Buyers finding more to chew on among this week's deals; upsizing, tightening prevail

By Ronda Fears

Nashville, May 20 - Four more deals surfaced Tuesday and convertible players happily complained of being swamped with work. But they also were glad to be talking about more palatable terms, as upsizing and tightening replaced the recent trend of underwriters reoffering new issues below par.

"Not everything on the table right now is something I want to bite into, but for the most part the terms are looking better than we've seen in a long while," said a convertible trader at a large hedge fund based in New York.

Providian Financial Corp. nearly doubled its deal to $250 million and Kaydon Corp. bumped its by $20 million to $170 million.

The Williams Cos. Inc.'s $275 million deal and Hartford Financial Services Group Inc.'s $600 million mandatory both priced at the tight end of guidance as well.

Williams's deal was among the sexier deals afloat and many onlookers were surprised that it was not boosted, but Sirius Satellite Radio Inc.'s overnighter also was an eye-catcher as many thought it to have a record low price for the underlying stock of a new issue.

Williams returned to tap the convertible market for $275 million, the proceeds of which it will use to repay Warren Buffett's investment in the troubled energy firm a year ago. The 30-year junior subordinated convertible notes sold at par of 50 to yield 5.5% with a 46% initial conversion premium.

Buyside traders said the Williams convert ended the day bid at about 1 point over issue price. The underlying stock closed down 40c, or 5%, to $7.46.

"Well, there's not much downside protection in an issue from a company like Williams, so a convertible better have plenty of upside - and it does," said F. Barry Nelson, portfolio manager at Advent Capital Management.

"This is a superb way for a WMB bull to participate. It's a big risk for an arb, though, given the questionable creditworthiness. As usual, it looks as though Buffett skimmed the cream.

"As for Buffett, I think, historically, it has not been necessary to move quickly in reaction to his moves - he has often been years early, and he has often played very long-term trends.

"I would say he has gotten lucky with his recent speculations in junk credits, given that the credit markets have recovered surprisingly quickly. Williams was essentially a value play and such investments, or speculations, often take a long time to work out."

Williams executives boasted about the remarkable ability to pay off the $275 million of 9.875% convertible preferreds it issued to MidAmerican Energy Holdings Co., a member of the Berkshire Hathaway Inc. family of companies in March 2002. Plus, the company intends to make a $1.17 billion payment that will retire a loan with a group of investors led by Berkshire Hathaway.

There wasn't much juice to squeeze out of the Williams deal, buyside sources said, but the "very strong demand" for the paper gave the underwriters, Lehman Brothers, enough leeway to tighten the terms.

At the midpoint of original price talk (5.75% up 40%), Merrill Lynch had put the deal 0.6% rich using a credit spread of 1,300 basis points over Treasuries and a 50% stock volatility. At the midpoints, Deutsche Banks Securities, however, put it about 3% cheap, using a credit spread of 800 bps over Libor and a 47% stock volatility.

Providian's convertible also got a rave review, getting upped by $100 million.

The Providian five-year non-callable convertible senior notes sold at par to yield 4.0% with a 60% initial conversion premium, at the aggressive end of guidance.

At the close, buyside traders said the new Providian convert was bid at 2 points over issue price. Providian shares ended down 27c, or 3.21%, to $8.13.

Kaydon Corp. also upsized its overnight deal. The $170 million of 20-year convertible notes sold at par to yield 4.0% with a 34% initial conversion premium, at the aggressive end of price talk.

Deutsche Bank Securities, the lead manager, closed the new issue at 102.25 bid, 102.75 offered. Kaydon shares ended off 61c, or 2.8%, to $21.15.

Hartford's mandatory priced with a 7% dividend and 25% initial conversion premium. It sold at the tight end of yield talk as well as the aggressive end of revised premium guidance of 21% to 25%. Originally, the premium was talked at 18% to 22%.

Goldman Sachs, the book-runner for the Hartford mandatory, closed the issue at 50.25 bid, 50.75 offered. The underlying stock ended off 44c, or 1%, to $45.31.

In addition to Sirius, which upsized its deal to $175 million from $125 million and priced it at par to yield 3.5% with a 22% initial conversion premium, Connetics Corp. was in the market with a small $75 million overnighter.

And very late in the day Canadian horse racetrack company Magna Entertainment Corp. said it had sold $100 million of convertible subordinated notes.

Two other deals were launched Tuesday after the close, as well.

AmerUs Group Co. launched $100 million of 3.25-year mandatory convertibles talked to yield 6.0% to 6.5% with a 26% to 30% initial conversion premium for pricing after the close Wednesday.

And, Wilson Greatbatch Technologies Inc. launched $125 million of 10-year convertible subordinated debentures talked to yield 2.0% to 2.5% with a 27.5% to 32.5% initial conversion premium to price before the market open Thursday.

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