D.R. Horton moves on redemption; Bunge higher on fundamentals; Northwest heads up with stock

By Sara Rosenberg

New York, May 27 - D.R. Horton Inc., Bunge Ltd. and Northwest Airlines Corp. stood out in an otherwise quiet secondary convertibles market Tuesday, with D.R. Horton moving on news of a redemption, Bunge being viewed favorably based on fundamentals and Northwest's convertibles moving up in response to the stock performance.

In the primary, American Financial Group Inc., Juniper Networks Inc. and Delta Air Lines are all slated to price by market open on Wednesday.

"D.R. Horton was active today. They're getting rid of their bond issue," an analyst said.

The company's 0% convertible due 2021 closed at 67.61 bid, 68.36 offered, down 0.610, according to a trader. The stock closed at $25.34, down 36 cents or 1.4% on the day.

D.R. Horton announced Tuesday that it is calling all of its zero coupon convertible senior notes due 2021 for redemption on June 26. The redemption price for the notes will be $561.9557 per $1,000 principal amount at maturity.

The notes are also convertible into the Arlington, Tex. home building company's common stock until 5 p.m. ET on June 25. The conversion rate of the notes is 26.2391 shares of D.R. Horton common stock per $1,000 principal amount at maturity of the notes. (See tenders and redemptions elsewhere in this issue.)

"The Bunge bonds are trading up around 113 and change. That's a pretty good fundamentals story. Management has raised guidance a couple of times recently. Acquisitions have been successful," the analyst explained.

The company's 3.75% convertible due 2022 closed at 112.96 bid, 113.46 offered, up 0.05, according to a trader. The stock closed at $27.95, up 03c or 0.11%.

For example, on May 5, Bunge raised its second quarter 2003 net income guidance to be within a range of $166 million to $171 million, or $1.67 to $1.72 per share. For the full year 2003, guidance was raised to $371 million to $381 million, or $3.73 to $3.83 per share, from $260 to $270 million, or $2.62 to $2.72 per share.

Guidance was raised due to the sale of Bunge's Brazilian ingredients operations to The Solae Co., its joint venture with DuPont, for $256 million in cash.

And, on April 29 Bunge reported first quarter 2003 net income of $40 million, or 40c per share, beating analyst estimates of 33c per share, compared to net income of $13 million, or 15c per share, in the same quarter of 2002. For the quarter, volumes grew 57% to 22.8 million metric tons compared to 2002, gross profit increased 46% to $268 million and income from operations rose 74% to $118 million.

At the time of the earnings release, the company said its integration of Cereol, acquired in October 2002, was ahead of schedule. In fact, during the quarter, edible oil products results improved primarily due to the Cereol acquisition, Bunge said.

Bunge is a White Plains, N.Y. integrated, global agribusiness and food company.

"The new Northwest bonds are firming up a little bit. They're around 93. The stock has been moving up the past couple of days," the analyst said.

Northwest Airlines' 6.625% convertible due 2010 closed at 95.5 bid, 96.5 offered, up 2.5, according to a trader. The stock closed at $9.261, up 461c or 5.24% on the day.

The $150 million of 20-year convertible senior notes were sold on May 15 in the overnight Rule 144A market at par to yield 6.625% with a 60% initial conversion premium, via lead manager Citigroup.

The issue will pay a cash coupon for seven years, then 0% but accrete the full yield through maturity.

Proceeds were earmarked for working capital and general corporate purposes. The notes are guaranteed by Northwest Airlines Inc.

Overall, it was a pretty uneventful day in the convertibles market, according to various sources.

"It's very quiet," a market professional said. "The market is obviously up but volume is not all that heavy. There's a lack of sellers rather than buyers right now."

"People are kind of circling back and looking at some of these deals that priced over the last few weeks. We're seeing very little secondary activity on a lot of these deals. It was clear a lot of it was put away. A lot of stuff wasn't priced to entice investors. Some were priced just to be held," the analyst said.

As for new deals that are in the pipeline, there are currently three that are anticipated to price between Tuesday's close and Wednesday's open - American Financial, Juniper Networks and Delta Air Lines.

American Financial Group is expected to sell $150 million (proceeds) of 30-year cash-to-zero convertibles to pay cash coupon for five years, then becoming a 0% accreting bond. Original price talk is 3.5 to 4.0% yield with an initial conversion premium of 47.5-52.5%. Merrill Lynch and UBS Warburg are joint lead managers.

"I'm not going to be getting involved in it," one market professional told Prospect News on Tuesday. "It's very aggressive.

"I have not heard them in the gray market at all," he added.

The Rule 144A deal is expected to price after close Tuesday after being postponed last week.

The bonds are noncallable for five years with puts in years 5, 10, 15, 20 and 25.

There is a $25 million greenshoe.

There is a contingent conversion trigger of 120% for life and a contingent payment trigger of 120%.

Expected ratings are Baa3/BBB although Moody's Investors Service late Tuesday started a review for downgrade on the company.

The Cincinnati-based firm intends to use proceeds to repay outstanding debt under its existing bank line of credit and provide capital for operations.

Juniper Networks' $350 million five-year convertibles, which were scheduled to price in an overnight deal via Goldman Sachs, were talked to yield 0%, with an initial conversion premium of 45% to 50%.

According to Tatyana Hube, an analyst with Merrill Lynch, the deal is valued 0.5% rich, using 57% volatility and a spread of 470 basis points over the five-year Treasury against the closing stock price of 13.89. "Given that the common will drop tomorrow at the opening in response to an overnight convert, the resulting valuation will be even richer," Hube added.

Proceeds will be used by the Sunnyvale, Calif. provider of network infrastructure solutions for general corporate purposes, which may include acquisitions and repurchases of outstanding subordinated notes or common stock.

Delta Air Lines $300 million convertible senior notes due 2023, expected to price Wednesday morning before market open via JPMorgan, are talked at a 7.5% to 8% yield, with an initial conversion premium of 99.57%.

According to Merrill's Hube, at the mid-point of talk the deal is 3.2% cheap, using a spread of 900 basis points over the five-year Treasury and 40% volatility against the closing stock price of 14.03 (and 0.71% common yield). "At tomorrow morning's opening stock price, the valuation will look less rosy," Hube added.

Delta is an Atlanta air carrier.

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