Hilton catches eyes; Huntsman hunted; Foreign convertibles dominate new issues activity

By Evan Weinberger

New York, July 3 - Two issues in the secondary market stole the spotlight Thursday, and not surprisingly one of them was a Hilton Hotels Corp. Investors looking to cash in on the acquisition of Hilton by Blackstone Group LP looked just as hungrily at the hotel giant's 3.375% convertible senior notes due April 15, 2023 as the company's stock.

And a possible bidding war over Huntsman Corp. drove investors to snatch up that company's 5% convertible mandatory preferred due Feb. 16, 2008.

Secondary markets were otherwise quiet as the official holiday on Wednesday seeped unofficially into Thursday, and there were no new issues inside the United States. Three new issues did come from overseas, however, while American investors and companies spent Wednesday watching fireworks.

Overall, one sellside analyst said Thursday was a good day for getting stuff done. Just not necessarily in convertibles.

"I haven't heard of much flow in converts at all, at least here," the analyst said. "It's a good time to catch up on other things, or to not come to work at all."

A trader put it succinctly in an e-mail: "No one in."

Foreign issues afloat

In overseas issues, Portugal Telecom, SGPS, SA on Tuesday priced its €750 million in exchangeable bonds due 2014. The coupon is set at 4.125% with an initial conversion premium of 37.5%. The coupon was right at the middle of talk, which had been at 3.875% to 4.375%. The conversion premium had been talked at 35% to 45%, and came in near the low end.

Banco Espírito Santo de Investimento, Merrill Lynch International and Morgan Stanley are joint bookrunners of the Regulation S offering.

The Lisbon-based telecommunications and multimedia services provider plans to use the proceeds for general corporate purposes.

Wavecom SA on Thursday priced €70 million in convertible bonds due Jan. 1, 2014 in the Oceanes structure. The bonds will yield 1.75% with an initial conversion premium of 29.98%.

The yield came in at the low end of talk, which had been 1.75% to 2.25% but at the mid-range of talk on the conversion premium, which was 25% to 35%.

HSBC Bank plc is the bookrunner and lead manager of the offering. There is a €10.5 million over-allotment option.

The Issy-Les-Moulineaux, France-based wireless communications provider plans to use the proceeds from the bonds for general corporate purposes, specifically to finance internal growth and external growth through acquisitions.

Finally, London-based Emerald Energy plc priced $30 million in senior unsecured convertible bonds in two tranches Wednesday. The first tranche of $15 million series A bonds due January 2012 have a 5.875% coupon with an initial conversion premium of 39%. The second tranche of $15 million series B bonds due January 2013 have a coupon of 4.875% with an initial conversion premium of 29%.

Credit Suisse Securities (Europe) Ltd. is the bookrunner.

Emerald Energy did not say what it plans to do with the proceeds.

Omnicare moves up a bit

In the secondary markets, one other mover of note was Omnicare Inc.

Its 3.25% convertible senior debentures due June 15, 2035 closed up a bit at 86.50 versus a stock price of $37.16. The debentures finished Tuesday at 86.375 versus $37.25. That was a drop in the stock (NYSE: OCR) of $0.09, or 0.24%.

"OCR got better Tuesday on takeover chatter," one trader said. "[It's] unlikely the matrix ever kicks in but rather the put in the event of a fundamental change."

Overall, the stock markets finished the day mixed Thursday. The Dow Jones Industrial Average closed down 11.46 points, or 0.08%, at 13,565.84. The Nasdaq finished up 11.70 points, or 0.44%, at 2,656.65.

Another Hilton grabs attention

Tuesday's news that Blackstone Group has agreed to acquire Hilton Hotels for around $26 billion caused not just Hilton stock to shoot up, but also its 3.375% convertible senior notes due 2023. Volume was notably strong, given that Thursday was a sleepy semi-vacation day.

The issue was seen at 202.366 versus a stock price of $45.39. On Tuesday, the issue was seen at 150.26 versus $34.28.

The Blackstone offer for Beverly Hills-based Hilton comes to $47.50 per share - a 32% premium to the pre-holiday market. Hilton stock (NYSE: HLT) moved up $9.34, or 25.9%, finishing at $45.39 Thursday. But that was far below the buyout price Thursday as players priced in a much higher risk premium for whether the deal will get done.

Traders said two potential problems weighed down Hilton's shares. The first was that that there could be funding hurdles for the acquisition and, related to that, that Blackstone paid too much. There is a $560 million breakup fee if Hilton decides to go for a different buyout offer.

Those concerns didn't necessarily affect the company's convertibles, however. Analysts said that with an April 15, 2008, call looming on the convertibles, the Hilton bond is "as good as gone." Blackstone, assuming the deal is done, would opt to take out the bonds then.

"If the cash takeover goes through sooner, as it seems it would, the bond gets converted earlier," one analyst said. "In the meantime, it moves up and down here in lockstep with the common."

Yield hunters bag Huntsman

Huntsman's 5% convertible mandatory is scheduled to mature Feb. 16, 2008. With all of the attention the Salt Lake City-based chemical manufacturer is getting from potential suitors, it looks unlikely that the mandatories will survive to maturity.

A little over a week after Huntsman agreed to a takeover by Basell Polyolefins Co. for $5.6 billion, Hexion Specialty Chemicals Inc., a portfolio company of private equity firm Apollo Management Ltd., swooped in with a sweeter offer. Hexion offered $27.25 per share for a total of $6.1 billion. That is a full $2 more per share than Basell's bid.

With all of the attention lavished on Huntsman, it is not surprising that the company's mandatories moved up steadily. The mandatories jumped $1.30, or 2.65%, to $50.35.

One analyst said that investors may be looking to flip the Huntsman mandatories before any buyouts are complete.

The volume of mandatories traded Thursday - 711,300 for a mandatory that has had an average volume of 62,831.2 over the last three months - was also remarkable to one analyst.

"Clearly there are some large blocks around," he said. "This is a lot of volume for this particular issue. But we expect this kind of volume on a big newsy day."

On Thursday, Huntsman (NYSE: HUN) stock shot up $3.06, or 12.54%, to $27.46.

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