Charter climbs on exchange offer; Tanger shines, Retail Ventures/DSW quiet on debuts; Andrew stays firm

By Kenneth Lim

Boston, Aug. 11 - The convertible bond market had a slow session on Friday, with Charter Communications Inc. dominating early action after the company announced an exchange offer for its 5.875% convertible due 2009.

Other names trading on Friday were the newly priced Tanger Factory Outlet Centers Inc. 3.75% exchangeables due 2026, which were higher right off the blocks. The upsized $130 million deal priced within talk late Thursday.

Retail Ventures Inc.'s new 6.625% mandatory exchangeables into DSW Inc. were quieter, and did not see significant volume on their debut after they were priced at the cheap end of talk.

Andrew Corp. fell further outright but firmed up against its stock after CommScope Inc. said it will no longer try pursue an acquisition of Andrew.

The market in general was mostly idle on Friday, with few earnings surprises to spur activity, market sources said.

"It's extremely slow," a sellside convertible bond trader said.

Charter gains on swap offer

Charter Communications' 5.875% convertible due 2009 climbed about 5 points outright after the company offered cash, stock and a longer-dated straight note for part of the series.

The convertible was quoted at 85.25 bid, 85.75 offered early Friday against the previous closing stock price of $1.21, about 4 points better outright than closing levels the day before versus the same stock price. The convertible reached as high as 87.5 on Friday, while Charter stock (Nasdaq: CHTR) rose 10.74% or 13 cents to close at $1.34.

"Is it good for the convert guys? Hell, yeah!" a convertible trader said of the offer.

St. Louis, Mo.-based Charter on Friday offered $417.75 in cash, 100 shares of its class A common stock and $325 in principal amount of added-on 10.25% senior notes due 2010 for every $1,000 in principal amount of its 5.875% convertible. At current share prices and the 10.25% senior note's market value of 101, the exchange package is worth around $880 per $1,000 of the 5.875% convertible note.

The offer is only good for up to $450 million, or 52.17%, of the $862.5 million outstanding in the 5.875% convertible series, and will be pro-rated if the company receives acceptances above that limit.

The provider of broadband telecommunications services also concurrently made private exchange offers with some holders of Charter's notes, which would give those holders up to $875 million in principal amount of longer-dated notes - up to $200 million of 10.25% senior notes due 2013 and up to $675 million of 11% senior secured notes due 2015.

Charter said the exchange offers were aimed at extending the maturity of its debts and reducing overall indebtedness. The 5.875% convertible is its earliest-maturing debt security.

"That would seem like a reasonable discount," a convertible bond trader said of the offer. "That's probably still attractive even now [at the 5.875% convertible's current levels]."

The trader said it made sense for holders of the convertible to take the offer.

"It's [Charter] a risky play," the trader said. "If you have the convertible...you're thinking about it all the time, and now you can get some money back and you can push it back one year, of course you take it."

"When you get a kiss like that, you take it," the trader said.

A sellside convertible bond analyst said the deal seemed fair and "people are pretty much going to go along with it."

Addressing the convertible debt was something the company was bound to do because of concerns about its liquidity, the analyst said.

"Either way the quality of the convertible outstanding is going to get worse," the analyst said. "But this way you get at least some of it back in cash."

"Certainly the converts are very risky credit," the analyst noted. "There's not much in the way of available liquidity, and there's concern about whether there's going to be cash to handle the bonds. This is definitely something that's positive for them to address."

But the quality of the convertible that's left after the exchange is going to be worse, the analyst said.

"The private exchange offer and the movement of the interest that they have in certain [subsidiary] operating systems, by moving that [other debt] up to a more senor level, the position of the convert holders are going to get worse with the new structure," the analyst said.

Tanger rises from the start

Tanger's newly priced 3.75% exchangeable senior unsecured note due 2026 was up on Friday after the upsized $130 million deal priced within talk the night before.

The exchangeable was 100.5 bid, 100.75 offered on Friday as Tanger stock (NYSE: SKT) rose 1.76% or 54 cents to close at $31.15.

"They were decent," a buysider said. "They priced close to the mids, slightly cheaper, and interest was decent."

Tanger offered the notes are par. They were talked at a coupon of 3.45% to 3.95% and an initial exchange premium of 17.5% to 22.5%. The size of the deal was originally $100 million, while the greenshoe of a further $19.5 million was increased from the initial $15 million greenshoe.

Tanger will guarantee the notes, which will be issued by Tanger subsidiary Tanger Properties LP.

Citigroup and Banc of America were the bookrunners for the registered off-the-shelf offering.

Tanger, a Greensboro, N.C.-based real estate investment trust that owns 29 factory outlet retail malls in the United States, said it will use the proceeds of the deal to pay down its revolving loans and other debts, to make additional investments and for general purposes.

A sellside convertible bond trader grumbled that the discount on the deal was too small. BRE Properties Inc., another REIT, priced a deal earlier in the week with one of the highest initial conversion premiums for REIT deals this year.

"The deals are coming 1% cheap, now these things aren't even 1% cheap any more," the trader said. "Pricing used to be more for the customer, the buyer, but now I think the pricing is more geared toward the corporation that's selling it."

Retail Ventures/DSW deal quiet

Retail Ventures's newly priced 6.625% mandatory senior notes exchangeable into DSW Class A common stock did not see significant volume on Friday after the deal priced at the cheap end of talk.

The notes, which were offered at par of $50 apiece, were talked at a coupon of 6.125% to 6.625% and an initial exchange premium of 27.5% to 32.5%. The initial exchange premium was set at 27.5%.

There is a greenshoe option for a further $18.75 million

Lehman Brothers was the bookrunner for the registered off-the-shelf deal.

DSW is a Columbus, Ohio-based branded shoe retailer and a subsidiary of Retail Ventures. Retail Ventures, a discount retailer also based in Columbus, said it will use the proceeds of the deal to pay down its existing revolving loan and other debt.

DSW stock (NYSE: DSW) closed at $27.44 on Friday, up by 0.11% or 3 cents.

Andrew firms on CommScope exit

Andrew's 3.25% convertible due 2013 eased about a point outright on Friday but held steady on a dollar-neutral basis after CommScope said it would not be raising its takeover offer, which Andrew rejected a day earlier.

The convertible traded at 96.5 versus a stock price of $8.25. Andrew stock (Nasdaq: ANDW) dropped 6.15% or 55 cents to finish the session at $8.39.

"I think some guys were maybe hoping that CommScope would come back with something better," a sellside convertible bond analyst said. "But that was always a risk."

Hickory, N.C.-based CommScope said Friday that it was no longer pursuing Andrew after its cash offer of $9.50 per Andrew share was rejected by Andrew late Wednesday. Andrew also pulled out of a stock merger with Eden Prairie, Minn.-based ADC Telecommunications Inc. on Wednesday, saying it would continue operating as an independent company.

Westchester, Ill.-based Andrew, CommScope and ADC all supply equipment for telecommunications companies.

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