Newport comes early with heavy book; Invacare talk seen Monday; Sunpower, Trico, Borland improve

By Ronda Fears

Memphis, Feb. 2 - Market sources said to look for price talk to emerge on the Invacare Corp. convertible on Monday with price talk on the corresponding high-yield bond transaction to be the gating action for the notes.

Meanwhile, Newport Corp. came off the forward calendar to price early amid strong demand. The issue priced tight and still was seen higher in the immediate aftermarket by 3 to 4 points. Also coming out of the gate were new offerings from Borland Software Corp., SunPower Corp. and Trico Marine Services Inc., and all came within price talk and were better, but traded light.

Fresh paper from Kyphon Inc. was described as treading water, with the new 1% issue at 100.375 versus a stock price of $46 - off from 101.9 on Thursday - and the new 1.25% tranche at 101.625 - up from 101.25 on Thursday - against a $46 stock. Kyphon shares (Nasdaq: KYPH) was better by 19 cents, or 0.41%, at $46.12 on Friday.

Boston Properties Inc.'s new 2.875% exchangeable senior note due 2037 was finding interest as well as its 3.75% convertible, one market source said.

In fact, real estate investment trusts continue to pique a lot of interest in the convertible market, another market source said. This convertible strategist said on Friday he noticed players were selling REIT convertibles in names they saw as having expensive volatility to buy others with cheaper vol. Getting shed, he said, was Vornado Realty Trust, while buyers were seen for Duke Realty Trust, Home Properties Inc. and National Retail Properties Inc.

Also of note, one market source said there was considerable attention in the market Friday to a conference call staged by Merrill Lynch to discuss goings on with the review by the Emerging Issues Task Force of the Financial Accounting Standards Board regarding cash settlements for convertibles. This is not a new issue in the market, but has not been revisited for a while now.

Invacare talk expected Monday

A market source said the only firm deal remaining on the convertible forward calendar, from wheelchair maker Invacare, is expected to get a range for price talk on Monday.

He said bankers were waiting for price talk to firm up on the high-yield bond Invacare is pitching in order to set the indicative terms for the convertible. He also noted that apparently bankers working on the high-yield bond offering were apparently working on Friday to tighten that price talk, which had not yet emerged on the market by late Friday.

A roadshow for the high-yield bonds, $175 million of eight-year senior notes (B2/B), began last week and is slated to price during the week of Feb. 5. The Rule 144A offering, with registration rights, is coming with four years of call protection.

In the convertible market, the Elyria, Ohio-based company is pitching $125 million of 20-year senior subordinated convertible notes (B3/CCC+) in the Rule 144A and Regulation S markets.

Additionally, Invacare is expected to close Feb. 9 on a new $400 million credit facility (Ba2/B+), consisting of a $150 million revolver talked at Libor plus 225 bps and a $250 million six-year term B talked at Libor plus 225 bps.

All are part of a debt recapitalization plan by the company, a maker and distributor of non-acute health care products such as wheelchairs. The company has expressed financial constraints related to stiffer Medicare reimbursement policies.

In line with its guidance, on Thursday, Invacare reported a 2006 GAAP net loss of $317.8 million, or $10 per share, compared with net income of $48.9 million, or $1.51 per share, in 2005, noting that the biggest drag on the results was Medicare reimbursement changes.

The company has said that in addition to the debt recapitalization, it has changed the way it accounts for bad accounts and questionable reimbursements. At year-end 2006, the company noted that it had a debt-to-total-capitalization of 54.1% versus 41.7% at the end of 2005. The company obtained waivers of covenant violations disclosed in its third-quarter report, as well.

For 2007, the company is projecting flat to 2% organic growth in net sales, an adjusted EBITDA gain of 4% to 6% and free cash flow of between $40 million and $50 million.

Newport gains 3-4 points

Newport came to market after Thursday's close versus waiting until the scheduled pricing after Monday's close. That was brought about by a heavy book, which one market source described as five times oversubscribed at the end of the day Thursday.

