Lamar, Penske convertibles strengthen; financials slip outright; Alcoa's new issue extends strength

By Rebecca Melvin

New York, March 20 - A pair of small cap names were in convertibles trade, spurred by convertibles-specific news and amid an absence of broader market-moving news Friday, sources said.

Lamar Advertising Co.'s 2.875% convertibles remained strong after a Lamar unit sold an upsized $350 million of five-year straight notes Friday that were expected to be used to retire some or all of the convertible debt. The convertibles jumped Thursday after the company said it planned to raise the money.

Penske Automotive Group Inc. traded better after news that the auto retailer said it planned to buy back $69 million of convertibles.

Among bigger cap names, Bank of America Corp. was lower outright as its shares sagged Friday to end down by 11%. Other financial names were also in trade, with KeyCorp trading down outright but over parity by plus 14 points. Fifth Third Bancorp traded at plus 13.25 points, and Huntington Bancshares Inc. traded at plus 13.75 points, a New York-based sellside analyst said.

Meanwhile, Alcoa Inc.'s new 5.25% convertibles continued to trade higher a day after the upsized deal had a super debut, jumping up to 121.25 versus a share price of $6.60 on Thursday.

Overall, convertibles trading was quiet on Friday, several sellsiders said.

Equity markets pulled back, led by financials, with the Dow Jones Industrial Average closing down 122.42 points, or 1.7%, to 7,278.38; the S&P 500 index shedding 15.50 points, or 2%, to 768.54; and the Nasdaq Stock Market losing 26.21, or 1.8%, to 1.457.27.

"The Street went dead when the games started," one sellsider said, referring to the NCAA basketball tournament.

Lamar, Penske strong

Lamar's 2.875% convertible note due December 2010 finished at a level of about 87.75 versus a share price of $8.31, compared to about 86.5 previously.

The convertibles and stock of the Baton Rouge, La. provider of outdoor advertising traded up sharply on news Thursday that the company planned to raise $250 million, which would in turn be used to retire convertibles via a tender, a New York-based sellside trader said.

Using 87.5 for evaluation still leaves a 10.845 yield to maturity, the sellsider said.

The straight debt issue, which was upsized to $350 million, appears to have changed the plans of the company, which said Feb. 26 during an earnings conference call that while it was watching the convertibles market, it had no plans to address the maturity on the convertibles coming up in 2010.

Penske Automotive's 3.5% convertible senior notes due 2026 were seen settling at 75.55 versus a closing stock price of $8.74, which was up 8 cents, or less than 1%, on the day.

The convertibles, which are putable in 2011, were called stronger on the Bloomfield Hills, Mich., auto retailer's move to deleverage by buying back convertibles, a plan disclosed in a regulatory filing.

B of A, regional banks slip outright

The 7.25% convertible preferred shares of Bank of America were seen settling at about 386.25 versus a share price of $6.19, compared to 415 on Monday. A year ago, on March 20, 2008, the Bank of America convertible preferreds traded at 1,092.68, versus a stock price of $41.86.

Shares of the Charlotte, N.C.-based lender were down 74 cents, or 11%, on Friday at $6.19.

Financials had started the week better but weakened Thursday and Friday. Investors took profits toward the end of the week after a nearly two-week rally and as they watched continued wrangling in Washington, D.C., over financial executive compensation. Selling continued after the Federal Reserve announced further radical steps to right the financial system by buying $300 billion of Treasuries and several hundred billion dollars of mortgage-backed securities.

Among regional banks, KeyCorp and Huntington Bancshares saw their shares come off, but Fifth Third clawed back to just over the flat line; while their convertible preferreds continued to trade over parity.

Shares of Cleveland-based KeyCorp fell 72 cents, or nearly 9%, to $7.47, while those of Columbus, Ohio-based Huntington ended lower by 4 cents, or 2.2%, to $1.76. But Cincinnati-based Fifth Third settled a penny higher, or up 0.5%, to $2.13.

Alcoa maintains shine

Alcoa's newly priced 5.25% convertibles due 2014 traded at 120 versus a share price of $6.40 on Friday, which compared to Thursday's 121.25 versus a stock price of $6.60.

Shares of the Pittsburgh-based aluminum producer were little changed much of the day but swung lower late in the session, before ending with a 2.2% gain at $6.54.

Thursday's dramatic debut was an anecdotal record setter, traders said, as they couldn't remember any other new issue that gained as much on first-day trading in the secondary market.

On a point basis, they held all the way up compared to original pricing, which was a 22.5% premium or 18.36 points, according to one sellsider.

Alcoa, with a market capitalization of $4.4 billion, is the world's leading producer of aluminum, fabricated aluminum and alumina. The sector has been hard hit by the global economic downturn, however, and these convertibles are part of the company's initiative to improve cost structure and liquidity.

Concurrently the company priced common stock for total proceeds of $1.3 billion.

Mentioned in this article:

Alcoa Inc. NYSE: AA

Bank of America Corp. NYSE: BAC

Fifth Third Bancorp Nasdaq: FITB

Huntington Bancshares Inc. Nasdaq: HBAN

KeyCorp NYSE: KEY

Lamar Advertising Co. Nasdaq: LAMR

Penske Automotive Group Inc. NYSE: PAG

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