Citi/Genworth SYNdecs close flat; Wesco, Toreador gain, but Cyberonics drops; Nektar eyed

By Rebecca Melvin

Princeton, N.J., Sept. 22 - Citigroup Funding Inc.'s mandatory exchangeables into Genworth Financial Inc. were referred to as "the name of the day" Thursday in the convertibles market. But with the debut of a quartet of new deals, as well as activity in oil and gas and other names in the secondary market, that point could be argued, sources said.

The first day of trading in Genworth mandatories was brisk. Early trades were a few cents north of par, with trades quoted at $29.62, versus a stock price of $29.50. Par was $29.50.

Later in the session the mandatories traded at $29.40, but the SYNdecs closed flat on the day at $29.50, according to a syndicate source. That level was equal to Genworth stock, which closed down 10 cents.

As for the other new issues, Wesco International Inc. and Toreador Resources Corp. opened right around the same level at 101 or 101.5 and closed above that level, with Wesco's 2.625% convertibles closing at 100.5 bid, 101 offered, and Toreador's 5% convertibles reported at 102 for the close.

Cyberonics Inc.'s new 3% convertible opened at par but closed down at 98.25 bid, 98.75 offered, according to a syndicate source. It wasn't seen in trade, according to sources, and its launch was met with a tepid reception since stock borrow was a problem.

Meanwhile, Nektar Therapeutics Inc.'s $200 million of seven-year convertibles launched late Wednesday were attracting attention and said to be heavily oversubscribed. Nektar common stock closed 5% lower. The convertibles issue was expected to price late Thursday.

"I think it's priced to go," said a New York-based sellside convertibles trader, who valued the deal cheap at 101.5 at the mid point, using a credit spread of 500 basis points over Libor and 35% volatility.

Other players concurred: "...only like NKTR..." read an e-mail from a buyside source, who added that the issue is oversubscribed.

In secondary activity, St. Mary Land & Exploration Co. and Devon Energy/Chevon Texaco Corp. were mentioned in trade, as was General Motors Corp., XM Satellite Radio Holdings Inc., Placer Dome Inc. and Wyeth.

Citi/Genworth trades briskly

The Citigroup/Genworth mandatories were bought by both hedge players and outrights, according to a syndicate source. "Right off the bat at it traded outright and the arbs stepped in," he said.

The issue was an exchangeable, which can be attractive because the credit - in this case Citigroup Funding - is different from the underlying stock. But in this case "the fact that it was exchangeable is irrelevant," a Connecticut-base buyside source said.

The significant aspect of this paper is that it's mandatory and "the credit component of mandatories is minor," he said.

Citigroup Funding priced 29.155 million shares at $29.50 per SYNdec for a total issue amount of $860.42 million, which was slightly under the roughly $900 million initially expected.

The coupon for the securities was 4.583%, plus the dividend pass through, with an initial conversion premium of 20%. The current dividend yield is 1.017%, according to a syndicate source.

Citigroup Global Markets was the bookrunner for the deal, which was a move by General Electric Co. to reduce its ownership in Genworth, a Richmond, Va.-based insurance holding company.

For the deal, GE sold Citigroup 21 million Genworth shares.

Wesco, Toreador close higher

The Wesco 2.625% convertibles traded up in fairly active trade, sources said, amid healthy demand. The Pittsburgh-based provider of electrical construction products priced $125 million of 20-year convertibles at par to yield 2.625% with a 35% initial conversion premium.

It priced at the cheap end of talk for both the coupon and premium, which was 2.375% to 2.625% and 35% to 37%, respectively.

The convertibles featured a $25 million greenshoe.

The convertible senior debentures via Goldman Sachs & Co. and Lehman Brothers priced at the beginning of the day, and an offering of $150 million of 12-year high-yield notes priced at the end.

High demand allowed the books for the convertible deal to be closed early, the syndicate source said.

The debentures are non-callable for five years and have puts in years five, 10 and 15.

Wesco shares closed down 16 cents, or 0.5%, at $30.85.

The oversubscribed Toreador 5% convertibles were bought mostly by outright players, and didn't see a lot of trade, sources said.

"It was pretty well tucked away," a sellside trader said.

But what trades there were were strong, and the Dallas-based company's common stock also strengthened Thursday to close up $1.06, or 3.2%, at $33.99.

The company's fundamental story as an oil and gas exploration company with exposure to international acreage in spots like Turkey, Hungary, Romania and France was attractive to investors, sources said.

Nektar on tap

At press time Thursday, the $200 million of seven-year convertibles on Nektar Therapeutics hadn't yet priced.

Price talk for the Rule 144A deal via joint bookrunners Lehman Brothers and Merrill Lynch & Co. was for a coupon of 3.25% to 3.75% and an initial conversion premium of 27.50% to 32.50%.

The convertible subordinated notes, with a $50 million greenshoe, have a call in year three and no puts.

On Thursday, Nektar stock fell 89 cents, or 5.2%, to $16.24.

Nektar is a San Carlos, Calif.-based drug delivery company.

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