UCBH tanks on debut; Webster also lower; Market quiet as stocks drop; energy names mixed

By Rebecca Melvin

New York, June 6 - UCBH Holdings Inc.'s 8.5% convertible preferred stock performed miserably on its debut, with the new bank paper sinking as its shares swooned 10% amid overall weakness in the broader markets, convertibles sources said.

Webster Financial Corp.'s 8.5% convertible preferred stock, a competing deal on the same day, also performed poorly. Its common stock was also lower, but only by about 5% early in the session. It closed lower, however, down 7%, but still better compared with UCBH's decline, which hit 12% at one point amid heavy volume.

Offer-side only prices were heard by market sources. One source reported an initial plus 0.5 point on Webster, while UCBH had a par offer early. But later offers on UCBH moved down to 97 and to as low as 90, according to one source. But no trades were heard. Merrill Lynch's trading desk declined to comment. Merrill Lynch was the bookrunner for both offerings.

But a Merrill syndicate source pointed out that no deal stood a chance against the backdrop of the broader markets on Friday. The Dow Jones Industrial Average closed down nearly 400 points, or 3.1%, at 12,209.81, while the S&P 500 lost 3.1% to 1,360.68, and the Nasdaq lost 2.7% to end at 2,474.56.

Oil surged more than $10 per barrel to a new record amid a weak dollar and worse-than-expected U.S. unemployment data.

A West Coast buysider referred to it as "oil Armageddon." While a Connecticut sellside trader said, "People just sat on their hands today - a summer Friday."

Not banking on UCBH, Webster

UCBH priced $135 million of non-cumulative perpetual convertible series B preferred stock well below the level of talk, while Webster's $225 million of perpetual convertible preferred stock price at the cheap end.

"It priced horrendously," a market source said of UCBH. "Webster was at the wide ends, but at least it came within the range," the New York based sellsider said.

The sellsider also questioned why Merrill would have brought both deals on the same day.

"It's strange that they would do two deals on top of each other like that. Maybe there was a rush to the market because it was advancing. But to stack one against the other ... with both deals on the road, it looks like investors gravitated toward the Webster," the sellsider said, adding that "management should have been warned that there is a competing deal in the market on the exact same day."

A Merrill syndicate source said no convertible is going to do well against such a dramatic decline in the markets.

The fact that both deals were done on the same day wasn't a factor, he said. "The convert market is deep; there are so many investors ... and they were not large deals, so it wasn't as if it was that hard [to place them.]"

"There was a lot going on with the whole market down," he said.

A buysider said "There were no bids in these things. It is a terrible market for thin names. But fundamentally, they are good buys; just thin to get the hedges."

The Boston-based sellsider suggested that the premium is so low and there is likely to be an equity pop given the nature of the bank.

"A good chunk is owned by Chinese, and they have the rights on future ownership. So you collect the dividend and then it's a takeover target, plus this thing converts at $4.12," he said.

The UCBH 8.5% preferreds with a 10.1% initial conversion premium came substantially cheaper than talk, which was for a dividend of 7.5% to 8% with an initial conversion premium of 20% to 25%.

There is a $20.25 million greenshoe, and they have five-year hard call protection and are provisionally callable after that subject to a 130% price hurdle.

It's a San Francisco-based holding company for United Commercial Bank, a state-chartered commercial bank serving Chinese communities and American companies doing business in China.

Its shares (Nasdaq: UCBH) closed down 38 cents, or 10%, at $3.47.

Webster Financial priced $225 million of perpetual convertible preferred stock with an 8.5% dividend and with an initial conversion premium of 22.5%. There is an option to purchase up to $25 million of additional shares to cover possible over-allotments. Again Merrill Lynch was the bookrunner, but J.P. Morgan Securities and Sandler O'Neill & Partners LP acted as co-managers.

The preferred stock will be non-callable for five years and provisionally callable thereafter subject to a 130% price trigger.

Proceeds from the offering will be used for general corporate purposes, including increasing liquidity and providing more capital.

Waterbury, Conn.-based Webster Financial is the holding company for Webster Bank, NA with $17.2 billion in assets.

Its shares (NYSE: WBS) closed down $1.51, or 6.8%, at $20.67.

A third bank deal was Citizens Republic Bancorp Inc., which priced $120.4 million of contingent convertible perpetual preferred stock at par of $50 and a concurrent offering of $79.6 million of common stock, both late Thursday.

But this paper, which is being listed, wasn't seen in trade. If the company gets shareholder approval, the non-cumulative series A preferreds will automatically convert into 12.5 shares of common stock, subject to anti-dilution adjustments, on the fifth business day after such approval.

There was no premium or dividend.

Energy names mixed, quiet on oil spike

Despite the record-breaking oil move, the energy space was mixed and most convertibles in energy remained quiet and little changed.

Transocean Inc. was one name mentioned in trade amid the oil/dollar move, "which is the same thing basically," a sellsider said.

Transocean's series A 1.625% convertibles traded early at the 111 mark versus a share price of $147.50. The series B bonds changed hands at 112, and the series C bonds traded at 112.625, versus the same share price, according to a New York-based sellsider.

But the Houston-based oil services company's paper was said to close little changed against a share price (NYSE: RIG) that moved down during the session to close at $123.50, down nearly $4, or 2.7%.

The Transocean series A convertibles were said to close at 110.108 compared with 110.764 on Thursday. While the Transocean series B 1.5% convertibles closed at 110.641, compared with 111.519 on Thursday, and the Transocean series C 1.5% convertibles closed at 111.552, compared with 112.166 on Thursday.

Another energy stalwart, Nabors Industries Ltd. was also little changed against its 1.4% stock decline in moderately heavy trade.

The Nabors 0.94% notes were seen closing at 114.144 versus a share price of $43.25 on Friday, compared with 114.015 versus a share price of $43.84 on Thursday.

Shares of the Bermuda-based land drilling contractor shed most of their loss in the last two hours of trade.

National City little moved

In financials, National City Corp.'s 4% convertibles were called little changed to down 0.5 point despite a 7.5% decline in its underlying shares.

The company's banking unit is facing closer scrutiny from federal regulators after entering into a memorandum of understanding that effectively puts the group on probation.

The terms of the agreement with the Office of the Comptroller of the Currency are confidential, but such agreements give banks an opportunity to work with regulators to address serious financial problems without raising alarm among depositors, the paper said.

"National City's MOU with the Fed took the stock down, but the convert bonds are 84.5, 85.5, little changed from where it last traded," a sellside trader said. "I think it's a vote of confidence in the convertibles. They're a short maturity."

AMD mostly quiet, steady

The convertibles of Advanced Micro Devices Inc. (AMD), which moved up dollar-neutral in active trade on Thursday, were mostly quiet on Friday, as their shares slid 4.5%.

The Wall Street Journal reported that the antitrust suit AMD has brought against Intel Corp. will stretch out further than expected to February 2010 from April 2009 amid a mountain of evidence and a long list of witnesses to interview.

AMD filed its suit in 2005 in the U.S. District Court in Delaware.

The AMD 6% convertibles due May 2015 traded at 71.5 versus a share price of $7.75 early in the session. But they closed at 69.6 versus a close of $7.43, according to one source.

The 5.75% AMD convertibles were said to close at 79.6 versus the $7.43 close, compared to 80 versus $7.78 on Thursday.

Shares of the Sunnyvale, Calif.-based semiconductor company (NYSE: AMD) were actively traded.

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