Ford stalls on financing plans; Scottish Re climbs on liquidity boost; Ventas gains in gray as deal reoffered

By Kenneth Lim

Boston, Nov. 27 - The convertible market had a slow session on Monday, but Ford Motor Co. took a beating after the company said it was seeking another $18 billion in financing.

Meanwhile, Scottish Re Group Ltd. jumped closer to par after a $600 million investment in the company raised confidence that holders of the convertibles will be paid if they put their holdings in December.

In the gray market, Ventas Inc. was slightly higher than its reoffered price ahead of its Monday-evening pricing, as investors described the offering as fair but unexciting.

The primary market continued to be robust, with deals by AGCO Corp., Mannkind Corp. and Transmeridian Exploration Inc. also announced on Monday.

Despite sharp moves in a few names, the market in general was quiet.

"The markets were real sloppy," a buysider said. "There wasn't a ton of activity."

A sellside trader said the lull is likely to continue until the new year.

"A lot of guys aren't expecting to do anything much for the rest of the year," the trader said.

Ford slides on financing

Ford's 6.5% convertible preferred fell about a point on Monday after the company said it plans to raise $18 billion in debt, of which about $3 billion could be convertible.

The preferred was marked at 35 against a stock price of $8.26 on Monday, and closed at 34.70 versus an $8.16 stock. Ford stock (NYSE: F) declined 4.23% or 36 cents.

"That's in about three-quarters of a point or so," a buysider said.

Ford said Monday that it is raising funds to address near- and medium-term negative operating cashflow, to fund its restructuring and to provide a liquidity cushion in case of unexpected events. Its financing plans include $8 billion of a new five-year senior secured revolving line intended to replace $6.3 billion of unsecured debt; $7 billion of a senior secured term loan; and $3 billion of unsecured capital market transactions that may include convertibles.

Citigroup, Goldman Sachs and JP Morgan are arranging the senior secured credit facilities for Ford, a Dearborn, Mich.-based auto maker.

Syndicate sources declined to comment on Monday, but market sources said the $3 billion portion of the fund raising was likely to be new convertibles.

"It's going to have to be convertibles," a sellside convertible bond trader said. "It's the best terms they'll be able to get. If they go for straight paper, it's going to be one rate, but converts are totally different for them."

Ford is unlikely to be concerned about the dilutive effects of a $3 billion convertible issue, the trader said. "They can't think about equity right now," the trader said. "They got to think about getting the best rates possible."

A sellside convertible analyst said the announcement was bad news for convertible holders.

"This is a struggling company digging itself further into debt," the analyst said. "It's bad for the credit, which is what matters right now...On an operational level this is also a concern, because it suggests that the turnaround they've been trying to achieve isn't coming as soon as some were hoping."

Holders of the preferreds also end up getting pushed further back in the debt rankings.

"This looks like mostly senior and secured debt, which is going to mean that if you're holding a preferred, chances of you getting back your investment are even slimmer if the company goes bust," the analyst said.

The ratings agencies downgraded Ford on Monday, following the announcement. Moody's Investors Service cut Ford's senior unsecured rating to Caa1 from B3, while Standard and Poor's lowered its rating to CCC+ from B. Fitch Ratings downgraded Ford's senior unsecured debt to B from B+.

Moody's also maintained its negative outlook on the company.

"Completing this financing would considerably strengthen Ford's ability to fund the large cash requirements it will face through 2008," Moody's said. "However, the relatively robust security package being afforded to the term loan and the revolving credit facility hurts the position of unsecured creditors."

Scottish Re gains on investment

Scottish Re's 4.5% convertible due 2022 and putable on Dec. 6 rose about 3 points on Monday to just shy of par after the company said it was receiving a $600 million equity investment.

The convertible traded at 99.375 on Monday, while Scottish Re stock (NYSE: SCT) closed at $5.85, down by 11.76% or 78 cents.

