Great Plains debuts higher; Wyndham up in gray; Citi eases, but Fifth Third, Webster see gains

By Rebecca Melvin

New York, May 13 - Great Plains Energy Inc.'s newly priced $250 million issue of three-year mandatory convertibles were a focus Wednesday, with the units adding more than 2 points in active trading in the convertible bond market.

Wyndham Worldwide Corp., which priced a $200 million offering of three-year convertible notes to yield 3.5% after the close, were seen plus 5 points bid in the gray market during the session ahead of final pricing.

Financial convertibles were called "sloppy" as their corresponding stocks fell Wednesday.

Citigroup Inc. convertible preferreds were little changed to weaker after the New York-based financial giant filed with the Securities and Exchange Commission to register 1.6 billion more shares as part of its move to convert preferred stock to common.

Fifth Third Bancorp convertible preferreds were stronger, however, as investors bet that the Cincinnati-based regional bank might flush out their converts as part of a capital raise. And Webster Financial Corp. found buyers amid speculation about an exchange offer, a New York-based sellsider said.

Convertibles, which started to feel weaker on Tuesday, weren't helped Wednesday by the sharp drop in equities. The Dow Jones Industrial Average lost 2.2% to close at 8,284.89; the Nasdaq Composite index lost 3% to finish at 1,664.19; and the S&P 500 index fell 2.7% to 883.92.

Great Plains adds on debut

The newly priced Great Plains' 12% mandatories traded at 52.5 versus $14.60. Shares of the Kansas City, Mo.-based electric utility holding company gained 71 cents, or 5%, to $14.75 on the day.

The offering of $250 million of mandatory convertible equity units, which have a par of $50, priced at the aggressive end of talk, which was for a coupon of 12% to 12.5% and an initial conversion premium 15% to 20% for the initial conversion premium.

"A lot of Great Plains today," a New York-based sellsider said of trading activity.

Concurrently, the electric utility holding company priced 10 million shares of common equity, at $14 per share, for an offering of about $140 million in size.

Goldman, Sachs & Co. and J.P. Morgan Securities Inc. were joint book-running managers of both parts of the capital raise, which was made under a shelf registration statement.

Great Plains announced first-quarter adjusted earnings on Monday of $21.3 million, which beat estimates for a loss. But the company's metrics continue to suffer from a larger debt load as its total borrowings increased to roughly $3.5 billion in the first quarter from $2.9 billion in the third quarter of 2008, independent research firm CreditSights pointed out in a research note.

In addition to the $390 million of equity and mandatory converts priced this week, the company has issued $50 million of equity so far in 2009.

Moody's recently downgraded the company and S&P put it on negative outlook as cash flow metrics have deteriorated, the CreditSights report said.

With debt up and earnings down, it wasn't too surprising that Great Plains was required to provide one of the fattest coupons of recent new issuance. The coupons on recent issues have varied widely between 2% to 8%.

Wyndham bid higher in the gray

Parsippany, N.J.-based Wyndham Worldwide priced $200 million of three-year convertible notes after the close Wednesday to yield 3.5% with an initial conversion premium of 20%, according to a syndicate source.

The off-the-shelf deal priced at the midpoint of talk, which was 3.25% to 3.75% for the coupon, and 17.5% to 22.5% for the initial conversion premium.

During the session, the paper was plus 5 bid in the gray market, according to a New York-based sellside trader.

Credit Suisse Securities (USA) LLC, J.P. Morgan Securities Inc., Merrill Lynch & Co. and Citi were joint bookrunners for the convertible notes offering.

The notes are non-callable with a standard change-of-control put.

Other than a portion of proceeds to cover the hedge transaction costs, Wyndham plans to use proceeds of the convertibles to pay down a revolving credit facility.

Citigroup little changed to weaker

Citigroup's 6.5% convertible preferred shares closed at 35.46, which was little changed and said to have received no benefit from the filing for registration of new stock that is in addition to its March filing to register about 4.38 billion common shares under its exchange offer.

Shares of Citigroup fell 25 cents, or 6.8%, to $3.41 in lighter than average volume.

As part of the U.S. Treasury's bailout, the financial services company announced in February it would offer to exchange shares for as much as $27.5 billion in preferred stock not held by the government. The Treasury agreed to match the exchange for up to $25 billion of its preferred stock at the same conversion price of $3.25 a share.

As a result of the bank's stress test, the company has to raise about $5.5 billion in capital. The company was expected to cover the shortfall by expanding its previous stock-conversion plan.

Citigroup now plans to exchange $33 billion of preferred stock into common stock at a conversion price of $3.25 per share. It previously planned to convert $27.5 billion.

The government would convert up to $25 billion of its own preferred stock into common stock.

Citigroup said it is still considering a reverse stock split calling for investors to swap anywhere from two to 30 existing common shares for one new common share.

Fifth Third, Webster Financial stronger

Fifth Third's 8.5% convertible perpetual preferreds traded at plus 22.5 points, which was up from plus 20 points on Monday. Shares were lower however. On Wednesday, Fifth Third shares fell $1.21, or 15%, to $7.02.

In addition there were buyers of Webster Financial convertible preferreds on Wednesday as convert players speculated whether the Waterbury, Conn.-base financial services company would conduct an exchange offer.

KeyCorp is another name among convert players thought to potentially flush out their converts to satisfy higher capital requirements.

Among other financial convertible preferred paper Wednesday, Bank of America closed at 630 and Wells Fargo & Co. closed at 705, while CIT Group Inc.'s preferred was seen closing at 18.9.

Mentioned in this article:

Citigroup Inc. NYSE: C

Fifth Third Bancorp Nasdaq: FITB

Great Plains Energy Inc. NYSE: GXP

Webster Financial Corp. NYSE: WBS

Wyndham Worldwide Corp. NYSE: WYN

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