WebMD sells 'bought deal' at discount of 99; Clearwire jumps; CapitalSource adds; EMC busy

By Rebecca Melvin

New York, Jan. 6 - WebMD Corp. made its mark in convertibles this week by being the first to tap the primary market in 2011 with a decent-sized $350 million offering of convertible senior notes priced early Thursday.

But the WebMD offering was a bought deal and reoffered at a 1 point discount to par by underwriter Citigroup Global Markets Inc., and it came with aggressive terms and structure, so few champagne corks were popping in the market.

Still, there was sufficient outright and hedged demand for resale of the entire issue and it was seen trading in secondary dealings between 99 and 99.25.

Back in established issues, Clearwire Corp.'s stock and bonds jumped in active trade amid a combination of headlines. Those headlines included comments by the Kirkland, Wash.-based mobile broadband services provider at an investors' conference about its funding that were viewed as positive and an announcement from Sprint Nextel, Clearwire's majority owner, that it plans to sell Research in Motion's BlackBerry PlayBook tablet that looks to use Clearwire's 4G data services.

CapitalSource Inc. was pulled into trade and somewhat higher after reports that the Chevy Chase, Md.-based lender to small and midsized businesses hired a financial adviser - J.P. Morgan Chase & Co. - to explore a potential sale of the company.

EMC Corp. was also traded actively after the Hopkinton, Mass.-based information technology company lowered its 2010 earnings guidance in relation to a $90 million non-cash charge for a reorganization change.

The EMC 1.75% convertibles due 2011 were being swapped for sister issue EMC 1.75% convertibles due 2013, a New York-based sellside trader said.

Overall, there was a good deal of investor trade as a few actively traded names had news in the market, a New York-based sellsider said. In addition, WebMD was a focus, although not abundantly traded, as market players tried to figure out where demand was coming from and how the paper was going to trade.

WebMD trade weakly

WebMD's newly priced 2.5% convertibles due 2018 traded some at their discounted level of 99 and also a tad higher at 99.125 and 99.25.

Shares of the Elmwood Park, N.J.-based health information services company swung higher from a weak open but ended little changed at $52.10, which was up 3 cents on the day.

The new deal was not well received in the market.

"It looks terrible! If you're going to bring a seven-year deal overnight and bought, it had better be cheap. This is not cheap," a New York-based sellside source said.

The sellsider put a credit spread of Libor plus 300 basis points in the valuation equation and then said that that figure was probably too tight.

The valuation implies a vol. of 18%, but the seven-year vol. in WebMD was seen at 15% to 16% at best.

Another New York-based sellside trader said, "I think they better get crap like this out the door now because once rates move higher, nobody will want seven-year fixed, small-coupon paper."

A New York-based portfolio manager said at the end of the session: "It's nice to see that a deal on weak terms turns out to be weak in the market on its opening day."

From WebMD's perspective, the deal was very positive. The company priced $350 million of seven-year convertible senior notes with no puts before the market open Thursday at a discount to par of 99 and with a 2.5% coupon and 27% initial conversion premium.

The company, which is a known convertibles issuer, bought back 3.5% convertibles in December.

The new Rule 144A offering was a bought deal launched late Wednesday via Citi as the bookrunner.

The issue came at the talked price points, and there is a $50 million greenshoe.

The notes mature Jan. 31, 2018 and have no calls or puts. They have stock-only conversion settlement as well as dividend and takeover protection.

Up to $100 million of the proceeds was used to repurchase 1.9 million shares of common stock at $52.07 per share, with the remainder earmarked for general corporate purposes, including acquisitions, repurchases of common stock and for working capital.

The fact that it was a discounted, bought deal doesn't imply anything negative to the market, a sellsider said. "I don't think this sets a precedent; it had more to do with the issuer than anything else."

Citigroup took all the risk upon itself by buying the deal to get it done, and then reoffered it at 99, which pushed the effective yield up a slight bit to 2.53% from 2.5%, and which brought the effective premium down.

Clearwire jumps

Clearwire's 8.25% convertibles traded up to 111.75 versus a share price of $5.80, which was up from the previous level at 104 plus.

The underlying shares, which rose by as much as 13% intraday on heavier-than-average volume, settled up 44 cents, or 8.3%, at $5.77.

The convertibles, which priced in early December, struggled to hold on to par initially but closed out the month a couple of points above issue. On Thursday, it took another leg upward.

"Clearwire made comments at a conference about funding, and Sprint is offering a Blackberry product that will require Clearwire's 4G network, so the credit improved," a New York-based sellsider said.

Reports flying around also indicated that there was optimism that this could lure consumers away from Apple and its partner AT&T because of 4G data service that Sprint and Clearwire are expected to be able to offer.

Also making the rounds were some reports suggesting that the relationship between Sprint and Clearwire is still strong. Questions about the relationship came up when Sprint pooh-poohed Clearwire's branded retail strategy and then opted to pass on participating in Clearwire's recent financing.

CapitalSource adds on chatter

CapitalSource's 4% convertibles due 2034 were said to have traded at 101.5 on an outright basis. The paper was seen closing at 100.25, compared to a previous level of 100, according to a pricing source.

CapitalSource's 7.3% paper due 2037 was said to have traded at 103 and that looked to settle at that level, compared to a previous level of 102.55. The CapitalSource 7% convertibles are putable in July 2011.

The company had said last spring that it was trying to raise more capital and had been confident given the open demeanor of the credit market that it would be able to do so.

Shares of the Maryland-based lender settled higher by 32 cents, or 4.4%, at $7.65 on Thursday.

EMC sees busy swap trade

EMC's 1.75% convertibles due 2013 were seen up about 2 points at 155, according to a pricing source. The EMC 1.75% convertibles due 2011 traded at 148.25 versus a share price of $23.55 during the session, according to a New York-based sellsider. The A paper was up about a point on an outright basis.

A sellside analyst said that EMC was "in trade big today" and that a lot of action was related to a swap out of the EMC 2011 paper into the EMC 2013 paper.

EMC lowered its guidance as a result of a non-cash reorganization charge, which pushed its earnings target for fiscal 2010 down to $0.87 per share from $0.91 per share.

Mentioned in this article:

CapitalSource Inc. NYSE: CSE

Clearwire Corp. Nasdaq: CLWR

EMC Corp. NYSE: EMC

WebMD Corp. Nasdaq: WBMD

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