Patriot Coal, Carrizo Oil jump on debuts; NorthStar old issue drops; Ford slides on lower outlook

By Rebecca Melvin

New York, May 22 - Patriot Coal Corp. and Carrizo Oil and Gas Inc. made a splash in the convertible bond market Thursday, with both new issues moving higher in active trade, market sources said.

The Patriot Coal 3.25% bonds closed at 103.5 bid, 104.5 offered, versus a stock price of $96.67, unchanged on the day.

The Carrizo 4.375% convertibles were called 103 bid, 103.5 offered, versus a closing stock price that was little changed at $67.88.

Three other new issues hit the secondary market on Thursday, but they weren't as notably received. New issues from EnerSys and ShengdaTech Inc. were quiet as were NorthStar Realty Finance Corp.'s new 11.5% exchangeable senior notes.

But NorthStar's existing sister issue, its 7.25% convertibles, dropped hard as "investors weren't too happy" about the new paper, a New York-based sellside source said. The maturity on the new paper is shorter dated than that of the older issue and the coupon is higher.

The NorthStar older issue was seen at 65 bid, 75 offered, compared to a recent previous market of 83 bid, 84 offered.

Ford Motor Co.'s 4.25% bonds slid to below par after the ailing automaker said a combination of lower production, dramatic model mix shifts, and substantially higher commodity costs were forcing the automaker to lower its near-term financial outlook.

Ford now plans to produce 15% fewer automobiles in the second quarter compared to a year earlier, with third quarter production anticipated to be down by 15% to 20%. Fourth quarter production is projected to be down only 2% to 8% from year earlier levels.

Overall activity in the convertibles market was depicted as pretty slow.

"I didn't see too much other than those," a Boston-based sellside trader said, referring to Carrizo Oil and Patriot Coal.

A West Coast-based sellside trader said: "I'd say it was pretty slow."

On a light note, the market's own Venu Krishna, head of equity-linked strategies at Lehman Brothers, appeared on CNBC Thursday afternoon in a brief spot in which he outlined the basics of convertible bonds and listed some of his picks, which included Transocean Inc., JA Solar Holdings Co. Ltd. and SunPower Corp., and in financials, Fannie Mae, Sallie Mae and Bank of America Corp.

Krishna said he favors Transocean because it's investment grade, it's liquid, and it has a global footprint in the oil services sector.

Patriot Coal adds 4 points, stock unchanged

Patriot Coal's 3.25% convertible bonds traded up 3 points out of the gate, and then moved higher to 105, before settling back to the 103.5 to 104.5 range.

The $175 million of five-year convertible senior notes priced on the rich end of talk, which was for a coupon of 3.25% to 3.75%, and an initial conversion premium of 35% to 40%.

Citigroup and Lehman Brothers are joint bookrunners for the Rule 144A offering.

The convertibles are non-callable for the first three years, and provisionally callable after that subject to a hurdle at 130% of the conversion price. There are no puts.

The convertibles have contingent conversion at 130% of the conversion price.

Shares of Patriot (NYSE: PCX) closed unchanged at $96.67.

Patriot is a St. Louis-based producer and marketer of coal.

Carrizo Oil gains about 3 points

Carrizo Oil's 4.375% convertibles were also warmly received, adding 3 points early, then slipping to about 102.25, but closing at 103 bid, 103.5 offered.

"What's not to like?" a syndicate source commented when asked about the gain.

The Houston-based oil and natural gas exploration and development company priced an upsized $325 million of 20-year convertible senior notes on the cheap end of talk for the coupon and at the midpoint of talk for the premium.

The offering size was increased from a previously announced $275 million.

Credit Suisse Securities and RBC Capital are joint bookrunners, with JP Morgan Securities and UBS Securities are acting as co-managers.

The notes are non-callable for five years, with puts in years 2013, 2018 and 2023. The notes have contingent conversion at 130% of the conversion price, and net share settlement.

Shares of Carrizo (Nasdaq: CRZO) closed little changed at $67.88, up 4 cents.

