Macerich, Asbury gain on debuts; Washington Mutual holds; SPSS bid up; Stanley Works launches deal

By Kenneth Lim

Boston, March 13 - The Macerich Co. gained slightly on its first day of trading after its convertible deal was upsized, but a shaky equity scene put a damper on its debut.

Asbury Automotive Group Inc. also saw modest improvements amid a mixed reception to its new deal.

Washington Mutual Inc.'s convertible trust preferred income equity redeemable securities (Piers) held firm above parity even as its stock took a hit over concerns about the sub-prime lending market.

SPSS Inc. was bid higher in the gray market before the deal priced nearer to the cheap end of price talk.

Meanwhile, The Stanley Works launched a $300 million offering of equity units comprising 5.2-year convertibles and 3.2-year purchase contracts. The unusual structure was described as a non-traditional mandatory.

Macerich gains despite weak stock

Macerich's new 3.25% convertible due 2012 improved early Tuesday after its upsized offering arrived within price talk, but a weak stock put a drag on gains.

The convertible was marked at 99.5 bid, 100 offered against a stock price of $92.90. The convertible was reoffered at 99. Macerich stock (NYSE: MAC) fell 1.6% or $1.49 to close at $91.41.

"Those were active early in the day, but they sort of died down towards the afternoon," a sellsider said.

Macerich priced the upsized $800 million offering of five-year convertible senior notes within talk on Monday after the market closed, at an initial conversion premium of 20%.

The deal was talked at a coupon of 2.875% to 3.375%, an initial conversion premium of 20% and a reoffered price of 99.

The size of the deal was originally $700 million. The over-allotment option was increased to an additional $150 million, from an additional $140 million.

Deutsche Bank and JP Morgan were the bookrunners of the Rule 144A offering.

Macerich is a Santa Monica, Calif.-based real estate investment trust that focuses on regional and community shopping centers. It will use the proceeds of the deal to repay an existing $250 million term loan that bears an interest rate of Libor plus 150 basis points due 2007 and partly pay down a $1.5 billion revolving loan.

"I got it looking pretty good, about 1% to 1.5% cheap," a sellside convertible analyst said. "It seemed like a nice name for a real estate company. It's higher vol than we've been seeing recently."

A buysider said the deal looked interesting where it priced, but was more cautious about potential gains in the future.

"We flipped it," the buysider said. "It's not very exciting. These REITs, it's not too hard to figure out the value. Everybody's got it modeled out. We just flipped it. It looks fine now, but as a long-term investment it's not too interesting, especially now that the credit market seems a little bit roiled."

Asbury mixed in debut

Asbury's new 3% convertible due September 2012 also gained on its first day of trading, but the deal received mixed reactions from the market.

The convertible was 100.125 bid, 100.375 offered versus its previous closing stock price of $27.75 on Tuesday. The convertible was offered at par. Asbury stock (NYSE: ABG) closed at $27.59, down by 0.58% or 16 cents.

Asbury's $100 million offering priced with an initial conversion premium of 22.5% late Monday. It was talked at a coupon of 3% to 3.5% and an initial conversion premium of 20% to 25%.

There is an over-allotment option for a further $15 million.

Goldman Sachs was the bookrunner of the Rule 144A offering.

There was a concurrent $150 million offering of 10-year senior subordinated notes, which priced with a coupon of 7.625%.

Asbury, a New York-based automotive retailer, said it will use the proceeds of the convertible and straight bond deals to buy back its outstanding $250 million of 9% senior subordinated notes due 2012. It will also buy back up to 1.3 million shares of its common stock using available cash and fund convertible note hedge and warrant transactions.

A sellside convertible trader said the deal improved partly because the market was on the lookout for similar paper.

"I think that anything you can buy on swaps today is going to do well," the trader said. "That's because the curve's in today. The sub-primes are just dragging down everything."

A convertible analyst said the deal modeled fair around par.

"And I was using a little bit of an aggressive spread," the analyst said. "They could easily be a little wider."

A buysider said the deal looked too expensive.

