Convertibles issuance bursts open, contingent features prevail

By Ronda Fears

St. Louis, Mo., Oct. 4 - Convertibles issuance burst back into activity Thursday, with two new deals pricing and two set to go after the closing bell. Sources said demand was extremely high, with an indication of orders running somewhere in the neighborhood of 10 times the deal sizes. And, market players expect there to be a spree of new deals added to the buy-side's plate next week.

"In the current marketplace, both of these deals appear to have gone very, very well," said a syndicate source working on one of the deals that priced Thursday.

A strong emerging trend is the continuance of contingent conversion features on new deals, and one of the upcoming offerings is the first with contingent conversion provisions that is not a discount security and carries a coupon.

The two new deals that priced are the first convertibles to come to market since Sept. 6 when Laboratory Corp. of America sold $437 million proceeds of zero-coupon 20-year convertibles in a Rule 144A deal via Merrill Lynch & Co. After that, the convertibles market, like much of the financial world, was thrown off track by the terrorist atrocities on Sept. 11.

Electronic Data Systems Corp. priced $752 million (proceeds) of convertibles while Province Healthcare Co. sold $150 million. Terms were set early Thursday on both deals, which were priced off Wednesday's closing stock level. Province Healthcare had been scheduled for after the closing bell Thursday but was advanced in response to news of the EDS deal.

Both deals were significantly oversubscribed, sources said.

"I'll say this, allocations were as low as 8%, which would imply the deal was 10 times oversubscribed," said a source working on the Province Healthcare deal.

Launched to price after the bell Thursday were a $200 million convert from Apogent Technologies Inc. and the re-emergence of Brinker International Corp.'s deal with sweetened price talk.

"The market has re-opened, we can say now," said a source working on one of the deals that priced Thursday. "We are expecting several more next week.

EDS upsized its overnight deal, which was priced at the aggressive end of pricing guidance and caught some players unprepared as it emerged after the market close Wednesday. But the deal was boosted from $500 million in proceeds to $752 million by the close Thursday.

After pricing at 77.9, the new EDS convert was quoted up from issue price by 1.625 points on the bid side and 1.875 points on the offer side. The underlying stock slipped 84c to $58.50.

Also on the calendar with price talk from before Sept. 11 are Finisar Corp. and J.C. Penney Co. Inc.

While Brinker had to sweeten the yield on its deal, market players said the higher yield is not out of line with where the credit markets are now compared to before Sept. 11. New price talk for the Brinker convertible puts the zero-coupon paper with a yield-to-maturity of 3.0% to 3.5% whereas it previously had been talked to price to yield 2.75% to 3.25%. The initial conversion premium is unchanged at 32% to 37%.

Brinker had a contingent conversion feature, which is very enticing for issuers because of certain tax advantages and the anti-dilution to the underlying common stock.

"Anyone who isn't thinking about a CoCo deal, should be,' said Deutsche Banc Alex. Brown convertible analyst Jonathan Cohen. "This makes the deal look really good."

While the EDS deal was somewhat of a surprise, and the early pricing of Province Healthcare was not anticipated, traders said both new issues were active and traded higher in the session.

Province Healthcare's new 4.25% convert gained 2 points from par to 102 bid, 103 offered as the underlying stock gained 97c to $33.70.

The Brinker and Apogent deals were also said to be higher in the gray market, but firm quotes were not available. Brinker common shares closed off 17c to $23.38 and Apogent ended down $1.49 to $23.10. End

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