Morning Commentary: Liberty Media convertible notes offering eyed; Avaya plummets

By Abigail W. Adams

Portland, Me., Aug. 9 – The convertibles primary market returned to action on Tuesday with one new offering slated to price after the market close.

Liberty Media Corp. plans to price a $375 million offering of five-year convertible notes with price talk for a coupon of 2.25% to 2.75% and an initial conversion premium of 27.5% to 32.5%.

The notes will be convertible into Liberty’s series C Liberty Formula One common stock and will be attributed to the Liberty Formula One tracking group.

The deal was heard to be in the market with assumptions of 350 basis points over Libor and a 30% vol., a source said.

The deal looked cheap at the midpoint of talk.

However, the refinancing deal will largely be placed with holders of the notes the company plans to repurchase.

Proceeds from Liberty Media’s new offering will be used to repurchase Liberty’s 1% cash convertible notes due 2023 in privately negotiated transactions.

The 1% cash convertible notes had $240 million outstanding as of June 30. They were changing hands on a 178-handle early in Tuesday’s session.

Meanwhile, trouble continued to mount for Avaya Holdings Corp. following the release of additional preliminary financial results, which painted a dire picture for the company.

Avaya’s soon-to-mature 2.25% convertible notes due June 15, 2023 sank another 20 points outright.

The notes changed hands at 25 early in Tuesday’s session with the yield cracking 260%.

The technology company announced that it had hired advisers to “assess its options to address the 2023 convertible notes,” according to a press release.

Avaya recently repurchased $129 million of the 2.25% convertible notes through a series of capital raises that included the $350 million in new senior secured term loans and privately placed $250 million in 8% exchangeable notes due 2027.

The 8% convertible notes traded as high as 102.5 on July 20, shortly after Avaya completed its refinancing transactions.

However, they sank to 92 by July 28. There were no prints in the notes early in Tuesday’s session.

While the 8% convertible notes are secured, the company has a significant debt load of higher-ranking debt.

“So good luck” recouping losses, a source said.

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