New Cenveo climbs on debut; Vornado steady, active in trade; investment-grade names mixed

By Rebecca Melvin

New York, March 23 - Cenveo Inc.'s new 7% exchangeable notes due 2017 traded up to 105.25 bid, 107.25 offered versus an underlying share price of $3.36 by midday on its debut Friday.

The new $75 million Cenveo was not actively traded, however, market players said, and the stock, which ended the session 1.5% higher, had been in the red part of the day, trading as low as $3.22.

Among established U.S. issues, Vornado Realty Trust was little changed and active again - as has been the case all week, before and after the paper was called on Tuesday.

Other investment-grade names, such as EMC Corp. and Gilead Sciences Inc., were also actively traded Friday and mostly in line to a little lower, a New York-based trader said.

The convertible bond market put in a quiet week, and Friday was no exception, with valuations stretched and underlying equities pulling back some, but not enough to warrant trading, market sources said.

AMR Corp.'s convertibles were actively traded and higher by a couple of points at 43.5.

SandRidge Energy Inc.'s common shares jumped nearly 9% Friday, but its convertible preferreds weren't heard in trade.

There was only one new issue in the U.S. convertible primary market in the past week, but internationally, Amtek India Ltd. priced a $130 million Regulation S deal of five-year convertible bonds, and Finland's Solidium Oy priced €600 million of 3.5-year bonds with a 0.5% coupon that is exchangeable into shares of TeliaSonera AB; and Shoprite Investments (Proprietary) Ltd., a subsidiary of Shoprite Holdings Ltd., priced a ZAR 4.5 billion of 6.5% five-year convertibles with a 32.5% premium.

In addition, Insurance Australia Group Inc. launched an offering of at least A$350 million of floating-rate convertible preference shares for pricing March 27.

Equities staged a turnaround on Friday, exchanging early losses for gains by midday and holding modest gains into the close.

New home sales in the United States, which slipped unexpectedly last month, put a damper in early trading, but shares of basic materials rebounded after Chile's Codelco reported a 21% surge in profits and an increase in production.

Single-family home sales fell 1.6% for the month, according to a Commerce Department report, in contrast to a gain that was expected by analysts.

Cenveo climbs

Cenveo Corp., a subsidiary of Cenveo Inc., priced $75 million of five-year senior exchangeable notes after the market close Thursday to yield 7% with an initial conversion premium of 22.5%.

The Rule 144A notes priced at the midpoint of coupon talk, which was 6.75% to 7.25%, and at the rich end of 17.5% to 22.5% premium talk.

The new exchangeables climbed to 105.25 bid, 107.25 offered versus an underlying share price of $3.36 in the aftermarket early Friday. Very early, they were 104.5 bid, a market source said.

Shares of the Stamford, Conn.-based printing company were volatile, trading up early and then sliding another 10 cents, or 3%, to $3.278 by midsession - on top of a 19% slide on Thursday - before notching a 5 cent, or 1.5%, gain to $3.43 at the close.

The Cenveo deal was seen extremely cheap initially at about 16% cheap at the midpoint of talk using a credit spread of 1,200 basis points over Libor and a 45% vol.

And even after the aftermarket pop, the paper was "still screaming cheap," a Connecticut-based analyst said.

A New York-based buysider said that the convertible's pricing relative to the stock was "excellent."

Pricing ensures favorable upside participation, he said.

"The good side of an over-leveraged company is that the stock will soar if the fundamentals improve and the company gains favor in the market, he said.

By way of example, he said, if the company has $200 million in equity market capitalization and $800 in debt, and the market concludes that the company's value should be 10% higher, at $1.1 billion instead of $1 billion, then the equity market cap will go up 50%.

"If that happens to Cenveo, the convertible is likely to capture 80% to 100% of the upward move, the buysider said.

The deal has a greenshoe of $11.25 million and priced concurrently with $225 million of senior straight notes.

That issue was a downsized and restructured issue of 11½% senior notes (Caa2/CCC+) that priced at 96.328 to yield 12½%.

The yield printed at the wide end of the revised 12¼% to 12½% price talk, according to a market source. Original talk was 11½% to 11¾%.

The maturity on the straight notes was decreased to five years from eight years. Call protection was decreased to three years from four years. And the deal was downsized from $450 million.

Bank of America Merrill Lynch, Morgan Stanley & Co. LLC, Macquarie Capital (USA) Inc. and Barclays were the bookrunners for the straight notes.

Joint bookrunners for the convertible deal were Bank of America Merrill Lynch and Morgan Stanley & Co. LLC.

Proceeds, together with straight notes proceeds and borrowings under a credit facility, will be used to fund Cenveo's tender offer of 8.375% notes due 2014, 10.5% notes due 2016 and up to $45 million of its 7.875% senior notes due 2013, and to redeem an additional $75 million of the 7.875% notes through other purchases.

The notes are non-callable.

Cenveo is a manager and distributor of print and related products and services.

Mentioned in this article:

AMR Corp. NYSE: AMR

Amtek India Ltd. Bombay: 534482

EMC Corp. NYSE: EMC

Cenveo Inc. NYSE: CVO

Gilead Sciences Inc. Nasdaq: GILD

Insurance Australia Group Inc. Australia: IAG

Sandridge Energy Inc. NYSE: SD

ShopRite Holdings Ltd. Johannesburg: SHP

TeliaSonera AB Stockholm: TLSN

Vornado Realty Trust NYSE: VNO

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