Travelers $850 million convertibles talk tightened to 4.5-4.75% yield, up 30%

By Ronda Fears

Nashville, Tenn., March 21 - Guidance for Travelers Property & Casualty Corp.'s $850 million of convertibles was tightened Thursday before pricing, putting the yield between 4.5% and 4.75% versus original price talk of 4.75% to 5.25%. The initial conversion premium was set at 30%, compared with original talk of 20% to 25%, according to market sources.

In the gray market, the issue was trading 1 to 1.5 points over par late in the session, traders said.

There was also talk that the deal would be upsized. Syndicate sources said it was well over-subscribed, but could not confirm it would be increased in size.

Salomon Smith Barney is lead manager of the deal, which is set to price after the close along with the Traveler's IPO.

"It's pretty frustrating. They come out with price talk and everyone sees that it models up pretty good so it trades up in the gray market," said John Seibel, head trader at the hedge fund Silverado Capital Management.

"Then, they take all the juice out of it, and it's not worth it any more."

Travelers has been more guesswork than usual, however, because it is an IPO so there is no history on the stock. The 30-year convertible junior subordinated notes underlying the convertibles are rated A2 by Moody's and BBB by S&P.

John Wright, a convertible analyst at Bear Stearns & Co., said at the midpoint of the new price talk the issue appears to be at about par, using a credit spread of 200 basis points and 20% volatility for the stock. He said with a 25% conversion premium, the deal looks about 2% cheap.

For the stock volatility, Wright said he looked to MetLife and other insurance stocks as a guide.

There is a $42.5 million greenshoe available on the convertible offering.

The 20% spinoff of Travelers from Citigroup will fetch between $3.4 billion and $4 billion. The common stock is filed at $16 to $19 each, with 210 million shares being sold.

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