Convertible players eye REIT new issues; Calpine, airline issues lift in pockets of trading

By Rebecca Melvin

Princeton, N.J., June 21 - Upcoming issues from a pair of real estate investment trusts attracted some attention Tuesday from convertibles players, who were expected to watch for pricing on one REIT's $200 million deal after the close.

Separately, airline convertibles gained along with their stocks, and trading was active in issues like Calpine Corp. and Invitrogen Corp, while the rest of the day's trading activity was not seen as "terribly exciting."

Reckson Associates Realty Corp. launched $200 million of exchangeable senior debentures via bookrunner Citigroup Global Markets Inc. Price talk on the 20-year senior bonds was for a coupon of 3.75% to 4% and an initial conversion premium of 25% to 27%. The deal was expected to price after 4 p.m. ET on Tuesday.

Analysts said the deal was rich and not that exciting or they said they hadn't looked at the deal. According to one sellside shop analyst, the Reckson deal was seen as slightly rich at the midpoint of price talk, or 0.34% rich on a credit spread of 75 basis points above Libor and volatility at 15%.

A second sellside shop analyst said "it's not that interesting." Using a credit spread of 80 bps above Libor and a volatility of 15%, he predicted it would price at 98.

The deal, which has a greenshoe of $30 million, is being issued by the REIT's operating company, but bonds are convertible into shares of the Melville, N.Y.-based Reckson Associates. Shares of the company closed down 97 cents, or 2.90%, at $32.50 on the New York Stock Exchange.

A second REIT, Windrose Medical Properties Trust, will price an off-the-shelf deal of $50 million of cumulative convertible preferred shares through placement agent Cohen & Steers Capital Advisors LLC on Friday.

Cohen & Steers declined to comment on price talk, and market sources queried hadn't valued the deal.

The Indianapolis-based REIT for specialty medical properties plans to use net proceeds to repay debt, for general corporate purposes and for possible acquisitions.

Equities' slack seen

Overall the day's trade in convertibles "was not that exciting," a sellside desk analyst said, attributing slack in the day's equities market for any softness.

Another sellside trader put the day's activity level at "moderately busy," while a second trader said that "select trades were made from a wide basket of names."

The basket included names like Calpine, which continued an advance of its stocks and bonds that began last week after further asset sales that are part of an aggressive turnaround plan to cut $3 billion from its $18 billion debt load by the end of the year.

The extended climb also followed pricing on Monday of Calpine's $650 million of 7.75% contingent convertibles and amid news reports on Tuesday that forecasts of extremely hot, dry weather in western U.S. states this summer is expected to boost Calpine's bottom line.

Calpine's 4.75% convertibles due 2023 traded up to 71.50 bid, 72.50 offered, a Connecticut-based sellside trader said. That price was up from trades around 71 on Monday.

Calpine's 6% convertible due 2014, which has also been in favor among convertibles traders, was seen steady at 93.50.

Invitrogen, which also priced a new convertible issue recently, saw its lineup of convertibles doing well on Tuesday despite a dip in its stock price. Various issues were traded, with no one issue dominating, as players' trading strategies varied, said a New York sellside desk analyst.

Invitrogen's 1.5% convertible due 2024 traded at 93.50, according to the NASD Bondinfo web site. The 2s due 2023 went out Tuesday at 126; and the 2.25% due 2005 were lifted at 99.50, according to the web site. The Carlsbad, Calif.-based biotechnology company's shares slipped 25 cents to $78.79.

Another biotech convertible that was up Tuesday and getting attention from traders was Protein Design Labs Inc. Although the Fremont, Calif.-based company's share price also dipped like Invitrogen's on Tuesday, its newest convertible issue, a 2% convertible due 2012, traded higher, according to one New York sellside trader. The issue traded on Monday at 105.54 bid, 106.29 offering, according to one New York sellside shop.

Airlines gain altitude

Airline convertibles, particularly Delta Air Lines Inc. and Continental Airlines Inc., extended gains for a second day following share prices upward as crude oil dropped off from a record spike.

Crude oil prices eased off their highs Tuesday, after touching a third straight record. Crude oil for July delivery fell 47 cents, or 0.8%, to close at $58.90 a barrel on the New York Mercantile Exchange.

Atlanta-based Delta saw its 8% convertible trade up a point to 37.375. Its shares surged 28 cents, or 7.41%, to $4.06.

Houston-based Continental, which Tuesday announced that it wants a federal mediator to help the company reach a deal with flight attendants to cut wages and benefits, saw its 4.5% convertibles due 2007 trade at 85.357, according to one New York-based sellside shop. Its 5% convertible due 2023 was quoted at 91.5 bid, 92 offered. The carrier's shares were up more than 3%.

Meanwhile, the convertibles of Fort Worth, Texas-based AMR Corp., parent company of American Airlines, traded higher, with its 4.25% convertible due 2023 at 92.441 and its 4.5% due 2024 at 81.727 bid, 82.227 offered. AMR's shares were up 2.24%.

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