Bunge gains, Vornado flat, Health Care quiet on debuts; JetBlue, UAL rise on U.S. Airways-Delta deal

By Kenneth Lim

Boston, Nov. 15 - Convertible bond players saw new deals and airlines everywhere they looked Wednesday, swamped by a robust primary market pipeline and U.S. Airways Group Inc.'s offer for Delta Air Lines.

Bunge Ltd. gained off the bat after the deal was upsized and priced within talk.

Health Care REIT Inc., however, was quiet amid a lack of excitement about the deal, while Vornado Realty Trust's overnighter hovered around its reoffered price.

Meanwhile, airlines JetBlue Airways Corp. and UAL Corp. gained outright as stocks flew on news of the takeover bid launched by U.S. Airways.

"Airlines are moving all over the place," a sellside convertible bond trader said.

In a lively week for new issuance, Thursday is set to see the pricing of another four deals worth about $835 million. Chattem Inc.'s planned $100 million offering of seven-year convertible senior notes was launched earlier in the week, while RARE Hospitality International Inc., Duke Realty Corp. and School Specialty Inc. announced their offerings Tuesday night.

Bunge rises on debut

Bunge's 4.875% convertible perpetual preferred opened at 100.75 against a stock price of $65.86, making gains after the deal was upsized and priced within talk.

"They did OK," a sellside convertible bond trader said. "The stock was down most of the day. It's back up, but I think they priced it OK. It could have come cheaper, but I guess they managed to get it done."

Bunge priced the upsized $600 million deal Tuesday after the market closed, at a dividend of 4.875% and an initial conversion premium of 40%. The deal was originally talked at a dividend of 4.5% to 5% and an initial conversion premium of 35% to 40%, and the terms were narrowed to the final price by Tuesday afternoon.

Bunge stock (NYSE: BG) closed at $65.93, up by 0.11% or 7 cents.

The size of the deal was initially $500 million, with an over-allotment option for a further $75 million. The greenshoe is now $90 million.

Credit Suisse was the bookrunner of the registered off-the-shelf offering.

Bunge, a White Plains, N.Y.-based agribusiness and food retail company, said the proceeds of the offering will be used for working capital and general purposes, which may include acquisitions and repaying debt.

"It's a pretty straightforward deal," a buyside convertible bond trader said. "It came cheap, although it wasn't very cheap, but it was just enough. Preferreds aren't everybody's cup of tea, and there's a risk associated with future acquisitions, but the yield is reasonable."

Health Care quiet

Health Care REIT's new 4.75% convertible senior note due 2026 was quiet compared to the new Bunges, with a number of traders saying they did not see the name on Wednesday.

The $300 million deal priced Tuesday within talk, with an initial conversion premium of 22.5%.

The notes were offered at par, and talk guided for a coupon of 4.375% to 4.875% and an initial conversion premium of 20% to 25%. Health Care stock (NYSE: HCN) gained 0.28% or 11 cents on Wednesday to close at $39.20.

There is an over-allotment option for a further $45 million.

UBS Investment Bank and Deutsche Bank were the bookrunners of the registered off-the-shelf offering.

Health Care REIT, a Toledo, Ohio-based real estate investment trust that focuses on healthcare and senior housing facilities in the United States, said the proceeds of the deal will be used to invest in more health care and senior housing properties, and to repay its unsecured debt.

"Did not see any HCNs," a sellsider said. "I heard the borrow may have been a problem. There's also a bit of fatigue in the [REIT] sector. Think about it: There's a whole bunch of other new deals out there at this moment, the airlines are in play. It's just not that exciting at the moment."

Vornado opens flat

Vornado's new 3.625% convertible senior debenture due 2026 stayed flat at its reoffered price of 97.5 on Wednesday, after the overnight deal was priced where it was talked.

"Vornado traded with the stock," said a sellside convertible analyst, calling it "kind of an ugly deal" because of the way it was priced.

Vornado's $1 billion deal priced early Wednesday after a brief marketing period, with an initial conversion premium of 30%. Vornado stock (NYSE: VNO) closed at $115.96, down by 1.76% or $2.08 after the deal was announced.

There is an over-allotment option for a further $150 million.

Banc of America was the bookrunner of the registered off-the-shelf offering.

Vornado, a New York-based real estate investment trust with mainly retail, office and industrial properties, said the proceeds of the deal will be used for working capital and other corporate purposes.

