OMI rises to 104.5; Synaptics, Cray, Millicom deals launch; Halliburton up on final settlement

By Ronda Fears

Nashville, Nov. 30 - The convertible calendar continued to build into a year-end rush for capital Thursday, and banker types reported strong demand for fresh paper, noting that the overnighter from OMI Corp. was upsized and priced aggressively outside yield talk, and still shot up 4.5 points from par.

OMI's $225 million deal, bumped up from $200 million, was printed with a 2.875% coupon and 46.5% initial conversion premium - outside yield talk of a 3.75% to 4.25% coupon and at the rich end of premium guidance of 42.5% to 47.5%. It had been bid up as much as 2.5 points in the gray market and gained another couple of points from there out of the gate, a buyside trader said.

Meanwhile, Cray Inc. and Synaptics Inc. tossed deals into the ring Tuesday, and Millicom International Cellular SA launched a deal off the London desk of Morgan Stanley & Co.

Through Tuesday, convertible issuance was still running about half of year-ago levels at $46.63 billion, which includes the OMI deal but not the Cray and Synaptics deals that come to $160 million together. Those two are slated to price after Wednesday's close, and coming for Thursday is a $125 million deal from American Equity Investment Life Holding Co.

Cray up 0.5 point in gray market

Before Tuesday's open, Cray launched $60 million of 20-year convertible notes talked to yield 3.0% to 3.5% with a 32.5% to 37.5% initial conversion premium. By the closing bell, traders said it was bid 0.5 point over issue price in the gray market.

The Seattle-based computer maker said it would use proceeds to support operations and growth and other general corporate purposes.

Cray shares on Tuesday lost 62 cents, or 15%, to close at $3.51.

American Equity bid up 2 points

While American Equity's deal wasn't due to price until after Thursday's close, it was very active in the when-issued market, moving up steadily throughout the session to a bid of 2 points over issue price by the time the closing bell rang.

The $125 million of 20-year convertible notes are talked to yield 5.125% to 5.625% with a 45% to 50% initial conversion premium.

American Equity stock dropped 69 cents on the day, or 6.57%, to end at $9.81.

Synaptics emerges late in day

After Tuesday's close, Synaptics launched $100 million of 20-year convertible notes talked to yield 0.75% to 1.00% with a 35% to 40% initial conversion premium, with pricing slated after the market close Wednesday.

San Jose, Calif.-based Synaptics said it would use proceeds for working capital and general corporate purposes such as potential acquisitions, although the company - which makes components for notebook computers, such as the signature scroll wheel on Apple Computer Corp.'s popular iPod - stressed that it does not have any acquisition plans.

Synaptics shares closed Tuesday up 73 cents, or 1.94%, at $38.40, but on the convertible news the stock was down $1.90, or 4.95%, in after-hours trading.

Millicom deal out of London

Millicom on Tuesday launched $175 million of five-year convertible notes talked to yield 3.75% to 4.25% with a 45% to 50% initial conversion premium for Wednesday's business as well. The Regulation S deal is pricing out of London by sole bookrunner Morgan Stanley, according to market sources.

Luxembourg-based Millicom also was offering 8 million ordinary shares in the form of Swedish Depositary Receipts.

On the Nasdaq, Millicom shares fell Tuesday by 82 cents, or 3.57%, to end at $22.16 but in after-hours trading regained 34 cents, or 1.53%. On the Stockholm exchange, Millicom shares closed down by 4.61%.

Treasury watch nerve-racking

While the convertible market's attention was mainly focused on new deals, out of the corner of their eyes they were nervously watching the backup in Treasury yields.

"Lots of players were anxious about the Treasury sell-off, but most were well prepared for the backup in yields, which were mostly concentrated on the long end of the yield curve," the head trader at a major convertible desk said.

For the most part, however, traders said the reaction to Treasuries was muted. The 10-year Treasury bond yield hit a four-month high of 4.39% at one point of the session, a buyside trader said, but came off that by the close. The benchmark 10-year note dropped 9/32 for a yield of 4.36%, and the 30-year bond fell 20/32, lifting it to 5.01%.

Part of the lack of reaction, the trader said, was due to so many adjustments following the sharp sell-off Friday in Treasuries on reports that Yu Yongding, a Chinese central bank official, said China had cut its holdings of U.S. debt.

