TOP Tankers deal re-sunk; Exide crashes; Calpine crumbles; Ford, GM, auto suppliers mixed

By Ronda Fears

Nashville, May 17 - Convertible players still described the market as feeling heavy Tuesday as initial indications suggested redemptions at June 30 will be hefty. Otherwise, specific movements were mostly of a downward nature as several pieces of bad news hit the tape, such as the Collins & Aikman Corp. bankruptcy that sparked a new round of turmoil in the auto sector and their financiers.

Regarding whether the convertible market weakness had yet signaled a good time to buy, a buyside source remarked, "The problem is that none of us know how much capital we will have since the redemptions are so high. Thus, (a) paper keeps coming in, so it's like trying to catch a falling knife, and (b) if one starts to buy now in size, and redemptions continue, they could be forced to liquidate at a loss, even though if they held to maturity/put they would make a great compounded return.

"That, by the way, is really what is driving continued price pressures right now."

On the primary market front there was another blow as TOP Tankers Inc. pulled its new deal for the third time amid a pushy buyside attitude. Yet, capital markets sources at various convertible desks said they are optimistic that the tide will turn soon and plans for new issues that have been in the shadows will be brought to market soon.

"There is still a pretty healthy backlog, maybe not the 20 to 30 [new deals] that were discussed two or three months ago, but a decent amount," said one origination team leader. "When are they coming? What will be the catalyst? I don't know, but I think midyear is probably when the market will turn around in a noticeable way. Until then, deals will just trickle along."

TOP Tankers takes third dive

Amid extremely tough market conditions underscored by potential buyers pushing for more incentives, market sources said Athens-based shipping firm TOP Tankers Inc. pulled its proposed convertible offering Tuesday - for the third, and apparently final, time.

The perpetual convertible preferred had resurfaced Monday as a quick-sale deal downsized to $225 million from $300 million. It had been postponed from original plans to price during the week of May 2, and following two rounds of sweetening, via sole bookrunner Cantor Fitzgerald & Co.

In the latest sweetening, indicative terms on the issue put the dividend to 6.75% plus adding an annual cash payment of 1.08% in the form of a common stock dividend pass-through. The initial conversion premium was talked at 20%.

On May 10 the deal was pulled after skidding into trouble; at that time it was talked to price with a dividend of 6.50% to 6.75% and initial conversion premium of 20%. Guidance had been sweetened May 3 to 5.875% to 6.0% from original price talk of a 5.625% to 5.875% on the dividend side, and the initial conversion premium to 30% to 32% from a range of 32.5% to 37.5%; but before pricing May 5 on the wider terms, it was postponed.

TOP Tankers had planned to use proceeds to help fund the purchase of a fleet of 15 second-hand drybulk carriers for $475 million, along with proceeds from $252 million in new senior secured debt and $30 million in the form of an unsecured note placed with the seller of the fleet.

Lazard off on Collins' filing

Collins & Aikman doesn't have any convertibles and there are not that many auto suppliers in the convertible market, but General Motors Corp. and Ford Motor Co. have more than $12 billion of converts in play and the market is closely watching events in the sector.

Thus, a dealer said that any exposure to the group would result in weakness. Such was the case, he said, in a big drop in the new Lazard Ltd. mandatory, since Lazard is Collins & Aikman's investment bank "and has or will have a lot of exposure to the bankruptcy."

Lazard's 6.625% mandatory, sold two weeks ago at par of 25, fell 0.75 point on Tuesday to 21.75 bid, 22.25 offered, the trader said, while Lazard common shares fell $1.00, or 4.57%, to $20.90.

Collins & Aikman's bankruptcy follows Tower Automotive Inc.'s filing in February, which directly impacted holders of its 6.75% convertible preferreds and 5.75% convertible bonds. But it also bodes ill for other auto suppliers still struggling as Ford and GM flounder, such as American Axle & Manufacturing Holdings Inc. Neil De Koker, president of the Original Equipment Suppliers Association, told the Associated Press that Collins & Aikman is at least the fifth auto supplier to file bankruptcy since last fall.

