Mortgage deal raises Countrywide, Standard Pacific, Beazer Homes; Transocean opens higher

By Evan Weinberger

New York, Dec. 6 - Countrywide Financial Corp. convertibles continued their rise as the federally brokered mortgage freeze plan was announced. IndyMac Bancorp Inc. convertibles also benefited.

Troubled homebuilders, including Standard Pacific Corp. and Beazer Homes USA Inc., saw their convertibles rise on the deal as well.

Fleetwood Enterprises Inc. convertibles drove higher.

The other big news in the convertibles universe was the pricing of Transocean Inc.'s $6 billion in convertible senior notes in three tranches Wednesday after the market close.

All three tranches are $2 billion and due Dec. 15, 2037 and come with a 32.5% initial conversion premium.

The series A convertibles carry a 1.625% coupon.

The series B convertibles carry a 1.5% coupon.

The series C convertibles carry a 1.5% coupon.

The registered transaction came in at the rich end of talk. Initial conversion premium talk was set at 27.5% to 32.5%. The series A convertibles were talked at a 1.625% to 2.125% coupon. The series B and C convertibles were talked at a 1.5% to 2% coupon.

All three tranches have $200 million over-allotment options.

Settlement for all three tranches is expected to be on Dec. 11.

All three tranches traded higher right from the get go.

The big dealings aren't done for the week, as Prudential Financial, Inc. launched $3 billion in floating-rate convertible senior notes due 2037 on Thursday after the market close. The convertibles will carry a Libor minus 163 bps coupon and a 35% initial conversion premium.

The Rule 144A transaction was expected to price Friday before the market open.

Prudential is a Newark, N.J.-based financial institution. Prudential plans to use the proceeds to repurchase $239 million in common stock and for general corporate purposes.

The mortgage deal helped spur an overall market rally.

The Dow Jones Industrial Average leaped 174.93 points, or 1.30%, to close at 13,619.89.

The Nasdaq stretched 42.67 points, or 1.60%, for a 2,709.03 close.

And the Standard & Poor's 500 moved up 22.33 points, or 1.50%, to close at 1,507.34.

Mortgage deal helps Countrywide

President George W. Bush announced at the White House Thursday the long-rumored deal to aid homeowners facing a steep jump in their variable-rate, subprime mortgages.

The plan will freeze subprime mortgage rates - typically issued between 7% and 8% - at the low introductory (or teaser, as the industry jargon goes) rates. Subprime mortgages issued two to three years ago were set to jump to around 11% interest in the coming months.

Housing market watchers feared that up to 2 million families faced foreclosure.

The deal was put together by Treasury secretary Henry Paulson and representatives of mortgage brokers and banks.

"We should not bail out lenders, real estate speculators or those [who] made the reckless decision to buy a home they knew they could never afford," Bush said at the White House after meeting with mortgage industry leaders. "But there are some responsible homeowners who could avoid foreclosure with some assistance."

The rate freeze will only apply to people living in the homes on which they have the mortgage and who have never missed a payment at the lower rate.

Other homeowners will have the opportunity to get help refinancing their mortgages from their lenders and to move into loans backed by the Federal Housing Administration.

Subprime mortgage holders will have to ask for assistance and check on their qualifications. Thousands of homeowners who qualify have been sent letters advising them of their options. Others can find out if they qualify by calling 888 995-HOPE.

The Federal Reserve also is expected to announce tightened lending standards later in the month.

The deal was announced on the same day that the Mortgage Bankers Association announced that the rate of mortgages entering the foreclosure process moved up to an all-time high of 0.78% in the third quarter.

"The plan is just another step, combined with Fed rate cuts that in time will cause these stocks, bonds to recover," a buyside trader said, adding that Countrywide was best positioned to benefit.

Calabasas, Calif.-based Countrywide saw its Libor minus 350 bps series A convertible senior debentures due April 15, 2037 close Thursday at 84.9231 versus a closing stock price of $12.10. They closed Wednesday at 83.1826 versus a stock price of $10.42.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 15, 2037 closed Thursday at 78.884 versus a stock price of $12.10 after finishing Wednesday at 77.2739 versus a stock price of $10.46.

Countrywide stock (NYSE: CFC) surged $1.68, or 16.12%, Thursday.

IndyMac convertibles rise, stock hit

Pasadena, Calif.-based IndyMac Bancorp Inc., a mortgage lender and thrift bank, watched its stock tumble Thursday after it said in a Securities and Exchange Commission filing that it was searching for ways to raise capital.

The company's convertibles moved up, however, along with most of the rest of the mortgage sector.

Among the options floated by IndyMac are selling convertible debt or preferred stock in a private placement as well as possibly cost-cutting measures or slashing its dividend.

In the filing, IndyMac chief executive officer said he expected the company to reach "modest profitability" by the second half of 2008.

IndyMac's 6% Wires closed Thursday at 21.75 versus a stock price of $8.05. They closed Wednesday at 20.25 versus a stock price of $8.75.

IndyMac stock (NYSE: IMB) tumbled 70 cents, or 8%, on Thursday.

Deal helps view of homebuilders

There are hopes that the mortgage deal, while criticized for either going too far or not far enough, will help lift home prices. That view helped stock and convertibles in the troubled sector.

Irvine, Calif.-based Standard Pacific saw its 6% convertible subordinated notes due Oct. 1, 2012 close Thursday at 50.8442 versus a closing stock price of $3.77. They closed Wednesday at 49.4062 versus a stock price of $3.10.

Standard Pacific stock (NYSE: SPF) jumped 67 cents, or 21.61%, on the day.

And Atlanta-based Beazer Homes watched its 4.625% convertible senior notes due June 15, 2024 close Thursday at 74.8498 versus a closing stock price of $9.63. They closed Wednesday at 70.0191 versus a stock price of $8.38.

Beazer Homes stock (NYSE: BZH) gained $1.25, or 14.92%, on Thursday.

Transocean charts course up

Houston-based oil and gas drilling services company Transocean brought all three tranches of its $6 billion in convertible senior notes due Dec. 15, 2037 to market rich.

And that didn't matter one bit to investors, who had been preparing for the deal all week.

One trader said early in the morning that all three tranches were trading up at around 102.75 early in the day.

The three tranches traded together all day, according to another trader.

The series A convertibles came in at around 106 versus a closing stock price of $134.10.

The series B convertibles came in at around 106 versus a stock price of $134.10.

And the series C convertibles came in at around 106 versus a stock price of $134.10.

Transocean stock (NYSE: RIG) stretched $6.85, or 5.38%, on Thursday.

Transocean priced a concurrent offering of $2.5 billion in senior notes in three tranches. The first tranche is $500 million of 5.25% senior notes due 2013. The second tranche is $1 billion in 6% senior notes due 2018. The third tranche is $1 billion in 6.8% senior notes due 2038.

Transocean plans to use the proceeds to pay back a portion of the $15 billion outstanding from its purchase of GlobalSantaFe.

Fleetwood convertibles drive forward

Riverside, Calif.-based recreational vehicle maker Fleetwood brought in better-than-expected losses for its fiscal second quarter Thursday.

While Wall Street expected Fleetwood to lose 6 cents per share, the company actually only lost 2 cents per share.

Fleetwood's 9.5% convertible trust preferreds due Feb. 15, 2013 closed Thursday at 92.7173 versus a stock price of $6.23. They closed Wednesday at 89.5966 versus a stock price of $4.82.

Fleetwood stock (NYSE: FLE) soared $1.41, or 29.25%, on Thursday.

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