CenterPoint bid 0.125 over par in gray market; Wyeth rises to 101.875; Citizens soars on sale possibility

By Ronda Fears

Nashville, Dec. 11 - Citizens Communications Co. was one of the hot topics on convertible desks Thursday, after the rural phone service provider announced after the previous day's close that it was exploring "strategic alternatives," which is interpreted on The Street as the company being up for sale or a merger.

Citizens' 5% convertible preferred shot up 10 points on the news and its 6.75% mandatory convertible gained 2.5 points. The stock soared over 20%.

Of course, new issues were on everyone's lips.

After the close, Apogent Technologies Inc. launched $300 million of 30-year convertible floating-rate notes in the overnight market, on swap, talked to yield three-month Libor minus 100 to 150 basis points with a 40% to 44% initial conversion premium.

It is a return trip to the convertible market for the Portsmouth, N.H.-based medical supply company, which plans to use these proceeds to pay down a portion of amounts outstanding under its revolving credit facility, after spending $72 million to repurchase stock concurrently with the offering.

Apogent shares closed Thursday up 36c, or 1.57%, to $23.30.

Wyeth's jumbo $850 million floater was a big hit, mostly among the hedge funds.

After pricing the 20-year issue smack in the middle of price talk to yield six-month Libor minus 50 basis points with a 57.5% initial conversion premium, it climbed to 102.0625 at one point of the session before scaling back to close at 101.875 bid, 102.125 offered.

There is a floor of 0% on the Wyeth cash coupon.

In the gray market, CenterPoint Energy Inc. was the only pending deal seeing any action, although Magnum Hunter Resources Inc. and Scottish Re Group Ltd. were also at bat after the close.

CenterPoint's pending $225 million of 20-year convertible notes, talked to yield 2.75% to 3.25% with a 38% to 42% initial conversion premium, was last seed with a bid of 0.125 points over issue price and plus 0.25 point on the offer side. The stock ended off 9c, or 0.97%, to $9.25.

The Houston energy firm, formed in a split from Reliant Resources Inc. in 2002, was returning to tap the convert market after selling $300 million of 3.75% convertibles due 2023 in May.

One potential buyer for the new CenterPoint convert said the "same concerns still exist - high leverage mostly." The fund manager said his analyst was most concerned that the company will not be able to make any headway on de-leveraging efforts without major asset sales, and those are getting tougher while price tags are shrinking on energy-related assets.

CenterPoint was put on negative watch by Standard & Poor's earlier this week after Reliant Resources Inc. indicated it would not be buying CenterPoint's 81% stake in Texas Genco Holdings Inc.

Sellside analysts put the new CenterPoint convert right at around fair value.

Merrill Lynch & Co. analysts put it 0.83% cheap, at the middle of guidance, using a credit spread of 220 basis points over Treasuries and a 27% stock volatility.

Lehman Brothers analysts put it 0.83% cheap, at the midpoint of price talk, using a credit spread of 150 bps over Treasuries and a 26% stock volatility.

"The positive thing about this deal is that it will allow CenterPoint to replace some high-cost debt with a low-cost convertible," the fund manager said.

CenterPoint has earmarked proceeds to redeem a portion of the $250 million of 8.125% trust preferred securities issued by one of its subsidiary trusts and, pending that, will repay a portion of the borrowings under its credit facility.

Buyside traders said little activity in the gray market for Magnum Hunter or Scottish Re, but several noted that there hasn't been a lot of gray market activity ahead of the new deals this week, or last week for that matter.

One trader blamed the deal terms, which have not been extraordinarily generous for buyers.

Lately, he said, it seems that the better, more popular deal begin with low-ball bids while the less palatable ones tend to evoke some outrageous offers. For instance, he said the Magnum Hunter floater produced an offer of 2 points over issue price early Thursday, which he referred to as "just fishing, " but it got no nibbles.

Magnum Hunter is pitching $100 million of 20-year convertible floating-rate notes talked to yield three-month Libor flat to minus 25 bps with a 45% to 50% initial conversion premium.

Sellside analysts pegged the Magnum Hunter deal rather cheap, however, relative to some other deals this week.

Lehman analysts put the Magnum Hunter deal 2.05% cheap, at the middle of talk, using a credit spread of 325 bps over Libor and a 30% stock volatility.

Buyside traders saw nothing on the new convert from Scottish Re, another repeat issuer in the convertible market, but sources close to the deal said it was going fine.

Sellside analysts not involved with the deal said it was modeling out considerably cheaper than most of the deals from earlier this week.

Scottish Re was marketing $115 million of three-year mandatory convertibles, non-callable, talked to yield 5.875% to 6.375% with an 18% to 22% initial conversion premium.

Merrill analysts put the Scottish Re convert 4.8% cheap, at the middle of guidance, using a credit spread of 260 bps over Treasuries and a 35% stock volatility.

Beyond the new issues, Citizens was one of the most talked about movers.

After Wednesday's close, Citizens, a rural phone service provider based in Stamford, Conn., announced that its board of directors has determined "to explore strategic alternatives and to retain a financial advisor to assist in this process."

That was the sum total of the company's statement, but it spoke volumes to the markets.

"The interpretation, obviously, is that they are looking at some merger," one dealer said.

While the market saw that as good news, pushing up Citizens' securities remarkably, credit analysts apparently were taken aback.

Standard & Poor's placed Citizens Communications Co. (BBB) on negative watch, expressing concern "that pressure from limited internal growth opportunities and longer-term competitive risks could result in potential transactions that adversely affect the credit profile by changing the company's ownership, strategic direction or capital structure."

"Asset sales have not been as pricey this year, maybe, but I don't think anyone thinks Citizens is going to be sold at a bargain basement price," the dealer said.

"You can see that from what happened in the markets today."

Citizens shares ended up $2.15, or 20.77%, to $12.50.

The Citizens 5% convertible preferred climbed 10 points to 51.69 bid, 52.19 offered and the 6.75% mandatory due 2004 gained 2.5 points to 25.1 bid, 25.35 offered.

Lowe's Cos. Inc. also did well, on an upgrade by Moody's. The stock gained $1.17, or 2.15%, to $55.63 and that pushed the convertibles up, traders said, along with some buying.

The Lowe's 0% due 2021 added 1.875 dollar points to 91.875 bid, 92.125 offered and the 0.861% due 2021 rose 1.5 dollar points to 106.125 bid, 106.625 offered.

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