Countrywide rallies on meeting news; ADM dips on debut, Hercules quiet; JetBlue on deck

By Rebecca Melvin

New York, May 29 - Archer-Daniels-Midland Co.'s new 6.25% convertibles lost ground on their first day of secondary market trading Thursday, and Countrywide Financial Corp.'s floating-rate convertibles - a market staple in recent months - rallied after the mortgage lender set a firm date for voting on being acquired by Bank of America Corp., and raising investor confidence that the deal goes through, market players said.

"The ADMs came in pretty hard in the morning, dipped below 48, then rallied back some, and we closed them [at] 49.375 to 49.625," a New York-based bulge bracket sellsider said.

The deal saw a lot of flippers, and the underlying shares slipped another 0.9% after losing 5% on Thursday.

Both the Countrywide series A and series B convertibles also traded actively, and although they pared their gains toward the end of the day, they still gained about 5 points.

Bank of America's convertible preferred shares added in line with a 2% rise in its underlying shares.

Meanwhile, Hercules Offshore Inc.'s 3.375% convertibles - the second new issue of the day - priced on the cheap end of talk but remained quiet and were said to be down about a point.

"Both deals did poorly," a Boston-based buyside trader said of the ADM and Hercules convertibles.

The broader markets were mostly relieved Thursday that oil prices retreated solidly from their spike and gross domestic product data showed the economy grew last quarter at a faster 0.9% pace than estimated, and 0.6% better than in the fourth quarter.

Small cap names participated in the rally, supporting the convertibles of some smaller companies.

"The Russell 2000 names came back; ARRS were trading higher. If you bought those back in the February-March timeframe, you made 10 points," a West Coast-based sellsider said, referring to the Arris Group Inc. 2% convertibles.

Those bonds closed at 86.6, up nearly a point from Thursday, and up at least 10 points from late March.

In the primary arena, JetBlue Airways Corp. was expected to price $160 million of 30-year convertible debentures after the market close. The deal wasn't seen in the gray market. The debentures were talked to yield 5% to 5.5% with a premium of 20% to 25%.

ADM falls below par on debut

The new ADM 6.25% convertibles were down 2 points at one point Thursday, down from a par price of 50, but they recovered some ground to close only slightly below par at 49.375 bid, 49.625 offered.

ADM's 0.875% convertibles due 2014 closed at about 112, compared to about 113 on Wednesday.

Shares of the agricultural products processing company (NYSE: ADM) closed down 36 cents, or 0.9%, at $39.50.

ADM priced the $1.75 billion of three-year mandatory convertibles at the midpoint of talk, which was for a coupon of 6% to 6.5% and an initial conversion premium of 18% to 22%.

Many had expected the deal to do well - and it was called 2% cheap on Wednesday by one analyst - so the reception was somewhat of a surprise.

"The deal had a few things against it due to the fact that it is a mandatory preferred and not a bond; and that the company is very highly levered," said one source, who doesn't participate in the name.

The company priced 35 million units at $50 each. There is a greenshoe for a further $250 million or 5 million units. The threshold appreciation price is $47.83.

The equity units will initially consist of a contract to purchase ADM common stock and a 5% beneficial ownership interest in a $1,000 debenture due June 1, 2041.

Citi, J.P. Morgan Securities Inc., Banc of America Securities LLC and Deutsche Bank Securities Inc. are joint bookrunners for the offering of the agricultural products processing company based in Decatur, Ill.

Countrywide rallies

Creating far more of a stir in the convertibles market were the floating-rate convertibles of Countrywide Financial. The Countrywide Libor minus 350 basis points series A convertible debentures due 2037 closed at about 93.5 bid, 94.5 offered versus a stock price of $5.39 on Thursday, compared to trades at 89 versus a share price of $4.98 on Wednesday.

On May 6, the series A convertibles closed at 90.5 versus a stock price of $5.36.

The Countrywide Libor minus 225 bps series B convertibles closed at about 90 bid, 90.5 offered versus the same share price on Thursday, compared with about 86 on Wednesday.

"The series A convertibles were up more than 5 points to 94.5 earlier, and they traded a bunch yesterday at 89," a Boston-based sellside trader said.

Shares of the mortgage lender (NYSE: CFC) closed off its high levels of the day but still up 8.2%, or 41 cents.

The bonds have been steady fare in the convertibles market for several months, but especially for the last several weeks. Pricing has remained consistent, however, at 89 for the A series and 86 for the B series, despite stock moves.

The conversion premium is said to be so far out of the money that many traders don't bother with the underlying stock price anymore.

"CFC has certainly been a Perils-of-Pauline situation. There's a high yield to put ... but the potential upside is trivial relative to the downside if anything goes wrong with the deal. And convertible geeks are supposed to be risk-averse and are supposed to exploit favorable upside/downside asymmetry," a New York-based buysider said via e-mail.

Later he added, "It's easy to make a bundle - or lose a bundle - merely by trading CFC."

Late Wednesday, the Calabasas, Calif.-based mortgage lender announced that a special shareholders meeting will take place June 25 to vote on adoption of the Jan. 11 agreement and merger plan among Countrywide, Bank of America and Red Oak Merger Corp.

Investors have wavered in their opinions about whether the deal would get done or not.

Bank of America's 7.25% series L perpetual convertible preferred closed at 1,021.9 versus a share price of $34.60. That compared with 1,015.5 versus a share price of $33.97 on Thursday.

Shares of the Charlotte, N.C.-based bank (NYSE: BAC) added 2.2% for the day.

Arris gets a look

Arris' 2% convertible senior notes due 2026 closed at 86.6 Thursday versus a closing stock price of $8.80. They closed Wednesday at 85 versus a closing stock price of $8.52.

Shares of the Suwanee, Ga.-based cable, phone and television services developer (Nasdaq: ARRS) gained 28 cents, or 3.3%.

Hercules quiet on debut

The new Hercules 3.375% convertible was lower on its debut amid a 1.9% decline in its underlying shares. Shares of the Houston-based oil services company (Nasdaq: HERO) closed down 64 cents to $33.31.

The company priced $250 million of 30-year convertible senior notes on the cheap end of talk, which was for a coupon of 2.875% to 3.375% and an initial conversion premium of 47.5% to 52.5%.

The Rule 144A deal has a greenshoe of $37.5 million. The notes are non-callable for five years, with puts in years 2013, 2018, 2023, 2028 and 2033.

Hercules planned to use a portion of the proceeds to repurchase about 1.45 million shares in privately negotiated transactions, with remaining proceeds are earmarked to repay borrowings under its senior revolving credit facilities, and for general corporate purposes.

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