Calpine 4s add 1.25 points on tender; Juniper whacked 11.25 points; four deals tossed to market

By Ronda Fears

Nashville, Feb. 9 - It was an unusually busy Monday for convertible players, or at least the busiest in two or three months. Before the session opened, Solectron Corp. launched a deal and that kept traders busy, along with several items on the tape about mergers and tenders. Plus, there was buzz of more deals to come, including AMR Corp. that moved some paper.

In all, four new deals launched Monday totaling almost $1 billion, plus a couple of other private placements from Affiliated Managers Group Inc. and Corvis Corp. totaling $475 million. InterMune Inc. and CuraGen Corp. also tossed out deals.

"It felt good," said a senior trader at one of the top convertible desks. "It was like old times, times we hadn't seen in awhile."

Issuance has been slow on a monthly basis since November, and a busy new deal slate helped trading flow, he said.

There also was a lot of news on the tape that moved several convertible issues.

Juniper Networks was whacked after announcing it would buy a small networking security firm in a stock swap estimated at about $4 billion, which the markets judged too high. Thus, Juniper's convertibles plunged 11.25 points as the stock lost 11%.

RF Micro Devices Inc., Skyworks Solutions Inc. and Triquint Semiconductor Inc. each slid about 2 to 2.5 points as Silicon Laboratories Inc. introduced a new product that could give it a bigger share of the cellular handset business.

Calpine Corp.'s 4% convertible gained 1.25 points as the company announced an official tender for that issue, with proceeds from its latest convertible offering, as expected. The Calpine convertible preferreds all rose, too, on redemption prospects.

Eastman Kodak Co. also edged a bit higher on the sale of its remote sensing systems operation to ITT Industries Inc. for $725 million.

American deal may be a flyer

A buyside source predicted the new AMR convertible would be poised to take off strong out of the gate Tuesday as it was far less aggressive than the Mesa Air Group Inc. and Delta Air Lines Inc. deals last week.

AMR, parent of American Airlines Inc., launched $300 million of 20-year convertibles talked to yield 4.0% to 4.5%, up 40% to 45%, with pricing before Tuesday's open.

"I think this one could fly," said a high-yield fund manager in New York that is a crossover buyer of convertibles.

"If you are pretty risk tolerant, then this looks a lot better than what we've seen in this sector. Right now, the issuers can get away with murder, so we'll probably see some interesting stuff come out of the woodwork.

"It looks like, though, that the banker-types are giving the market something for everybody - the arbs, outrights, high yield, what-not."

Sellside analysts looking at the new AMR with convertible glasses, though, said it looked expensive.

Deutsche Bank Securities analysts put it anywhere from 2.5% rich to 1.17% cheap, at the middle of price talk, using a credit spread of 1,100 basis points over Libor and 50% volatility.

The Mesa and Delta deals last week lost altitude out of the gate, and Delta's was reoffered at 97.

Nearly all airline paper in the convertible market lost ground Monday as crude oil prices rose, remaining above $32 a barrel, ahead of the OPEC production update expected Tuesday.

Solectron deal bid at issue

Solectron tossed $450 million of 30-year convertible notes talked to yield 0.5% to 1.0%, up 38% to 43%, into the market before the open, slating a full day of marketing with final terms to be set after the close.

Late afternoon, buyside traders said the new Solectron convertible was bid at issue price with an offer of 0.25 points over.

Lehman analysts put the new deal 2.17% cheap, at the middle of guidance, using a credit spread of 300 basis points over Treasuries and 48% volatility. Lehman noted favorable cheapness versus the recent three-month trend of 1.37% for new paper, but said the estimated risk/reward profile of 58%/53% was relatively unattractive.

Solectron is widely expected to use the proceeds to help fund a portion of the May 2004 put on its 0% convertible, estimated at a $953 million obligation.

The Solectron 0% convertible due November 2020 is putable in May at 58.746, which traders said is about where the convert has settled at over the past several months because of the upcoming put. Solectron also has a 0% convertible due May 2020, which is putable in 2010.

Solectron's 7.25% mandatory convertible due 2004 lost 0.875 point to 18.75 bid, 19 offered.

Solectron shares closed down 41 cents, or 5.72%, to $6.76.

Several peers of Solectron, in the electronics manufacturing services industry, were also weaker Monday, including SanDisk Corp. and Flextronics International Ltd., traders noted.

