Selective $100 million convertible talked at 4.25%-4.75% yield, 25-30% premium

By Ronda Fears

Nashville, Tenn., Sept. 16 - Selective Insurance Group Inc. launched $100 million of 30-year convertible notes in the Rule 144A market, with price talk putting the yield at 4.25% to 4.75% with a 25% to 30% initial conversion premium.

The deal is slated to price after the close Thursday via lead manager Merrill Lynch & Co.

The notes will pay a cash coupon for the first seven years and does not accrete. It reverts to a traditional zero-coupon issue after seven years, accreting to par from the issue price.

Deutsche Bank Securities Inc. convertible analysts put the deal 6.45% cheap at the midpoint of guidance, modeling it as a seven-year bond issued at par. The analysts used a credit spread of 350 basis points over Libor and 35% volatility in the stock, plus accounted for a 2.62% common dividend yield.

The issue is non-callable for five years with puts in years seven, 10, 15, 20 and 25.

There is a contingent conversion trigger of 120% for the first seven years. Then, it declines to 110% through maturity. There is a contingent payment trigger of 120%.

There is a $15 million greenshoe available.

The company said it intends to use $60 million of proceeds to distribute to an irrevocable trust to help pay down debt, and up to $72 million is the greenshoe if exercised. Remaining proceeds would be used for general corporate purposes, including possible capital contributions to operating units.

Selective, headquartered in Branchville, N.J., is a holding company for five property and casualty insurance companies that offer primary and alternative market insurance for commercial and personal risks.

The company offers medical claim management services to insurance companies and other businesses through Alta Services, a managed care organization, and Consumer Health Network Plus, a medical provider network; human resource administration services and risk management products and services through Selective HR Solutions Inc.; and flood insurance policy, administration and claim services through the National Flood Insurance Program, through FloodConnect.

Selective shares closed down $1.55 to $23.35.

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