Scottish Re said Monday that MassMutual Capital Partners Llc and private investment firm Cerberus Capital Management LP will each invest $300 million for a total of 1 million newly issued mandatory convertible preferred shares. Those preferreds will be converted after nine years, into 150 million shares, or 68.8% of Scottish Re's common shares on a fully diluted basis. That gives the preferreds an initial conversion price of $4 per common share.

MassMutual and Cerberus will also gain majority control of Scottish Re's board through the transaction, which has received the nod by Scottish Re directors but still requires shareholder approval.

"It'd good for the bondholders, because now it's a very, very good chance that the company will be able to pay bondholders when they put the convertibles back next week," a buyside convertible bond trader said. "Most assuredly they will be paid."

Moody's Investors Service on Monday said it continues to review Scottish Re's credit rating with an uncertain outlook. Although the new investment will provide the company with liquidity if completed, it will be a significant weight on the company's rating if it falls through.

Standard and Poor's raised its outlook to positive from negative, saying the company's liquidity will improve with the deal, and allow Scottish Re to repay the $115 million outstanding of 4.5% convertibles.

Fitch kept Scottish Re on negative rating watch, but said the outlook will likely be changed to evolving once it has resolved the coming convertible put.

Ventas slightly better in gray

Ventas' planned $200 million of five-year convertible senior unsecured notes were bid about a quarter point above their reoffered price of 98 in the gray market on Monday, ahead of pricing expected after the market closed.

"It's fairly priced at best," a buysider said. "I'm not going to take part in this. It's yet another REIT."

Ventas' offering was initially offered at par. Price talk was for a coupon between 3.375% and 3.875%, and an initial conversion premium between 20% and 25%.

There is an over-allotment option for a further $30 million.

JP Morgan and Banc of America are the bookrunners of the Rule 144A offering.

Ventas, a Louisville, Ky.-based healthcare real estate investment trust, said the proceeds of the deal will be used to repay a revolving loan and for general purposes.

"It's just slightly cheap at the mids," said a sellside analyst who modeled the deal just under a point cheap at the mids. "It's not a bad company, but I don't think you're going to see a lot of interest in this deal with the pricing and with the slow market.

Three more new deals

Another three new deals were announced on Monday, maintaining the month's brisk pace of issuance as the market enters into the final week of November.

AGCO's $175 million of 30-year convertible senior subordinated notes is talked at a coupon of 1.125% to 1.625% and an initial conversion premium of 27.5% to 32.5%.

Pricing is expected Tuesday after the market closes, and there is an over-allotment option for a further $26.25 million.

Morgan Stanley and Goldman Sachs are the bookrunners of the registered off-the-shelf offering.

AGCO, a Duluth, Ga.-based agricultural equipment maker, said the proceeds of the deal will be used to pay part of its outstanding Libor plus 175 basis points bank loans due June 2009.

Marketing for Transmeridian's $35 million of convertible senior preferred stock appears to be limited, with a number of buysiders and sellside analysts saying they had not seen price talk for the deal.

Transmeridian did not give details about the price talk and timing of the Rule 144A offering, or who the bookrunners were.

Transmeridian, a Houston, Texas-based owner and developer of oil reserves in the Caspian Sea region, said it plans to use the proceeds of the deals to fund the development of its South Alibek field and for working capital and general purposes.

Mannkind's $100 million of seven-year convertible senior notes is not expected to price until Dec. 6, but price talk guides for a coupon of 3.75% to 4.25% and an initial conversion premium of 22% to 28%.

There is an over-allotment option for a further $15 million.

Merrill Lynch and JP Morgan are the bookrunners of the registered off-the-shelf offering.

Mannkind, a drug developer whose lead diabetes treatment is currently in phase 3 clinical trials, earlier in November filed a registration statement to sell up to $500 million of securities. The proceeds of the offerings were earmarked for clinical trial costs, research and development and for general purposes. Mannkind also announced Monday that it has received approval to begin early-stage clinical trials for an experimental cancer treatment.

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