Ford's 6.5% convertible preferred dropped 0.5 point to 36.625 while GM's three $25 convertibles were mixed with the 6.25% issue little changed, the 5.25% issue slightly firmer and the 4.5% issue off a tad.

Exide floater sinks 28.5 points

Exide Technologies, which emerged from a two-year bankruptcy in May 2004, took a deep plunge Tuesday after having warned after Monday's closing bell that it expects to be in violation of its minimum EBITDA and leverage covenants in its $365 million senior credit facility.

In pre-market activity, shares of the battery maker plummeted nearly 50%, but the stock recouped some of that to close Tuesday lower by 38.3%, losing $4.27 on the day, at $6.88. Following the cue and even surpassing it, traders said the Exide floating-rate convertible ended the session at 49.5 bid, 51.5 offered, having lost a whopping 28.5 points on the day. Exide's junk bonds, however, were said to have firmed off lows but were still well below recent levels with the 10.5% bonds due 2013 settling at 74 bid, 75 offered.

The Exide floater, though, is a small $60 million issue that doesn't trade an awful lot.

Exide said it estimates adjusted EBITDA for fiscal 2005 will be in the range of $100 million to $107 million but is working to secure amendments to covenants in it bank facility. The company isn't due to report fiscal fourth-quarter results until mid-June.

Surging prices for lead, a key component in battery production, was a major factor in the shortfall, Exide said. Average lead prices rose about 70% over the past year or so, the company said. Standard & Poor's lowered its corporate credit rating on Exide to B- from B+ and placed the rating on negative watch.

During a conference call with the investment community at 4 p.m. ET on Tuesday, Exide shares were seen lower in after-hours trading, off another 39 cents, or 5.67%, a convert trader pointed out.

Calpine declines on sale plans

Chatter about a bankruptcy filing by Calpine Corp. has died down a bit but its securities continue to head south, considerably on Tuesday as the independent power producer said it was considering the sale of all or part of its U.S. natural gas assets.

In response to Calpine's announcement that it's thinking of selling its gas assets "to stay just one more day ahead of the grim-reaper," a head trader on the buyside said, it "reminds me of the old cartoons where someone is running over a bridge and it is collapsing behind them just as they take the next step ... some make it, some become Wyle E. Coyote."

Calpine's 6% convertible bonds dropped 1.5 points to 51.5 bid, 52.5 offered, and the 4.75% convertible bonds lost 1.25 points to 43 bid, 44 offered while the 5% convertible preferreds - seen as the next refinance or redemption candidate in the company's capital structure - added 1 point to 38 bid, 39 offered.

Calpine shares closed Tuesday off 2 cents, or 1.1%, to $1.79.

Another buyside source said it seemed ironic that Calpine would consider selling its U.S. gas assets after coming against such opposition from creditors after selling its Canadian gas assets, "unless maybe they want to test the legal issues that have been stirred up in Canada here in the U.S."

A lawsuit initiated in Canada by Calpine bondholder Harbert Management Corp. is seeking to halt any transfers of Saltend asset sale proceeds from the Calpine Construction Finance Co. LP up to parent Calpine, seeking to have preferred stock proceeds repaid and/or a default declared, which could trigger cross-defaults across the Calpine capital structure.

BioMarin steady, sector slips

While the biotech sector lost ground Tuesday, BioMarin Pharmaceutical Inc. was described by a sellsider as "holding up pretty well despite the carnage."

BioMarin's 3.5% convertible due 2008 was pegged at 90 bid, 91 offered at the close, with the underlying stock at $7.09, up 2 cents on the day.

A new marketing arrangement and the recently announced chief executive officer have helped the BioMarin story. On Monday, BioMarin announced that Serono SA, Europe's largest biotechnology company, will pay as much as $257 million for rights to two of its experimental products that treat a rare neurological illness. Jean-Jacques Bienaime was hired as the new CEO last week, ending a nine-month span without a permanent leader at the helm.

There still is trouble fermenting among BioMarin's board of directors. At the upcoming annual meeting three candidates have been nominated to serve on the BioMarin board by dissident shareholders, led by OrbiMed Advisors, which holds 8.2% of the company's shares. The annual meeting is anticipated in late June.

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