Banking & Capital Markets

No Zero Percent Financing for Ford

Ford Motor launches largest convertible offer ever -- but securities carry a 6.5 percent coupon. Also: MTN's peaking, Amazon not draining. StaffJanuary 28, 2002

While rival Buick showcased their new Bengal convertible last week at the Detroit Auto Show, Ford Motor come out with a stunning convertible of their own late last week.

On Friday, the automaker issued a record $5 billion in convertible securities. The offer size was up from the $3 billion amount Ford announced just the day before the actual launch.

Ford’s 30-year trust preferred securities carried a 6.5 percent dividend and are convertible into Ford shares at $17.70 a piece, a 22.5 percent premium over the trading price for the stocks as of the close of trading on Thursday. The foundering automaker had been expected to offer a dividend as high as 7.5 percent, according to published accounts.

Because it issued preferred securities, Ford management can deduct the interest payments on the converts for tax purposes. S&P rates the securities BBB-minus, one notch above junk status, with a negative outlook. It rates Ford’s senior debt two notches higher at BBB-plus. Moody’s rates the senior debt a roughly equivalent Baa1.

The prior record for a convertible offering was Tyco International Ltd.’s $3.45 billion funding in November 2000. Ford management said it will use the proceeds for general corporate purposes. Given it

IPO No-Show

The curtain finally went up on the 2002 initial public offering season.

Synaptics Inc., the maker of those touchpad devices on notebook computers, raised $55 million in its initial public offering on Monday, according to lead underwriter Bear, Stearns & Co. The company sold 5 million shares at $11 each — below the expected range of $14 to $16.

Still, an IPO’s an IPO. As a result of the offering, Synaptics has a market cap of about $250 million. In fiscal 2001, the company earned $810,000 on revenues of $73.7 million.

Therapeutic protein specialist Zymogenetics is also on the IPO calendar for the week. But the real equity newsmaker, if it comes to market, will be the floatation of Loews Corp. Loews, which reported revenues of around $21 billion in 2000, owns Lorillard, Inc., the oldest continuing tobacco company in the U.S. Lorillard’s top seller is Newport. The Loews offering, set to price on Thursday, is expected to raise about $830 million for the maker of the first filter cigarette back in 1952. The brand? Kent.

MTNs Peak

The market for medium-term notes (MTNs) is hotting up. Late last week, for instance, SBC Communications Inc. issued $1 billion of 10-year notes, led by Credit Suisse First Boston, Merrill Lynch & Co. and Salomon Smith Barney. The SBC paper was priced to yield 6.003 percent, or 93 basis points over comparable Treasurys and was rated Aa3 by Moody’s and AA-minus by S&P.

PanAmSat Corp., the satellite communications specialist owned by Hughes Electronics Corp., issued $800 million of 10-year senior notes in the private placement market. The offering was supersized from $500 million. The junk issue was priced at par to yield 8.5 percent, or 342 basis points over Treasurys, and was rated Ba3/B.

In addition, Countrywide Home Loans Inc., a subsidiary of Countrywide Credit Industries, Inc. came out with a $1 billion, five-year global medium-term note underwriting, led by Banc of America Securities Inc., J.P. Morgan, Lehman Brothers Inc., and Countrywide Credit. The notes were priced to yield 5.558 percent, or 120 basis points over comparable Treasurys.

Moody’s Giveth…

Moody’s Friday upgraded the debt ratings of, “reflecting expectations that the company has sufficient cash on hand to finance its operations for the medium term and will not be required to access the capital markets in 2002,” said the credit rating agency. “The upgraded ratings reflect improved operating measures and sharply lower cash drain from operations,” it added. Last week, Amazon reported its first ever profit–although it was a pro forma profit.

Moody’s is making Mead Corp. and Westvaco pay dearly for their merger plans, however. The rating agency on Thursday downgraded both companies’ senior unsecured debt ratings. “The ratings downgrade of Mead reflects a decline in the company’s debt protection measurements over time, a weaker outlook for its financial performance over the intermediate term (particularly in coated papers), and the pending merger of the company with Westvaco,” Moody’s said in a statement. “The ratings downgrade of Westvaco reflects our expectation that cash generation from coated papers will remain depressed over the near term, and that operating income from recent acquisitions will be less than previously envisioned.”

Welcome to the World Wide Web

And finally, in case you missed it, this item was posted on the Securities and Exchange Commission Web site earlier in the month:

“The Securities and Exchange Commission today announced fraud charges against a 24-year-old man for posting a phony press release on the Internet announcing that Extreme Networks, a Santa Clara technology company, was acquiring Viasource Communications, a small Florida technology company. The phony news caused Viasource’s stock price and volume to spike until the companies denied that an acquisition was planned.

“In its complaint, the Commission alleges that on October 8, 2001, Ned C. Sneiderman, of Louisville, Kentucky, posted a fake press release on a Yahoo Finance message board, which announced a cash tender offer by Extreme Networks for the shares of Viasource. In the hour following the posting, Viasource stock doubled in price to $.22 per share, on volume of more than 950,000 shares, nearly seven times higher than the previous trading day. The fraud artificially inflated Viasource’s market capitalization by almost $4.7 million.

“The complaint also alleges that Sneiderman purchased shares of Viasource stock minutes before he posted the false press release. However, within an hour after the false posting, Extreme Networks and Viasource denied the existence of a tender offer, and trading in both stocks was halted temporarily, which prevented Sneiderman from realizing substantial profits from the fraud. Both companies issued corrective press releases and, once trading was resumed, the price of Viasource shares dropped by almost 50 percent from the day’s high.”