Owens-Illinois below par on debut; planned Beazer quiet; Hologic expands; airlines tank

By Rebecca Melvin

New York, May 4 - Owens-Illinois Inc.'s newly priced 3% exchangeables slipped below par on their debut in the secondary market Tuesday, as hedge players refrained from being overly involved, especially when the paper didn't come at the midpoint of talk, market sources said.

"I haven't heard much on them. It's been really quiet," a New York-based sellside trader said of the new paper.

"There was not quite enough juice in it for the hedge players," another sellsider said.

Meanwhile, a down day for the broader markets was said to put a damper on the new issue, according to a syndicate source.

Beazer Homes USA Inc., which was expected to price $75 million of mandatories after the market close, was looking cheap, but given the deal's small size and the typically limited interest that mandatories have among convertible players, there wasn't much focus on it ahead of final terms.

"It's pretty well oversubscribed," a syndicate source said of Beazer.

Beazer's existing convertible senior notes traded up slightly to just over par, extending that paper's general trend ahead of an upcoming call date and in appreciation of new financing coming Beazer's way.

In addition to the mandatory offering, the Atlanta-based homebuilder is pricing common stock and an issue of straight notes.

Elsewhere, the convertibles market saw continued action in Transocean Ltd. convertibles and among a smattering of other energy names.

Hologic Inc. held up in trade despite sharply lower shares after the medical diagnostic equipment company reported fiscal second-quarter earnings, and shares were also downgraded by Brean Murray to "hold" from "buy," and by RBC Capital to "sector perform" from "outperform."

Airlines sink

Meanwhile, airlines were hit hard a day after news that Continental Airlines Inc. and UAL Corp. have agreed to merge to create the world's largest airline.

Continental's 5% convertibles dropped to 109.75 versus a share price of $20.00 on Tuesday, compared to an early trade at 118.5 versus a share price of $22.85. AMR Corp. came in sharply, a sellsider said, trading late at 101.75 versus a share price of $7.00, down from 105 versus a share price of $7.30 in the morning.

"It was a flight-to-quality kind of day. My whole screen is pretty much red, and it looks like the weaker credits are off the most," a convertibles sellsider said, by way of explanation of what happened to airlines.

Another sellsider said, "It was not a fun day unless you were short the market. Tomorrow will be interesting."

Equities in the United States and overseas plunged, and the CBOE volatility index, or the VIX, surged amid fears that Europe's sovereign credit crisis won't be able to be contained.

The Dow Jones Industrial Average tumbled 225 points, or 2%, to 10,926.77; the Nasdaq Stock index fell 74.5 points, or 3%, to 2,424.35; and the S&P 500 index lost 28.66 points, or 2.4%, to 1,173.60.

Owens-Illinois seen slightly cheap

Owens-Illinois' newly priced 3% convertibles traded between 99 and 100 most of the session, with the paper settling at 99.75 versus a share price of $33.50, according to a syndicate source.

One sellsider said he saw them at par offered at the beginning of the day.

Pricing at the midpoint of the coupon and at the rich end of the premium took some of the upside out of it, but also the broader markets were terrible, which didn't help things, sources said.

The issuer was actually Owens-Brockway Glass Container Inc., a subsidiary of Owens-Illinois, and it priced an upsized $600 million of the five-year exchangeable senior notes after the close of markets on Monday.

The Owens-Illinois deal was talked to yield 2.75% to 3.25% with an initial conversion premium of 35% to 40% and was seen between 1% and 3.7% cheap at the mids and ahead of final terms.

"The hedged community was not enthused, and I had accounts say they would be interested only at the mids or better," a sellsider said.

It appeared that a lot of players flipped it at the beginning of the day and that others were holding on to it, and waiting for the stock to come around, one source said. "The story is fine; the credit is fine; it was just the pricing."

Demand from outrights allowed the deal to get upsized and come toward the rich end of talk, "but given the action today, they are probably not terribly happy with it," he said.

The Rule 144A offering is being sold via joint bookrunners Bank of America Merrill Lynch, Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and Goldman Sachs & Co.

The notes will be non-callable for life with no puts.

Perrysburg, Ohio-based Owens-Illinois is a glass container maker.

Beazer equity units 'oversubscribed'

The Beazer Homes $75 million of 3.25-year tangible equity units was "pretty well oversubscribed, but it's a small deal," a syndicate source said.

Another sellsider said the new paper looked a little bit cheap, using a credit spread of about 750 basis points over Libor and a vol. of 73% for the lower strike and 70% for the upper strike.

"They are bringing an entire new capital structure on a terrible day, and it seems that the mandatory is a little bit of an afterthought," the sellsider said.

Beazer Homes also planned to price 12.5 million of common stock and $300 million of senior straight notes due 2018.

Shares of Beazer plunged $1.07, or 15.6%, to $5.81 on Tuesday.

The existing Beazer 4.625% convertibles due 2024 continued to edge up, as they have been doing for much of the year to date, trading at 100.625, which was up 0.875 point on the day.

Meanwhile, the existing Beazer mandatories were not heard in the market.

The planned new 3 million of tangible equity units, at $25 per unit, were talked to yield 7% to 7.5% with an initial conversion premium of 20% to 25%.

Citigroup and Credit Suisse Securities are joint bookrunners of the units offering, with Deutsche Bank Securities as a joint lead manager and Moelis & Co. as the co-manager.

Proceeds are earmarked for repurchases of Beazer's 2012 notes and the 2024 notes and for other general corporate purposes. As of April 30, Beazer had outstanding $303.6 million of the 2012 notes and $154.5 million of the 2024 notes.

Hologic hangs in pretty well

Hologic's 2% convertibles due 2037 traded at 89.5 versus a share price of $16.40 during the session, and they were seen at 87 late in the day, which compared to trades at 90 a couple of weeks ago on April 21.

Shares of the Bedford, Mass.-based diagnostic imaging and surgical products company for women's health care needs plunged $2.10, or 11.6%, to $16.01 on Tuesday.

"They hung in pretty well, but they are definitely down," a New York-based sellside desk analyst said of the convertibles.

Hologic earned $20.6 million, or 8 cents per share, for the three months ended March 27, compared with a loss of $2.31 billion, or $9.01 per share, during the year-earlier period, which had a write down due to an acquisition and other items.

Revenue rose 4% to $418.1 million.

It matched estimates of 29 cents per share earned, excluding items, for non-GAAP adjusted net income of $76 million.

Mentioned in this article:

AMR Corp. NYSE: AMR

Beazer Homes USA Inc. NYSE: BZH

Continental Airlines Inc. NYSE: CAL

Hologic Inc. Nasdaq: HOLX

Owens-Illinois Inc. NYSE: OI

Transocean Ltd. NYSE: RIG

UAL Corp. Nasdaq: UAUA

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