Investors turned off by ON; Qwest gets lost; Champion opens with win; EMC mixed on new acquisition

By Evan Weinberger

New York, Oct. 30 - ON Semiconductor Corp. convertibles were hammered Tuesday on troubling earnings. Qwest Communications International Inc. convertibles suffered a similar fate for similar reasons.

Investors went a little easier on Group 1 Automotive Inc. despite a shaky earnings report, although those convertibles came down from a lower position.

Meanwhile, EMC Corp. convertibles were mixed on news that it had acquired a small, privately owned software company.

Trading action was slowed by investors waiting to hear what treats the Federal Reserve will bring on Wednesday. The central bank's board of governors began its regularly scheduled meeting to discuss interest rates, with many market watchers hoping for a further 25 basis point cut. That would be on the heels of September's 50 bps cut.

"I think people are sitting and waiting for the Fed," one analyst said. That sentiment was echoed by traders and market watchers from across the board.

What trading there was seemed to be based on earnings reports. With the end of the earnings season fast approaching, the analyst said investors are seeing smaller names and few good surprises. "It's a mixed bag," he said.

Stock markets had a moribund day Tuesday as the Federal Reserve meeting that opened Tuesday brought investors closer to the edges of their seats. The Conference Board report that said consumer confidence was at its lowest point since the aftermath of Hurricane Katrina didn't help matters.

The Dow Jones Industrial Average slipped 77.79 points, or 0.56%, to close at 13,792.47.

The Nasdaq struggled to get into positive ground toward the end of the day but couldn't hold the gains and closed at 2,816.71, stumbling 0.73 point, or 0.03%.

The Standard & Poor's 500 lost 9.96 points, or 0.65%, for a 1,531.02 close.

Deal upsizings popular

New issues were percolating a bit Tuesday, and upsizing was the order of the day. Champion Enterprises, Inc. priced an upsized $160 million of 2.75% convertible senior notes due Nov. 1, 2037 with an initial conversion premium of 82% Monday after the market close. The deal was originally announced at $130 million and came in beyond the rich end of talk, which had been for a 3% to 3.5% coupon and an initial conversion premium of 73% to 77%.

There is a $20 million over-allotment option, which was upsized from an originally announced $19.5 million. The settlement date for the registered transaction is expected to be Friday.

The convertibles have a conversion price of $20.97 and a conversion ratio of 47.6954.

The convertibles carry hard call protection until Nov. 1, 2012. There are investor puts on Nov. 1 in each of 2012, 2017, 2022, 2027 and 2032. The convertibles have dividend protection, a change-of-control put and a contingent debt agreement.

Champion is an Auburn Hills, Mich.-based producer of manufactured homes and commercial buildings. Champion plans to use the proceeds to repurchase notes due 2009, to pay off debt incurred under a term loan due 2012 and for general corporate purposes.

From Switzerland, Nobel Biocare Holding AG priced an upsized CHF 385 million in 1% convertible senior bonds due Nov. 8, 2011 to yield 1.5% with an initial conversion premium of 33% after the market close in Switzerland Tuesday. The bonds were originally announced at CHF 350 million and came in at the rich end of talk, which was for a yield of 1.5% to 2% and an initial conversion premium of 28% to 33%.

The settlement date is expected to be Nov. 8 for the Regulation S transaction.

The redemption price of the bonds is 102.05%. That, too, came in at the rich end of talk, which had been set at 102.05% to 104.13%.

The conversion price is CHF 428.20, and the conversion ratio is 11.676786.

The bonds are callable beginning Nov. 30, 2009 subject to a 130% hurdle. There is change-of-control protection and a make-whole agreement as well as dividend and anti-dilution protections and a negative pledge.

Nobel is a Glattbrugg, Switzerland-based dental implants maker. The company plans to use the proceeds for general corporate purposes.

And coming in from India, although apparently a bit jetlagged, GTL Infrastructure Ltd. priced an upsized $250 million in zero-coupon foreign currency convertible bonds to yield 6.9% with an initial conversion premium of 18.85% on Monday. The original offering was for $200 million.

There is a $50 million over-allotment option on the Regulation S transaction.

The convertibles come with a Rs 53.04 conversion price.

GTL announced in an e-mail that 93 investors participated with confirmed orders in excess of $1.102 billion, resulting in subscription of 4.41 times.

GTL is a Mumbai, India-based wireless communications firm. The company plans to use the proceeds for its expansion plans, including the placement of around 25,000 towers throughout India.

ON goes off

Phoenix-based ON Semiconductor announced its earnings for the third quarter of 2007 Tuesday, and they did not please the market.

