Epicor gains on debut; Sinclair, Pennsylvania slip in start; Savvis quiet in gray; Coeur d'Alene holds firm

By Kenneth Lim

Boston, May 3 - Epicor Software Corp. gained on Thursday to lead the pack of new convertibles in an otherwise lackluster day for fresh paper.

Sinclair Broadcast Group Inc. slipped below par on weak volume amid grumbles that it was aggressively priced.

Pennsylvania Real Estate Investment Trust also was quiet and slipped slightly outright near the open, but activity in the name quickly faded.

Meanwhile, Savvis Inc. failed to attract any bids in the gray market with its deal seen as fair but potentially hampered by a high conversion premium.

Coeur d'Alene Mines Corp. held firm, shrugging off the company's announcement of a mostly stock merger with two other silver mining companies.

The convertible market was generally quiet on Thursday as equity markets picked up. The Dow Jones Industrial Average rose 29.50, or 0.22%, to close at a record high of 13,241.38. The Standard & Poor's 500 index also gained to a six-year high at 1,502.39, up by 6.47 or 0.43%.

"I don't see anything looking very active today," a sellside convertible trader said.

Epicor gains on debut

Epicor's new 2.375% convertible senior unsecured note due 2027 was 101 bid against a stock price of $14.10 late Thursday, matching expectations that the deal looked the most attractive of the three newest deals to hit the secondary market.

"Epicor was the only one that seemed to do well today," a buysider said. "All the new deals these days are coming really aggressively."

Epicor priced its $200 million offering Wednesday after the market closed with an initial conversion premium of 30%. Epicor stock (Nasdaq: EPIC) gained 1.51% or 21 cents to close at $14.13.

The convertibles were offered at par. The deal was talked at a coupon of 1.875% to 2.375% and an initial conversion premium of 27.5% to 32.5%.

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

UBS Investment Bank and Lehman Brothers were the bookrunners of the registered offering.

Epicor, an Irvine, Calif.-based developer of enterprise application software solutions, said the proceeds of the deal will be used to repay its outstanding term loan and to fund general corporate purposes.

The buysider said Epicor priced with just enough on the table to be enticing, and said there was potential for improvement.

"They didn't price it too aggressively, which was good," the buysider said. "And this is one of those companies where volatility could pick up pretty fast."

Sinclair slips below par

Sinclair's new 3% convertible senior note due 2027 was trading at 99.5 to 100 against a stock price of $15.35 on Thursday. Sinclair stock (Nasdaq: SBGI) closed at $15.66, up by 2.15% or 33 cents.

Sinclair priced the $300 million offering with an initial conversion premium of 33.3%. The convertible was offered at par. It was talked at a coupon of 2.5% to 3% and an initial conversion premium of 32.5% to 37.5%.

There is an over-allotment option for a further $45 million.

Deutsche Bank and UBS Investment Bank were the bookrunners of the registered offering.

Sinclair, a Hunt Valley, Md.-based television broadcasting company, said it will use the proceeds of the deal to partly redeem its 8% senior subordinated notes due 2012.

"I was surprised they actually priced it with such a high premium," a sellside convertible analyst said. "I thought they'd have to price it all the way at the cheaps to get enough interest. It looked like it was a little aggressive...I guess that matches with where it's trading now."

Pennsylvania quiet on debut

Pennsylvania Real Estate Investment Trust's new 4% exchangeable senior note due 2012 was 98.25 against a stock price of $45.53 early Thursday as a weak stock and poor interest took its toll on the new convertible.

"I never saw the PEIs on the Street," a sellside convertible trader said.

Pennsylvania's $250 million offering was reoffered at 98.5 with an initial exchange premium of 20%. The exchangeables were talked at a reoffered price of 98.5 to 98.75 with a coupon of 4% and an initial exchange premium of 20%. The exchangeables are issued by Pennsylvania's operating partnership, PREIT Associates LP, and exchangeable into Pennsylvania common stock.

Pennsylvania stock (NYSE: PEI) closed at $45.20, down by 0.72% or 33 cents.

There is an over-allotment option for an additional $37.5 million.