"We didn't get involved," the buysider said. "It just looked so ugly."

Washington Mutual strengthens

Washington Mutual's 5.375% convertible Piers due 2041 gained in the morning and firmed against a drop in the stock amid concern about the company's exposure to the sub-prime lending market.

The convertible traded at 54.125 against a stock price of $40.70. Washington Mutual stock (NYSE: WM) retreated 5.04% or $2.11 to close at $39.79.

"The WM preferereds are doing very well," a convertible trader said.

The convertibles have a conversion price around $41.39.

The trader said Washington Mutual stock took a beating simply because it was a financial company and had some exposure to sub-prime mortgage borrowers. The sub-prime lending market has come under scrutiny over the past few weeks after problems at Freddie Mac and New Century Financial Corp. raised concerns about the quality of sub-prime loans.

Although analysts have said that the companies with the biggest exposures to the sub-prime lending market do not have outstanding convertibles, the issue is "dragging down everything with it because it's such a large problem and nobody understands the extent of it yet," the trader said.

"Unless they can bracket the extent, it's going to have an overlapping effect," the trader said. "Any kind of problem that isn't well defined is going to have a much larger effect on the market than is probably warranted."

The trader said the current situation does not appear to be as serious as the savings and loan crisis from the 1980s, but it could take some time to settle.

"You're going to see all this go on for a while," the trader said. "It's not going to be resolved for some time. It's something that's going to play itself out."

SPSS gains in gray

SPSS's $125 million of five-year convertible subordinated notes gained in the gray market on Tuesday before they priced near the cheap end of talk after the market closed.

The convertible was at 101 bid in the gray market. SPSS stock (Nasdaq: SPSS) closed at $32.93, down by 1.5% or 50 cents.

The SPSS deal priced at a coupon of 2.5% with an initial conversion premium of 42.5%. The notes were talked at a coupon of 2% to 2.5% and an initial conversion premium of 40% to 45%.

The convertibles were offered at par.

There is an over-allotment option for a further $25 million.

Merrill Lynch was the bookrunner of the Rule 144A offering.

SPSS, a Chicago-based developer of research analytics software, plans to use the proceeds to buy back $50 million of its common stock and to fund general purposes, which may include acquisitions.

A sellside convertible analyst said the deal modeled about 1.5% cheap at the midpoint of price talk using a credit spread in the mid-200 basis points over Libor region and a volatility around 40%.

"The premium is pretty high, even for a small software manufacturer," the analyst said. "These kinds of high-vol names would tend to have a higher premium, but even then it's pretty high."

Stanley Works launches deal

Stanley Works launched $300 million of equity units that comprise 5.2-year convertible senior notes and 3.2-year mandatory purchase contracts expected to price Wednesday after the market closes.

The convertible is talked at a coupon of three-month Libor minus 350 basis points to three-month Libor minus 300 basis points, and an initial conversion premium of 15% to 19%.

The purchase contract is expected to bear an adjustment coupon of 5.125% per year.

Citigroup, Morgan Stanley and Banc of America are the bookrunners of the registered offering. Citigroup and Morgan Stanley are the structuring agents.

There is a concurrent $200 million offering of three-year unsecured notes.

Stanley Works, a New Britain, Conn.-based maker of tools and security products, plans to use the proceeds of the deal to repay its commercial debt, to repay a $130 million loan and to pay convertible note hedge and warrant transactions.

The unusual structure of the deal is believed to be the first of its kind, a syndicate source said.

The source said a traditional mandatory usually consists of straight debt plus a forward contract in which holders participate in both the upside and downside of the stock. The new structure replaces the straight debt component with a convertible component and the contract gives holders participation only in the downside of the stock.

But holders have the purchase-contract adjustment coupon, expected to be 5.125%, which will give a net payoff that is "very similar" to a traditional mandatory, the source explained.

Investors trying to analyze the deal can first value the convertible portion then value the short contract, which is similar to a short put, the source said. Then, they can add back the purchase contract payment.

Investors can also value the convertible as a traditional convertible then add back the incremental value from the purchase contract, the source said.

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