Convertibles quiet as players eye JetBlue, Biovail, Steel Dynamics; Cephalon, Human Genome up

By Rebecca Melvin

New York, June 3 - The convertible bond market was slightly weaker but quiet Wednesday as equities markets succumbed to some profit taking. But three smallish new deals, expected to price after the close of markets, were seen cheap and bid higher in the gray market.

Toronto-based Biovail Corp. upsized its offering late Wednesday to $300 million from $200 million and revised its terms, making it less cheap for investors, however.

Steel Dynamics Inc. upsized its offering to $250 million from $150 million, and pricing came at the rich end of talk.

It wasn't known at press time the pricing of JetBlue Airways Corp.'s planned $150 million registered offering.

The structure of the thee issues was similar, according to a New York-based sellside trader. JetBlue's paper was divided into two tranches, half putable in 2014 and half putable in 2016., while the other two deals were for five-year paper.

They are the type of offerings that appeal to equity players, the sellsider said.

Elsewhere, there was a bit of activity in the biopharmaceutical space, with the new Cephalon Inc. convertibles up a point to trade at 102.5 versus a share price of $59; and Human Genome Sciences Inc.'s 2.25% convertibles due 2011 traded at 56 versus $2.65, which was up 6 points from previous levels as its stock jumped 15%.

Meanwhile, the stock of Antigenics Inc. surged 73%, continuing a move begun Monday on favorable cancer drug data. Antigenics 5.25% convertibles due 2025 weren't heard in trade, however, but the paper was indicated higher in the low 30s up from the mid 20s.

Overall, the convertibles trading session was characterized as quiet and slow. As for investor sentiment, it was described as "complacent" by one sellsider.

"It's complacency as much as anything, and it could be justified. Things have been okay for a while, and with all the flow, you have the perception of a normalized market," the New York-based sellside trader said.

Also in the primary market, Exterran Holdings Inc. launched a $250 million deal of five-year convertible notes, via J.P. Morgan Securities, Merrill Lynch, Wachovia Securities and Credit Suisse.

Biovail terms tightened

Biovail priced an upsized $300 million of five-year convertible senior notes after the close Wednesday to yield 5.375% with an initial conversion premium of 26.

Pricing came at the midpoint of revised talk for the coupon, which was 5.25% to 5.50%, and at the aggressive end of talk for the revised premium, which was 24% to 26%.

Originally, talk was for a coupon of 5.25% to 5.75%, with an initial conversion premium of 20% to 25%.

During the session, Biovail had been bid up to plus 1.25 points to 3.25 points in the gray.

Moving the talk brought down the deal's cheapness and would certainly disappoint flippers, a Connecticut-based sellside analyst said.

Of the three deals pricing, Biovail was the hardest to value, according to one sellside analyst, because of a lack of straight paper with which to compare.

The analyst described the company as "acquisitive," in terms of buying new products.

Biovail is a specialty pharmaceutical company based in Toronto. The Rule 144A deal is being sold via JP Morgan Securities.

The notes will be non-callable for three years, and then provisionally callable with a 130% hurdle.

Proceeds will be for working capital and general corporate purposes, which may include funding its operations, development and in-licensing arrangements, capital expenditures and acquisitions.

Steel Dynamics upsizes

Steel Dynamics priced an upsized $250 million of five-year convertibles to yield 5.125%, with an initial conversion premium of 30%.

Pricing came at the aggressive end of talk for the coupon and beyond the aggressive end of talk for the premium which was originally expected to be 22.5% to 27.5%.

Steel Dynamics was seen as the cheapest for hedgers. It was quoted in the gray at plus 4 points to plus 5 points. Another source had the notes at plus 3.25 points to plus 4.25 points.

Steel Dynamics had a $115 million five-year convertible note bearing a coupon of 4% that matured in December 2007. That deal came in 2002 with a 41% premium.

The company, a maker of steel products based in Fort Wayne, Indiana, was also seen as having the tightest credit spread.

Steel Dynamics also priced 27 million shares of common stock at $13.50 each. The stock offering was not upsized.

"All these deals are geared to deleveraging, and they often involve equity," a sellsider said, noting that recently priced Wyndham Worldwide Corp. was an exception.

"Windham jumped through hoops to not have any dilution on the books," the sellsider said "Given the current environment, dilution is accepted."

Wyndham priced May 13.

Merrill Lynch, Goldman, Sachs, Morgan Stanley and J.P. Morgan were joint book-running managers for both of Steel Dynamics registered offerings.

The notes are non-callable for three years, and then provisionally callable with a 130% hurdle.

JetBlue seen 2% to 4% cheap

JetBlue's existing 3.75% convertibles due 2035 traded up to 96.25 from previous levels of about 93. The underlying shares of the New York-based low cost air carrier were down sharply, off 74 cents, or 15%, to $4.29.

Of two existing issues, one is way in the money and the other is really short. The 3.75% paper is putable early next year. The JetBlue 5.5% convertibles due 2038 are trading well over par.

The company's new deal of $150 million of 30-year convertibles will be coming in two tranches. Tranche A is non-callable for five years, with investor puts in years 2014, 2019, 2024, 2029, and 2034, while tranche B is non-callable for seven years, with investor puts in years 2016, 2021, 2026, 2031 and 2036.

Both tranches were talked to yield 6.25% to 6.75%, with an initial conversion premium of 15% to 20%.

JetBlue also plans to price a concurrent offering of 20 million shares of common stock.

"The stock got punished. But now they show they can raise paper," a sellside analyst said.

The new convertible was up in the gray at par to 103 and seen 2% to 4% cheap.

Its credit spread stands at well over 1,000 basis points over Libor to as much as 2,000 bps over Libor.

Mentioned in this article:

Antigentics Inc. Nasdaq: AGEN

Biovail Corp. NYSE: BVF

Cephalon Inc. Nasdaq: CEPH

Human Genome Sciences Inc. Nasaq: HGSI

JetBlue Airways Corp. Nasdaq: JBLU

Steel Dynamics Inc. Nasdaq: STLD

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