Conseco deal seen May 3 week after delay due to warning; price talk emerges on Genworth deal

By Ronda Fears

Nashville, April 30 - With focus still on the primary market, convertible players were jerked around Friday as Conseco Inc. delayed its deal but indicative terms emerged on the Genworth Financial Inc. offering. Meanwhile, Quanex Corp. and Matria Healthcare Inc. put a small amount of new paper into circulation.

The convertible market also is expecting the Albertson's Inc. jumbo $1 billion mandatory for Monday's business, but there was no gray market activity in it, which is not unusual for mandatory converts. Albertson's shares closed Friday up a nickel, or 0.21%, to $23.36.

Outside of new issues in play, traders said it was rather quiet Friday amid another slump in stocks. And, most of the new paper was pressured by lower stocks, traders said.

Biotechs were a weak spot, and the Medarex Inc. deal from earlier in the week suffered as a result, although new paper from Transkaryotic Therapies Inc. and Matria were higher. Reebok International Ltd. and CNET Networks Corp. new deals were lower.

Investors hedging interest rate risk were bounced around again Friday as bonds rallied ahead of next week's Federal Reserve meeting. On Friday, the benchmark 10-year Treasury note closed up 12/32, pulling the yield down to 4.48% versus 5.52% at Thursday's close, but rates have backed up sharply over the past six weeks from 3.76% on March 12.

Yahoo! fans ga-ga for Google

Yahoo! Inc. was leading a pack of internet issues sharply lower as the $2.7 billion initial public offering plan of Google emerged Friday.

"Yahoo has its own yodel, but Google has become a verb in and of itself," one dealer commented. "The people shedding Yahoo in anticipation of buying Google put a drag on the Yahoo converts."

As a result of the Google hoopla, Yahoo shares plummeted $4.18, or 7.64%, to $50.53 and dragged the 0% convertible due 2008 down, with the issue ending the day with a 7-point loss to 139.375 bid, 139.75 offered.

Metals issues also were rocked by the bond market reversal, after getting whipped about earlier in the week by concerns that China's economic plan would curtail use of steel by the major consumer.

Inco Ltd. was a big loser in that space over the course of the week but recouped 1 to 2 points on Friday with the 0% issue bid at 84.5, the 1s bid at 113.5 and the 3.5s bid at 128. Inco shares closed Friday up 9 cents, or 0.31%, to $28.75.

Telecom issues continued to reel in on the Nortel Networks Corp. midweek shocker and airline paper steadily lost altitude Friday, as was the case all week.

Conseco deal seen May 3 week

The mystery surrounding the Conseco deal was solved Friday when it was postponed "indefinitely," according to sellside sources close the deal, as the company warned that it now sees earnings at the lower end of its guidance.

Conseco executives, however, inferred in a very short conference call Friday that the $500 million mandatory would resurface in the week of May 3; the insurance company, which emerged from bankruptcy last fall, is due to report earnings next Thursday before the market opens.

An earnings warning by the company was blamed for the deal's delay, although syndicate sources had reported orders on it were very strong.

"We're looking forward to a successful completion of the next step in our recapitalization next week," said Conseco chief executive William Shea on the call.

"And, we are gratified by the strong investor interest in the Conseco story."

Conseco's $500 million mandatory originally was due to price after the market close Wednesday. There had been market chatter that it might price as early as Tuesday, and sellside sources involved with the deal had said early in the week that it was "well booked."

Then, when it had not priced by Thursday morning, buyside sources said the price talk had been tightened to a 5.5% dividend, with the premium seen at 22%. The issue originally was talked with a 5.75% to 6.25% dividend and 18% to 22% initial conversion premium; that guidance emerged April 15.

It was officially postponed Friday morning, however, and before the market opened Conseco announced that its net income applicable to common stock for the 12 months ending Sept. 30 would be at the lower end of the company's previous guidance of $175 million to $200 million.

Conseco also said that it expects to report first quarter net income, after dividends on convertible exchangeable preferred stock, of $46 million to $50 million, or 46 to 50 cents per diluted common share. Proceeds from the new mandatory were earmarked to take out the convertible preferred, which was issued as part of the insurance firm's bankruptcy exit plan.

Quanex, Matria mixed in trade

Quanex and Matria injected a small amount of new paper into the market Friday and were mixed in the immediate aftermarket.

Quanex returned to tap convertible investors for $100 million. The 30-year convertible notes were printed to yield 2.5% with a 40% initial conversion premium - at the middle of yield talk for a 2.25% to 2.75% coupon and at the aggressive end of premium guidance of 35% to 40%.

Joint bookrunner Bear Stearns & Co. Inc. closed the new Quanex convertible at 99 bid, 99.5 offered. Quanex shares closed off 27 cents, or 0.66%, to $40.80.

Interest in the new Quanex convert ran high even though it slipped a little out of the gate, a sellside source familiar with the deal said.

In mid-2002, most of the holders of the Quanex 6.88% convertible subordinated debentures converted their notes into stock ahead of its call date. The issue was convertible at $31.50, and the stock was at $39.62 in June 2002.

Matria sold $75 million of 20-year convertible notes to yield 4.875% with a 47.5 % initial conversion premium - at the middle of yield talk for a 4.625% to 5.125% coupon and at the aggressive end of premium guidance of 42.5% to 47.5%.

Bookrunner UBS Investment Bank took it out for the weekend at 100.75 bid, 101.25 offered. Matria shares ended Friday down 82 cents, or 4.1%, to $19.17.

Genworth slated for late May

Genworth's $600 million mandatory launched Friday with price talk for a 5.75% to 6.25% dividend and 18% to 22% initial conversion premium. It is pricing May 24, along with the initial public offering of Genworth Financial shares by General Electric Co. Genworth is also selling $100 million of series A preferred shares.

GE announced in January that it would spin off a 30% interest in the insurance unit, Genworth, which comprises substantially all of GE's life insurance and mortgage insurance businesses. The spinoff had been anticipated since November.

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