia National Corp.'s convertible also slipped about a half point while the stock gained on the New York City-based conglomerate's announcement of a common dividend increase and 3-for-2 stock split.

Action in Europe continued to stir comments, with analysts saying Telecom Italia's converts may be poised to rise, at least from credit data points, and traders remarking about buying interest in other European telecoms like KPN, Olivetti and VersaTel.

Dress Barn merger key to deal

Meanwhile, Dress Barn Inc.'s tiny new deal, which was on tap after the close, was seen last trading at 3.75 points over issue price in the gray market with the stock up 52 cents on the day, or 3.32%, at $16.17.

The new issue got a lift after the bid dropped to 2.75 points over, following a "sizable" trade early Wednesday at 3.125 points over.

Dress Barn's $100 million issue was talked with a 2.75% to 3.25% coupon and 25% to 30% initial conversion premium.

Dress Barn's shares ended Tuesday down by $1.19, or 7.07%, at $15.65 and were seen up by 15 cents in after-hours trading.

An interesting provision in the bonds regarding the issue's call particularly piqued interest among potential buyers.

If Dress Barn's acquisition of Maurices Inc. is terminated, the notes may be redeemed in cash any time before Feb. 28, 2005 at 102 plus interest; otherwise, the 20-year issue is non-callable for seven years.

"Since DBRN only needs to do this convert deal as part of a financing package for its acquisition of Maurices, they want to have a provisional right to call the bonds if the acquisition is not completed, since they obviously won't need the cash if the transaction doesn't go through," a buyside analyst said. "The formula ... is essentially the call price."

CMS sells tight of yield talk

CMS Energy upsized its deal to $250 million from $200 million and still printed it with a 2.875% coupon and 45% initial conversion premium - aggressively outside of original yield talk of 3.0% to 3.5% and at the aggressive end of the premium talk for 40% to 45%. Guidance on the coupon had been tightened ahead of pricing to a range of 2.75% to 3.0%.

"They got a little stingy with the coupon and that put a damper on the enthusiasm for this paper," said a trader at a hedge fund in New York. "The books ran heavy, though, from what we hear, mostly because it was a registered deal."

A sellside source working on the deal acknowledged that orders fell off on the revised talk, but crowed that it was "text book execution," noting minimal share impact from the deal and that it traded well in the secondary, in addition to getting upsized with aggressive final terms.

CMS shares closed Tuesday following the one-day marketing of the deal down by 1.74%, the sellside source pointed out, compared with a 9.4% decline in the utility stock index. On Wednesday, CMS shares added back 2 cents, or 0.2%, to close at $10.17.

At the midpoint of original price talk, sellside analysts put the new CMS convertible anywhere from 1.5% rich to 2% cheap, or very near fair value.

CMS pitched as growth utility

Basically, CMS was pitched as a growth story in the relatively stable utility sector. Sources said the new deal also was popular because it was registered.

CMS stressed during the marketing conference points like growth projected in the utility business as well as non-regulation power distribution, improved balance sheet and liquidity, earning per share growth in the single-digit neighborhood and improved corporate governance, sources said.

All was quiet regarding activity in CMS' existing convertibles, the 4.5% preferreds and 3.375% bonds, which are both the subject of exchange offers to eliminate contingent conversion features in order to avoid having to report diluted earnings per share as if both issues were converted. The exchange offers expire at 5 p.m. ET on Thursday, unless extended.

Seacor at wide end of guidance

Conversely to the CMS pricing, Seacor sold its $200 million deal at the cheap end of price guidance with a 2.875% coupon and 40% initial conversion premium, versus guidance for 2.75% to 2.875%, up 40% to 42%.

A market source familiar with both new deals that broke to trade Wednesday noted that CMS as a double-BB got a deal printed with an identical coupon to Seacor, which is an investment-grade credit.

The Houston offshore oilfield workboat operator's overnighter was seen at the open with a bid of 99.75 but hovered around par for most of the session, a buyside trader said, and was last seen right at the close with a bid of 100.

Seacor, which also operates inland river barges as well as oil spill remediation services, said proceeds would be used for general corporate purposes, including possible debt repayments. Seacor shares on Wednesday reacted to the convertible offering, losing $1.09, or 2.09%, to $51.16.

BJ Services up on oil supplies

Oil related stocks and convertibles were basically on the uptick Wednesday, though, as oil futures shot up on concerns about supplies as heating oil inventories going into the winter months remain shy of year-ago levels and fears that the OPEC cartel may decide to cut production levels at a meeting later this week.

BJ Services' 0.5% convertible, which was discounted to 79.076 when it was sold in 2002, was pegged at 83.625 with the underlying stock at $46.625. The shares ended up a dime, or 0.21%, at $47.02.

The January contract for crude oil Wednesday gained 48 cents to $41.94 a barrel on the New York Mercantile Exchange. The U.S. Energy Department reported that crude oil inventories rose last week by 600,000 barrels to 293.3 million barrels, up 5% from a year ago, but distillates, including heating oil and diesel, were at 119.3 million barrels, down from 136 million barrels the same time last year.

Concerns about tight heating oil supplies ahead of winter have eased somewhat in recent weeks due to the mild weather thus far, a sellside trader said, but that makes the OPEC wildcard more dangerous. With oil prices down sharply from the $55-plus peak in October, he said many worry OPEC will want to curtail output.

Sirius grounded by stock cuts

Sirius had shot up like a satellite being put into orbit over the past month, but the sky fell Wednesday and dragged its convertibles down sharply though the paper is still deep in the money.

On downgrades in the stock by Smith Barney and Bear Stearns, the convertibles erased gains seen over the past couple of weeks. The new 3.25% due 2011 plunged to 159.2 bid, and the 2.5% due 2009 fell to 175.25 bid.

Sirius shares plummeted 23.45% on the day, or $2.114, to $6.90.

Smith Barney analyst Niraj Gupta cut the stock to sell from hold, and Bear Stearns analyst Robert Peck slashed it to peer perform from outperform, both saying the stock price had gotten ahead of itself. Yet, both also said they remain bullish on Sirius' long-term prospects.

Sirius had been on a tear since signing shock jock Howard Stern in October, with the controversial deejay due to join the broadcaster in January 2006. The euphoria gained momentum last month when Mel Karmazin, a former president at Viacom Inc., was hired as chief executive of Sirius.

Telecom Italia could tighten

Telecom Italia on Tuesday detailed plans to bring its mobile unit, Telecom Italia Mobile, into the corporate fold via a part-cash and part-shares offer to buy the 44% of the unit's stock that it does not already own.

"We think that this will have little impact on TI's convertibles on a delta-neutral basis, given their risk profiles and the structure and financing of the proposed merger," said Barclays convertible analysts Luke Olsen and Haidje Rustau. But, they added, "From a credit perspective, our telecoms team thinks that the recent TI widening might have been overdone and expects spreads to recover some of this, which should have a small positive impact on these two credit-sensitive convertibles."

Telecom Italia's 1.5% euro convertible due 2010 is far in the money, the analysts noted, and, given current stock price levels, is quite likely to be converted before next May, thereby extinguishing more than €2.4 billion of net debt, optically, at least. Telecom Italia's two other euro converts, the 1% due 2006 and 1% due 2005, are far out of the money, and therefore have little sensitivity to the underlying shares.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.