"After they lowered it, it looked like it may be OK," a buyside convertible bond analyst said. "But it hasn't traded up from the offer. It's right at the reoffered price."

JetBlue, UAL lead airlines

Airline convertibles mostly followed their stocks higher on Wednesday after U.S. Airways launched a takeover bid for Delta Air Lines, prompting talk of consolidation in the industry and spillover benefits for other carriers.

JetBlue's 3.5% convertible due 2033 rose about 1 point outright on Wednesday, trading at 96.25 against a stock price of $15.15, while its 3.75% convertible due 2035 jumped about 4 points to change hands at 110.375 versus a stock price of $15.375. Shares of Forest Hills, N.Y.-based JetBlue (Nasdaq: JBLU) closed at $15.13, up by 7.38% or $1.04.

"The JetBlues traded up significantly," a sellsider said. "You never know, a big merger like that, it might spur other airlines to consolidate as well...Also, if Delta were to be bought, JetBlue does have some significant overlap in terms of routes. So another thing here is it's what routes will become more attractive after the merger. It could have a wide-ranging effect for all the airlines."

UAL Corp.'s 4.5% convertible due 2021 also improved outright, trading at 130.375 against a stock price of $38.60. Shares of Elk Grove, Ill.-based UAL (Nasdaq: UAUA), the parent of United Airlines, climbed 8.96% or $3.29 to close at $39.99.

UAL itself was the subject of rumors earlier in the week that speculated the airline could be the target of a leveraged buyout.

"The rumor the other day was UAUA was gong to do an LBO," a convertible bond analyst said. "But I doubt it's going to happen. The rationale that U.S. Airways is using in the offer they put out for Delta was there's potentially a lot of savings and synergy you can get in merging two operating airlines, but when you do an LBO you're not really getting that."

The analyst also noted that UAL did not comment on the rumors at the Citigroup Global Transportation Conference on Wednesday, although the company said it expects to see more consolidation in the industry. But talk of mergers and buyouts at the other airlines are still mostly speculation at this point, the analyst said.

"The way all these airlines are trading, you'd think they were all merging with each other," the analyst said. "It's crazy."

Four more deals

Chattem's planned $100 million of seven-year convertible senior notes are expected to price Thursday, with talk at a coupon of 2% to 2.25% and an initial conversion premium of 25% to 27%.

The notes will be offered at par.

Merrill Lynch is the bookrunner of the Rule 144A offering.

Chattem is a Chattanooga, Tenn.-based maker of over-the-counter healthcare products, supplements and toiletries. It said about $26 million of the proceeds will be used for convertible note hedge and warrant transactions, and to repay $38 million on an outstanding revolving debt. It also plans to use the proceeds to help fund its planned acquisition of five Johnson & Johnson brands and Pfizer's consumer healthcare business.

Details of the Chattem deal were unusually well-guarded, market sources said, and the convertibles could end up in a few select hands.

"It's supposed to price tomorrow," said a sellside convertible bond trader who only got the guidance Wednesday. "People have been guarding it like gold."

Also expected to price Thursday is Duke Realty's planned $500 million of five-year exchangeable senior notes, talked at a coupon of 3.75% and initial exchange premium of 20%, and reoffered at 98.5 to 99.

There is an over-allotment option for a further $75 million in the Duke deal.

Morgan Stanley is the bookrunner of the Rule 144A offering.

Duke, an Indianapolis-based real estate investment trust focused on the United States' Midwest and Southeast markets, said the proceeds of the deal will be used to fund a capped call transaction, buy back $110 million of its common stock, repay an outstanding unsecured credit line and for other general purposes.

School Specialty's $125 million of 20-year convertible subordinated debentures is talked at a coupon of 3.5% to 4% and an initial conversion premium of 30% to 37%.

There is an over-allotment option for a further $25 million, and Banc of America is the bookrunner for the Rule 144A offering.

School Specialty, a Greenville, Wis.-based supplier of education products and equipment, said it will use the proceeds of the deal to concurrently buy back up to $40 million of its common stock, and to pay back part of its existing bank debt.

Also, RARE Hospitality is talking $110 million of 20-year convertible senior notes at a coupon of 2.5% to 3% and an initial conversion premium of 30% to 32%.

That Rule 144A deal has an over-allotment option for a further $15 million, and Wachovia Securities is running the books.

RARE, an Atlanta-based restaurant operator, said it will use the proceeds to concurrently buy back its common stock, up to $70 million of which will be repurchased concurrently.

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