Thus, probably to no one's surprise, Newport priced at the tight end of guidance. The $150 million deal was printed with a coupon of 2.5% and initial conversion premium of 27.5%, versus talk of a 2.5% to 3.0% coupon and 22.5% to 27.5% premium.

While the terms took a fair amount of the juice out of the Newport deal, it still was a hit. At the midpoint of the guidance, one sellside analyst had pegged it around 2% cheap - a little tight to the going market at present but still "OK" by him. He modeled the five-year paper using a credit spread of 275 basis points over the comparable Treasury and a 30% volatility input.

The issue was described by traders as better by 3 to 4 points on its debut. Newport shares (Nasdaq: NEWP) closed at $19.11, a gain of 25 cents, or 1.33%, on the day.

SunPower up 1-2 points

SunPower priced an upsized $175 million of 20-year senior unsecured notes on Thursday after the market closed, at par with a coupon of 1.25% and initial conversion premium of 27.5%. The issue was upsized from $130 million and came at the expensive end of yield talk, which had put the coupon between 1.25% and 1.75%, and at the mid-point of premium guidance for 25% to 30%.

But despite addressing the tight borrow issue through a transaction with joint bookrunner Lehman Brothers Inc., market sources said the new SunPower issue was not traded much Friday in the immediate aftermarket. Yet, the new issue was said to have traded up 1 or 2 points. SunPower shares (Nasdaq; SPWR) declined on the day by $1.16, or 2.61%, to $43.35.

A light trading pattern was expected, though, as the issue was seen getting placed into a handful of accounts.

Concurrently with the notes, SunPower sold 2,947,132 shares of class A common stock, all of which are being borrowed by an affiliate of Lehman Brothers pursuant to a share lending agreement where Lehman can sell the shares to facilitate the establishment of hedge positions. The company said that because the borrowed shares must be returned to SunPower prior to maturity of the notes Feb. 15, 2027, it believes that current accounting rules will not require the borrowed shares to be considered in calculating earnings per share.

The notes are non-callable for five years with puts in years five, 10 and 15. There is a contingent conversion threshold at 125%.

San Jose, Calif.-based SunPower, which makes solar electric power products, plans to use proceeds for general corporate purposes, including working capital and capital expenditures.

Borland adds 2.5-3.5 points

Borland priced $125 million of five-year convertible senior notes at par with a coupon of 2.75% and an initial conversion premium of 25% - at the rich end of talk, which had put the coupon at 2.75% to 3.25% and the initial conversion premium of 20% to 25%. The issue was said to have traded up 2.5 to 3.5 points.

Before pricing, the bonds were getting positive bids in the gray market but the Street was lamenting trouble pinning spread and volatility assumptions on the deal. Analysts, nevertheless, agreed that it appeared cheap.

The notes will be non-callable and may not be put.

Borland, a Cupertino, Calif.-based developer of application lifecycle management software, said it will use the proceeds to buy back about $25 million of its common stock and for general purposes, including potential acquisitions.

Trico quiet with slight gain

Trico Marine priced $125 million of 20-year Rule 144A convertible senior debentures on Thursday after the market closed at par with a coupon of 3% and initial conversion premium of 39% - at the middle of yield talk that put the coupon at 2.75% to 3.25%, and at the wide end of the indicated premium of 35% to 40%.

The issue was not traded very heavily, and traders at a couple of sellside shops noted that there were more sellers of the Trico paper versus the other new issues, which they saw only getting bids.

The notes are non-callable for five years with puts in years seven, 10 and 15. There is a contingent conversion threshold at 125%.

Houston-based Trico, an oilfield marine concern, intends to use proceeds for general corporate purposes, which may include pursuing opportunities in emerging markets, further augmenting its fleet renewal program, and pursuing strategic acquisition opportunities that may arise.

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