"I see a few more sellers but this is marginal - tells me nobody believes, yet, the move in 10-year [Treasuries] is real, or will wait until [employment data is reported] Friday. The Chinese scare will wear off if we get a weak or inline employment number," said the manager of several big convertible funds.

"It's hard to believe that with high oil and marginally higher rates, not to mention levels of consumer debt, that the U.S. is going to have a more robust economy moving forward."

It may just be a matter of optimism versus realism, given the economic data.

"Indeed, we will know pretty soon methinks," the fund manager said. "I had thought bearish bonds here seemed like the crowded trade, but probably not crowded enough given the reaction in ConvertLand."

HCC exchange for 2s shaky

HCC Insurance Holding Inc.'s convertibles, both the 2% and the 1.3%, fell by about 2 points on Tuesday, largely blamed on the dip in the stock as a result of the company's plan to sell another 3 million shares of stock. But a convert trader also pointed out that HCC's attempt to eliminate the contingent conversion feature on the 2s is having a tough go of it.

As expected, there has been a steady chain of exchanges launched to eliminate contingent conversion features from convertibles by issuers wanting to avoid having to report the potential dilution to earnings per share, after the Financial Accounting Standards Board adopted the new rule Sept. 30.

But some holders are balking at the lack of incentives to participate with the tenders, such as a cash payment.

"More than half of [HCC 2% convertible] holders are not happy with terms of the exchange and may not tender for it," the trader said Tuesday. "The company needs to do this to clean up [its] balance sheet before they change their corporate structure."

After four amendments to the exchange terms, HCC is offering an equal amount of new 2% convertible notes due 2021 with one more year of hard call protection, eliminating the 2006 and 2008 puts while adding a put in 2007, inserting a provision so that conversions can be paid in cash and stock or a net share settlement, and adds cash takeover protection.

Late Monday, HCC announced it also would sell another 3 million shares of stock to raise capital to contribute to its operating subsidiaries.

Calpine, energy names higher

Traders said Calpine Corp.'s convertibles moved up alongside the underlying stock, which was speculated to mark a nice gain Tuesday on short covering ahead of the onset of winter weather.

Calpine stock rose 24 cents on the day, or 6.59%, to $3.88. The 6% converts due 2015 traded up about 5 points to 112, and the 4.75% converts due 2023 added about 3 points to 81.5, one sellside trader said. Another, however, saw the 6s bid as high as 113.5 and the 4.75s bid at 82.5.

A sellside market source also noted that Chesapeake Energy Corp., a big independent producer of natural gas, was moving up at the end of the day on the same sentiment, but also due to a $270 million acquisition of more natural gas assets. The Oklahoma City-based firm also was in the high-yield market with a $600 million junk bond Wednesday afternoon, with those proceeds earmarked to flush out its 6% convertible preferreds and 8.375% straight bonds.

Halliburton up on settlement

While the headlines about Halliburton Co.'s asbestos settlement was not news, it was seen as a final step in putting the matter behind it for good. Thus, traders said there was some activity in the convertibles, moving the 3.125% issue up about a half-point to 127.125.

Shares of the oilfield services company rose 39 cents, or 0.95%, to close Tuesday at $41.35.

Asbestos claimants will be paid via trusts set up under the settlement. Halliburton expects to fund the trusts by the end of January. As already determined, Halliburton will be paying about $4.8 billion to the trust with $2.78 billion of cash, 59.5 million shares of common stock and a $54 million note.

Standard & Poor's said it was favorable for Halliburton's ratings (BBB/developing watch) that a final insurance settlement related to asbestos claims have been agreed between its subsidiaries DII Industries, Kellogg Brown & Root, and the insurance carriers.

The bankruptcy court orders are now final, and the settling insurers are obligated to dismiss appeals, so the units' bankruptcy process now could be concluded by year-end, S&P said. Thus, S&P anticipates resolving the watch listing by year-end. The watch implication is developing, indicating the ratings could rise or fall depending on pressure on financial performance and credit measures due to the challenges associated with Halliburton's government services operations in Iraq.

Now that the asbestos situation is finally behind Halliburton, the company is expected to make a decision on the future of KBR, the engineering and construction arm responsible for military support services work in Iraq. In September, Halliburton said it was mulling options for KBR.

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