Gannett fails to excite; GSI Commerce goes big; IXYS backs out; Boston Private jumps in

By Evan Weinberger

New York, June 27 - Four new issues, including a $1 billion issue from Gannett Co. Inc. and a $125 million issue from GSI Commerce Inc. that was upsized from the planned amount, highlighted the convertibles market Wednesday.

But the secondary market was relatively flat as concerns over subprime mortgage foreclosures and the pending interest rate announcement from the Federal Reserve continued to make traders antsy.

The day closed with talk of a $250 million contingent convertible offering from Boston Private Financial Holdings, Inc., which is set to be priced after markets close Thursday.

Volume was average, according to one sellside analyst. "There's some business going on," he said.

But another sellside analyst said the four new issues were "nothing worth getting too excited about" and that trading in the secondary market was slow. "I think the market's in kind of a nervous phase right now," he added.

Analysts pointed to the abandoning of IXYS Corp.'s proposed $60 million 20-year convertible note offering early Wednesday morning as a potential result of fears over the subprime fallout.

Among new deals, Dana Petroleum plc placed £141.5 million of seven-year 2.9% senior guaranteed convertibles due 2014 with an initial conversion premium of 50% after trading closed Tuesday. The bonds were offered below par at 99 and at the cheap end of talk from the day before. The Aberdeen, United Kingdom oil and gas exploration and production company had set talk for the coupon between 2.5% and 3% and a conversion premium between 50% and 55%.

In the secondary market, two Medtronic Inc. convertibles moved lower Wednesday, just a day after the Supreme Court ruled that it would hear a case regarding the right of patients to sue the manufacturer of a medical device approved by the Food and Drug Administration. The Minneapolis-based medical supplies company's 1.5% convertible senior notes and 1.625% convertible senior notes were trading at 104.5 versus $51 5/8 on the stock. The two 1.5% convertibles traded Tuesday at 105 versus $51 on the stock. The company's stock (NYSE: MDT) closed up $0.01, or 0.02%, at 51.68.

Overall, the Dow Jones Industrial Average closed up 90.07, or 0.68%, to close at 13,427.73. The Nasdaq gained 31.19, or 1.21%, to close at 2,605.35.

Gannett issues move slowly

For a billion-dollar issue, Gannett's senior unsecured convertibles didn't generate much heat. In fact, the issues were reoffered below par at 99.65. According to one sellside analyst, they dropped from that level to 99.60 over the course of the trading day. The floating-rate bonds due 2037 pay a coupon of one-month Libor minus 23 basis points with an initial conversion premium of 70%.

Another sellside analyst said that the initial conversion premium is what has investors shying away from the bonds.

"I don't think anybody cares," the analyst said. "The thing came at a 70% premium. I suspect the underwriter owns a fair percentage of this."

Still, a sellside trader with knowledge of the issue said the bonds were moving. "I wouldn't say people aren't interested," said another sellside analyst.

Meanwhile, stock in the MacLean, Va. Media company (NYSE: GCI) picked up $1.25, 2.31%, to close Wednesday trading at $55.45.

GSI convertibles go big

While the jumbo offering from Gannett didn't gain much traction, expectations were high for GSI Commerce's convertible issue, which turned out to be upsized to $125 million from $100 million, and the greenshoe was boosted to $25 million from $15 million.

The unsecured notes due June 1, 2027 will yield 2.5% with an initial conversion premium of 23.15%. The Rule 144A bonds priced near the middle of talk, which had been for a yield of 2.125% to 2.625% and an initial conversion premium of 22.5% to 27.5%.

According to sellside analysts, the small size and the rising stock price of the King of Prussia, Pa.-based e-commerce marketing firm attracted investors.

But it may not last long, one analyst said. "A stock like this is rising, and you've got dedicated convert funds that couldn't participate in this rise and now they've got a way to participate," he said.

"You're probably not going to see it trade after today."

The analyst said the bonds traded in a range of 99.44 to 99.52 over the course of the day.

GSI Commerce (Nasdaq: GSIC) stock was down $0.97, 3.98%, to close at $23.39, bucking the trend of the last year.

Is IXYS pullout a warning?

Could news that IXYS pulled a planned offering of $60 million in 20-year convertible notes Wednesday mean that participants should be worried about the future of the convertibles market?

Probably not, according to analysts, but with jitters over subprime mortgages and a possible rate hike from the Fed, which is meeting Wednesday and Thursday, traders and investors appear to be a little wary.

The proposed IXYS offering was talked to yield 3.5% to 4.0% with the initial conversion premium talked at 27.5% to 32.5%. The offering was pulled because the company said market conditions had changed.

Convertibles players reacted with surprise to the news, and speculation ran that the falling stock price caused the company to pull back its offering.

"My guess is that they're just very price sensitive," said one sellside analyst not connected to the deal. "A lot of companies won't actually want to go through with a convert when the stock price is down like that."

Other analysts said the deal was hurt by fears that the effects of subprime mortgage foreclosures could spread into other markets, including convertibles. "I'm sure it was the skittishness in the market that made it a difficult sell," said another sellside analyst not connected to the deal.

But those fears may be unfounded. A fund manager said that while there is decreased liquidity in the market, traders were more concerned with looking bad than the actual real fallout from subprimes.

IXYS stock (Nasdaq: IXYS) closed up 0.17 points, 1.92%, Tuesday to close at $9.04. There was no talk that the convertibles would resurface.

Boston Private gets in the game

Any concerns over the future of the convertibles market didn't stop Boston Private Financial Holdings from jumping in.

The Boston-based wealth management firm launched a $250 million offering of contingent convertible notes due July 15, 2007 talked to yield 2.75% to 3.25% with an initial conversion premium of 20% to 25%.

The issue is scheduled to price Thursday after the market close.

There is an over-allotment option for a further $37.5 million, or 15%.

Boston Private (Nasdaq: BPFH) stock closed up $0.64, 2.30%, to close at $28.47.

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