ON announced that its third-quarter earnings declined 17% from the same point last year. The company earned 20 cents per share, or $63.8 million, in the third quarter of 2007 compared with 23 cents per share, or $76.8 million, in the third quarter of 2006. Declining sales and increasing expenses combined to lay down the double-whammy.

The fourth quarter isn't looking much better, Keith Jackson, ON's president and chief executive officer, said in a statement. "Based upon product booking trends, backlog levels, anticipated manufacturing services revenue and estimated turns levels, we anticipate that total revenues will be approximately flat to up 2% sequentially in the fourth quarter of 2007," Jackson said.

As mentioned before, Wall Street was not pleased with ON's announcement, and the company's convertibles and stock suffered.

ON's zero-coupon convertible senior subordinated notes due April 15, 2024 closed Tuesday at 119.45 versus a closing stock price of $10.22. They finished trading Monday at 131.84 versus a stock price of $12.19.

ON's 2.625% convertible senior subordinated notes due Dec. 15, 2026 closed Tuesday at 12.688 versus a stock price of $10.22 following Monday's close of 135 versus a stock price of $12.19.

The market had it in for ON's 1.875% convertible senior subordinated notes due Dec. 15, 2025, which closed Tuesday at 162.426 versus a stock price of $10.22 after finishing Monday at 182.92 versus a stock price of $12.19.

Stock in ON (NYSE: ONNN) was torched for a $1.97, or 16.16%, loss Tuesday.

Qwest gets lost

Cost cuts and a big tax refund helped Denver-based telecommunications firm Qwest post a big gain for the third quarter. In the third quarter of 2007, Qwest posted earnings of $2.1 billion. That means earnings of $1.08 per share. Take out the tax refund, however, and Qwest earned 14 cents per share. That's still an improvement from 2006's third quarter, when the firm posted $194 million, or 9 cents per share, in earnings.

Speaking of revisions, Qwest also lowered its EBITDA outlook for the year. And that little nugget weighed down Qwest's stocks and convertibles.

Qwest's 3.5% convertible senior notes due Nov. 15, 2025 closed Tuesday at 134.035 versus a closing stock price of $7.06. They finished Monday at 151.425 versus a stock price of $8.18.

Qwest stock (NYSE: Q) plummeted $1.12, or 13.69%, on the day.

Champion opens victorious

Champion Enterprises must have received positive feedback on its 2.75% convertible senior notes due Nov. 1, 2037. "Investors must have liked it because it got upsized and prices outside the talk," one analyst said early in the day.

The convertibles closed at 101.7 versus a closing stock price of $11.65 on Tuesday. They were trading around 101.5 for most of the day, according to one market source.

Champion stock (NYSE: CHB) closed up 13 cents, or 1.13%, on Tuesday.

Group 1 Automotive downshifts

Houston-based car dealer Group 1 Automotive announced a 21% fall in earnings for the third quarter of 2007. The dealers garnered 90 cents per share, or $20.8 million, in the third quarter of 2007 versus $1.10 per share, or $26.4 million, in the same period last year.

"Increasingly challenging market conditions exerted significant downward pressure on vehicle sales and margins at most of our volume brand dealerships during the third quarter," Earl J. Hesterberg, Group 1's president and chief executive officer, said in a statement.

"A 20% decrease in Ford sales, a major reduction in the gross margin of our major domestic and import volume brands and pressure on the full-size truck used vehicle market could not be offset by improvements in our parts and service and finance and insurance businesses."

Group 1's 2.25% convertible senior notes due June 15, 2036 closed Tuesday at 74.84 versus a closing stock price of $31.44. They finished Monday at 76.559 versus a stock price of $32.40.

Stock in Group 1 (NYSE: GPI) slowed down 96 cents, or 2.96%, on the day.

EMC mixed on acquisition

Hopkinton, Mass.-based computer hard drive developer EMC announced Tuesday the acquisition of Richardson, Texas-based management software developer Voyence Inc. Terms of the deal were not disclosed, although EMC said in a statement that the acquisition would have no effect on its 2007 earnings.

EMC's 1.75% convertible senior notes due Dec. 1, 2011 lost some ground after the announcement, closing Tuesday at 166.376 versus a closing stock price of $25.12. They finished trading Monday at 167.36 versus a stock price of $25.37.

EMC's 1.75% convertible senior notes due Dec. 1, 2013 closed Tuesday at 168.58 versus a stock price of $25.12. They closed Monday at 168.3 versus a stock price of $25.37.

Stock in EMC (NYSE: EMC) slid 25 cents, or 0.99%, on Tuesday.

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