NorthStar new paper trumps old issue

NorthStar Realty Finance Corp. subsidiary Triple Net Holdings LLC priced an upsized $80 million of five-year exchangeable notes to yield 11.5% with an initial conversion premium of 20%.

Initially the offering was expected to be up to $75 million in size.

The new exchangeables priced at the cheap end of talk for the coupon, which was 11% to 11.5%, and on target for the premium.

The notes, which will be exchangeable for cash and shares of NorthStar common stock, mature in 2013.

"Not only is it a higher coupon, but it matures inside the 7.25s," a West Coast-based sellsider pointed out.

The older paper matures in 2027 and has a put in June 2012.

Wachovia Capital Markets and JMP Securities are joint bookrunners of the Rule 144A deal.

The new notes are non-callable for three years, then provisionally callable subject to a 130% price hurdle. There is contingent conversion subject to a 130% hurdle.

New York-based NorthStar is a real estate investment trust that primarily originates and invests in commercial real estate debt, real estate securities and net lease properties.

Shares of NorthStar (NYSE: NRF) closed down 49 cents, or 4.8%, at $9.64.

Ford drives south

Ford Motor's 4.25% convertibles due 2036 dropped more than 6 points to 99.5 bid, 99.8125 offered, versus a closing share price of $7.16. Previously the bonds were about 106.375, versus a share price of $7.80.

"Yeah, we traded a lot of Ford, but we always do; it's a big issue," a New York-based sellsider said.

The shares of Dearborn, Mich.-based Ford (NYSE:F) sank 8.2%.

The company followed in the footsteps of AMR Corp., which on Wednesday outlined some actions it was taking to deal with the harsh economic climate especially burdened by oil prices spiking to $130 a barrel and above.

"Unless there is a fairly rapid turnaround in U.S. business conditions, which we are not anticipating, it now looks like it will take longer than expected to achieve our North American Automotive profitability goal," Ford president and chief executive officer Alan Mulally said in a company release. "Overall, we expect to be about break-even companywide in 2009 - with continued strong results in Europe and South America."

Cash outflows associated with operating losses and employee separations now are projected to be between $14 billion and $16 billion for 2007 to 2009, the release said.

This is a deterioration compared with previous guidance but remains better than the original $17 billion outflow projection. Ford said its automotive net liquidity remains substantial. Total liquidity, including available credit lines, the majority of which are in place through Dec. 15, 2011, was $40.6 billion as of March 31.

Standard & Poor's revised its outlook on Ford Motor and Ford Motor Credit Co. to negative from stable, and affirmed the B long-term and B-3 short-term ratings.

The outlook change reflects heightened concerns about industry challenges in North America after Ford increased the amount of cash it expects to use from its global automotive operations over the next two years and said it no longer expects to return the automotive business to profitability by 2009, S&P stated in a release.

EnerSys, ShengdaTech quiet

EnerSys priced $150 million of 30-year convertible senior notes to yield 3.375% with an initial conversion premium of 40%, according to a company release.

The notes are non-callable for seven years, with puts in years 2015, 2018, 2023 and 2033.

Reading, Pa.-based EnerSys makes, markets and distributes reserve and motive power industrial batteries.

Shares of EnerSys (NYSE: ENS) closed down 56 cents, or 1.89%, at $29.63.

ShengdaTech priced $100 million of 10-year convertible senior notes to yield 6% with an initial conversion premium of 18%.

The notes priced beyond the cheap end of talk, which was 4.5% to 5% for the coupon, and 22.5% to 27.5% for the initial conversion premium.

The notes are non-callable for three years, then provisionally callable for two years thereafter subject to a 150% hurdle. There's a put after 3.5 years.

Based in Tai'an City, Shandong Province, China, the company makes and markets nano precipitated calcium carbonate and coal-based chemicals. The products are used in various applications, including tires and polyvinyl chloride, or PVC, building materials.

Shares of ShengdaTech (Nasdaq: SDTH) closed down 38 centes, or 4.5%, at $8.04.

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