Convertibles mostly quiet; DryShips upsizes; TRW trades at 104.75; Globalstar shows gains

By Rebecca Melvin

New York, Nov. 20 - DryShips Inc. priced an upsized $400 million of five-year convertibles at the cheap end of talk Thursday; but the new DryShips 5% convertibles weren't actively traded in the secondary market Friday, sources said.

"We haven't seen it or heard it all day," a New York-based sellside desk analyst said.

The paper came with a concurrent stock borrow facility for bookrunner Deutsche Bank Securities Inc.

Three new deals priced in the convertibles market in the past week, all of which came at the cheap end of talk. Of the three issues, TRW Automotive Inc.'s newly priced 3.5% convertibles seems to have gained the most ground. The TRW 3.5% paper traded up a point to 101 and held there on its debut Tuesday, and traded at 104.75 versus a share price of $23.05 on Friday.

Kilroy Realty LP, which also debuted Tuesday, but saw its newly priced 4.25% convertibles fall below par to trade at about 99.

"All of them priced on the cheap end; I wouldn't say any of them did that well," a New York-based sellside analyst said of the three deals.

On Friday, market sources said trading was light and that players were already looking ahead to less market activity in the Thanksgiving-shortened week coming up.

"It's almost Thanksgiving, and we're heading into year-end. Converts have had a good run, and I think people are just sort of sitting on what they have," the analyst said.

Among top volume names on Friday were the usual suspects. They included Transocean Ltd.'s 1.5% and 1.625% convertibles and Medtronic Inc.'s 1.5% convertibles.

Globalstar Inc.'s 5.75% convertibles, a smaller issue with only $72 million outstanding, gained in trade Friday, to print last up 4.5 points, which represented an expansion compared to its underlying shares, a West Coast-based market player said.

DryShips mostly quiet

DryShips' newly priced 5% convertibles weren't trading in the convertibles market, although one source said he heard a quote at 103 early in the session.

Shares of the Athens, Greece-based marine transportation services company closed down 24 cents, or 3.7%, at $6.29, extending a slide of 8.5% on Thursday.

The DryShips senior notes priced to yield 5% with a conversion price of $7.19 after the close Thursday. The conversion price is a 10.1% premium over the $6.53 closing stock price.

But based on DryShips' concurrent stock borrow facility, which priced at $5.75 per share, the initial conversion premium was 25%, which was within the range of price talk.

The coupon was at the cheap end of the 4.5% to 5% talk.

"They came at 5s up 25. But up 25 from nothing," a Connecticut-based sellside analyst said.

A syndicate source said "everybody liked [the deal]." But another source said, "Nobody liked it."

"Anybody who took a piece would have had to go through Deutsche to get it. You can't flip it out in the general market, because you have to go through DB. But I guess someone could have made a lot of money right off the bat," the sellsider said.

But one sellsider cited a convertibles deal that came a couple of years ago with a borrow facility. At first it wasn't traded, but then the borrow loosened up and it traded actively.

A New York-based sellside analyst said that the company has a complicated capital structure with lots of subsidiaries that made the credit difficult to figure out and thereby unappealing. He said his firm hadn't traded any of it on Friday.

"It has no other straight debt outstanding. It does have some term loans and other loans. It's hard to analyze. But if you look at its competitors like Navios Maritime, it makes sense that it has a credit spread of 1,000 basis points over Libor," the sellsider said.

The deal was increased $100 million from the original $300 million. Along with the upsizing, the greenshoe was expanded to $60 million from $45 million.

Proceeds will be used for vessel acquisitions, working capital and other general corporate purposes.

The bonds will be non-callable for life, with no puts. There is dividend and takeover protection.

TRW trades at 101

TRW Automotive's newly priced 3.5% convertibles due 2014 traded at 104.75 versus a share price of $23.05 on Friday, compared to 100.875 bid, 101.375 offered on Tuesday.

Shares of the Livonia, Mich., automotive supplier have gained about 4% since pricing.

With its $225 million of six-year exchangeable senior notes priced late Monday, TRW joins other auto/auto supplier names in the convertible universe, which include Johnson Controls, BorgWarner, Autolive, which did an acquisition of a piece of Delphi on Tuesday, and Ford Motor.

Globalstar moves higher

Globalstar 5.75% convertibles due 2028 were 55.5 last versus a close of $0.87.

Shares of the Milpitas, Calif.-based satellite communications company gained 5 cents, or 6.1%.

The bonds gained 4.5 points and "have done better than the stock," a West Coast-based sellsider said.

The paper has a 26.5% yield to put, which comes in 2013.

"I really like the underlying fundamentals. They have 24 new satellites that are going to fire up next year in 2010. And the bonds have gone up considerably since we started looking at them at around 30," the sellsider said.

Mentioned in this article:

DryShips Inc. Nasdaq: DRYS

Globalstar Inc. Nasdaq: GSAT

Kilroy Realy LP NYSE: KRC

TRW Automotive Inc. NYSE: TRW

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