Biotech deals for 2 buyer sets

There were a couple of biotech issues tossed into the ring Monday, seemingly for two different types of convertible investors. Proceeds from both deals were also earmarked to take out old converts.

InterMune's offering was seen as a likely temptation for convertible buyers that are looking for hefty delta, or essentially stock pickers, a buyside convertible trader on the West Coast said.

CuraGen's, on the other hand, he said, would appeal more to buyers looking to clip a coupon and put some income in their pockets.

InterMune's $150 million of seven-year convertibles were talked to yield 0% to 0.5%, up 15% to 20%. Proceeds are earmarked to possibly take out its old 5.75% convertible due 2006 by third quarter.

Deutsche analysts put the new InterMune convertible 3.765% cheap, at the middle of price talk, using a credit spread of 550 basis points over Libor and 45% volatility.

The InterMune 5.75s were quoted up 3.375 points to 101.375 bid, 102.375 offered. The underlying common stock closed up 31 cents, or 1.63%, to $19.35. In after-hours trading, the stock was down 70 cents, or 3.62%.

CuraGen's $75 million of seven-year convertibles were talked to yield 3.75% to 4.25%, up 33% to 37%. Proceeds are aimed at repaying debt, including the possibility of a portion of its 6% convertible due 2007.

Deutsche analysts put the new CuraGen convertible 2.8% cheap, at the middle of price talk, using a credit spread of 275 basis points over Libor and 50% volatility.

The CuraGen 6% convertibles were quoted up 5 points to 97 bid, 99 offered. CuraGen shares ended down 18 cents, or 2.11%, to $8.35. In after-hours trading, the stock was off 9 cents, or 1.08%.

Juniper plummets on takeover

Juniper Networks was punished severely for what the market deemed an expensive price tag - around $4 billion - to take over a small networking security firm, NetScreen Technologies Inc.

"It was a huge premium to pay" for such a small company, one sellside dealer said.

"There was a lot of fallout."

Under terms of the deal, NetScreen holders will receive 1.404 Juniper shares for each of theirs. At Juniper's closing stock price on Friday, where the deal was struck, the takeover is valued at $4 billion. It essentially means Juniper is paying about $41.38 for each NetScreen share, a 57% premium over the Friday closing price of $26.40, a buyside analyst said.

"No matter how you look at it, in my view, this is not a real smart move," said the analyst, who works at a huge outright fund based in Boston.

"Even moving in to compete against Cisco is not necessarily a smart thing to do right now."

Cisco Systems Inc. closed slightly weaker on pressure from the news.

Juniper said the deal would be accretive on a non-GAAP basis, excluding purchase accounting adjustments. Juniper, which makes routers that direct computer traffic across the Internet, said the acquisition is designed to improve its competitive capabilities, specifically in firewall antivirus intrusion detection.

Juniper's 0% convertible due 2008 fell 11.25 points to 148.25 bid, 148.75 offered while the stock plunged $3.29, or 11.16%, to $26.18.

Calpine tenders for remaining 4s

Calpine's convertibles had seen some weakness recently due to pressure from the power sector, and many holders were caught off guard Monday by the company's tender offer for the remaining 4% convertibles that are outstanding.

Calpine announced a cash tender offer for the outstanding amount of its 4% convertible due 2006, aiming to reduce debt and cut interest expense. The tender will be funded by proceeds from its new 4.75% convertibles due 2023, as expected.

Thus, the 4s gained 1.25 points on the news to 100. Calpine shares ended up a nickel, or 0.85%, to $5.90.

"It's a slight event," a sellside trader said.

"People knew it would happen, but maybe not this soon. The Calpine preferreds are all up today as well, a half to 1 point, given they are the next to get taken out."

Late Friday afternoon, a couple of hours before the market close, Calpine provided a pre-earnings update. EBITDA, before charges, is expected to be about $400 million for fourth quarter and $1.6 billion for 2003. Fourth quarter GAAP net income is seen at $125 million, or 30 cents per share, but core operating earnings are expected to show a net loss of $54 million, or 13 cents per share.

At Dec. 31, Calpine said liquidity totaled about $2.3 billion, including cash and cash equivalents on hand of $1 billion and some $400 million of borrowing capacity under various credit facilities.

Calpine also rescheduled its earnings conference call to Feb. 26, due to conflicting schedules relating to its recently announced debt offerings to refinance CCFC II debt.

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