Merrill Lynch, Citigroup and UBS Investment Bank were the bookrunners of the Rule 144A offering.

Pennsylvania Real Estate, a Philadelphia-based real estate investment trust with a portfolio of mall and power and strip centers, said it will use the proceeds of the deal to fund capped call transactions, repay part of a credit facility and for general purposes.

"It didn't look attractive enough for us to get involved," a buysider said. "It's got a lousy carry and there's nothing that stands out here. I already have plenty of REITs like this one."

Savvis quiet in gray

Savvis' planned $300 million offering of five-year convertible senior unsecured notes was quiet in the gray market ahead of pricing slated for after the market's close.

The deal was talked at a coupon of 2.5% to 3% and an initial conversion premium of 40% to 45%. Savvis stock (Nasdaq: SVVS) slipped 2.62% or $1.33 to close at $49.39.

The convertibles were offered at par.

There is an over-allotment option for a further $45 million.

Morgan Stanley and Goldman Sachs were the bookrunners of the registered offering.

Savvis, a Town & Country, Mo.-based provider of information technology services, said it will use the proceeds to fund general purposes.

A sellside convertible analyst said the company's fundamentals looked good.

"It's in that great Equinix space, and a cross between Level 3 as well," the analyst said. "It's going to be capital expenditure-intensive near term, but the data centers that they're building are in need. And the beauty of it is once the assets are in place you can continue to generate income on that and margins are good."

But the analyst said the large private equity involvement in the company was a concern.

"One issue is 46% of the shares are owned by private equity firms," the analyst said. "Well, they could liquidate it, if they start to look for exit strategies, you could see a lot of selling...But fundamentally I like the company."

A sellsider said the initial conversion premium looked a little high, but said that companies in the sector tend to be more volatile.

"I think the premium is a little high, but the stock was only something like $25 less than a year ago, and now it's almost twice that," the sellsider said.

But another convertible trader the conversion premium could be too high for comfort.

"I just don't see that [premium]," the trader said. "That seems excessive. But I'm not a big in-love-with-volatility kind of guy."

Coeur d'Alene firm on merger

Coeur d'Alene's 1.25% convertible due 2024 held flat to slightly higher at 90.5 against a stock price of $3.90. Coeur d'Alene stock (NYSE: CDE) eased 3.7% or 15 cents on Thursday to close at $3.90 after the company said it will merge with two other silver miners to form the world's largest silver producer.

The mostly stock deal was valued at about $1.1 billion based on Wednesday's closing prices. Coeur d'Alene, Idaho-based Coeur d'Alene, which has almost 277 million shares outstanding at the moment, said it will issue about 271 million shares and cash to stockholders of Bolnisi Gold NL and Palmarejo Silver and Gold Corp. Coeur d'Alene will pay 0.682 of its own shares plus A$0.004 for each Bolnisi share, and 2.715 of its own shares plus C$0.004 for each Palmarejo share.

Bolnisi and Palmarejo currently own the Palmarejo Project in Mexico that is expected to produce 12 million ounces of silver and 110,000 ounces of gold annually once construction is complete. The project will nearly double Coeur d'Alene's current production to about 32 million silver ounces and 290,000 gold ounces in 2009.

"Honestly I don't follow it that closely because it doesn't ever do much," a sellside convertible analyst said. "I don't think it's that big of a surprise that the companies are seeking some kind of consolidation, but I think just the magnitude of the deal wasn't really expected."

"It looks like a pretty decent deal," the analyst said. "It looks like they're paying a premium for the other two companies, but when you look at the predicted resources they're adding through this deal the premium isn't that big."

"Silver prices also continue to be strong, and being a bigger player they'll be able to capitalize on price increases even more," the analyst said. "I would expect the shareholders to approve of the deal. They're really going to be in a better market position at the end of it with not much dilution on the stock."

The analyst said Coeur d'Alene's convertibles could be slightly better but are unlikely to be affected significantly by the deal.

"As a bigger company their spread could be a little tighter, so the converts could get a bit of a lift," the analyst said. "But unless the stock moves much higher you're not going to see anything major, and it looks like the way they structured it the stock isn't going to move that much."

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