Nvidia eyes $1.3 billion issue on the heels of Yahoo!; Stanley Black & Decker looks cheap

By Rebecca Melvin

New York, Nov. 25 - Two new deals launched in the convertibles primary market early Monday, with the large Nvidia Corp. deal for $1.3 billion looking just slightly cheap, according to a Connecticut-based trader, who was skeptical about how another large technology-sector name would perform coming so close on the heels of Yahoo! Inc. last week.

Yahoo!'s 0% convertibles slipped Thursday on their debut in the secondary market after the Sunnyvale, Calif.-based internet search, content and communications company priced an upsized $1.25 billion of the five-year notes at the rich end of talked terms.

As for Nvidia, one market source saw the deal about 1.4% cheap at the midpoint of talked terms, while a second source saw them worth only about 100.5.

Also launching early Monday was Stanley Black & Decker Inc. The New Britain, Conn.-based provider of hand tools, power tools and related accessories planned to price $300 million of three-year mandatory equity units, or 3 million units at $100 each, and they were said to be looking pretty cheap, using a four skew, a market source said.

Both deals were seen pricing after the market close on Monday.

Back in established issues, convertible gold names were in focus and holding up pretty well despite large stock moves and amid investor nervousness about commodity-related securities, particularly gold-related names.

Detour Gold Corp., a Canadian-based company with U.S. dollar-denominated convertibles, saw those bonds move down significantly, but in line or better compared to the underlying shares, after news that the president and chief executive of the Toronto-based gold exploration and development company is stepping down, a New York-based trader said.

The 3.25% convertible bonds of B2Gold Corp., which priced in August, were offered for sale as shares fell in the early going Monday, but the convertible paper held in and especially as the stock rallied back from early weakness to end higher by 0.5%.

Meanwhile, Goldcorp Inc., which is a fairly liquid issue in the convert space, closed little changed to the bid side on Monday.

The convertible primary market remained fairly active in both the United States and internationally. Songa Offshore SE said it is planning to issue about $150 million of convertible bonds in a private placement as part of a comprehensive refinancing aimed at raising up to $425 million in new capital, according to a news release.

And Espirito Santo Financial Group SA placed €200 million of bonds exchangeable into ordinary shares of Banco Espirito Santo SA, at par of €100,000 to yield 3.125%, with an initial conversion premium of 32.5%, which was at the midpoint of talked terms.

But Wereldhave NV decided to withdraw a planned offering of €200 million of five-year convertible bonds that it launched early Monday.

The Hague, the Netherlands-based real estate company also launched a proposed repurchase of all of its outstanding €230 million of 2.875% convertible bonds due 2015.

The company said there was insufficient interest in the combined transaction and that it will continue to explore refinancing options to optimize its debt maturity profile, the release stated.

Nvidia looks decent

Nvidia's planned $1.3 billion of five-year convertible senior notes was seen looking OK by one Connecticut trader, who said he was using a credit spread of 150 basis points over Libor and a 25% volatility.

With those inputs the deal looked worth about 100.5 at the midpoint of talk.

"It looks OK, but every big tech deal that has come recently is lower," the trader said.

There has been a little indigestion of new issuance among investors due to a large amount of issuance in a short period of time. But one trader said new issues are still very much needed in the convertible space and the paper should be subsumed in the short term.

Pricing of the Nvidia deal was seen at a coupon of 0.75% to 1.25% and an initial conversion premium of 27.5% to 32.5%.

The Rule 144A offering has an over-allotment option for up to an additional $200 million of notes, and the deal was being sold by Goldman Sachs & Co. as the bookrunner.

The notes are non-callable for life.

Proceeds are expected to be used to buy back shares and fund dividend payments, for privately negotiated convertible note hedge transactions and for general corporate purposes.

About $200 million of the proceeds will be used to buy back shares under the company's recently announced $1 billion capital return to shareholders program.

Santa Clara, Calif.-based Nvidia is a graphics processor company.

Stanley looks cheap

The Stanley Black & Decker equity units were seen fairly cheap using a four skew, a trader said. The notes were talked to yield 6% to 6.5% with a premium of 17.5% to 22.5%.

The registered units, which consist of junior subordinated notes due 2018 and contracts to purchase common stock, are being sold via Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC as joint bookrunning managers.

Common stock is expected to be delivered upon settlement of the purchase contracts.

A portion of the proceeds is being to purchase options on its common stock from counterparties, which may include some of the underwriters and their affiliates. The options are expected to offset dilution upon settlement of the purchase contracts if the company's share price exceeds the threshold appreciation price of the units.

Stanley Black & Decker is also offering $400 million of fixed-to-floating rate junior subordinated debentures due 2053. Completion of the two deals is not contingent on each other.

New Britain, Conn.-based Stanley Black & Decker is a provider of hand tools, power tools and related accessories.

Detour Gold drops

Detour Gold's 5% convertibles due 2017 traded down to as low as 74.75 and as high as 79 on Monday, which was down from 83 bid, 84 offered on Friday.

The bonds were "last 75 bid, with market players looking for bonds," a New York-based trader said at the close.

Detour shares slid 50 cents, or 11.7%, to C$3.77 on the Toronto stock exchange.

"That was kind of a name today with the CEO stepping down. The move tells you that people are nervous," the trader said.

According to the company's press release, Detour's president and chief executive Gerald Panneton resigned, effective immediately. No reason was given for his departure.

The board of directors has appointed Paul Martin, chief financial officer, as interim chief executive.

The Detour bonds do not trade on a delta.

Elsewhere in the gold sector, B2Gold's convertibles ended little changed along with the underlying shares, but they were "better to buy" during the session as shares sank and then rallied.

Shares of the Vancouver, B.C.-based gold producer ended up a penny at $2.05.

At that closing level, the bonds were seen 89.5 bid, 90.25 offered, which was unchanged from the previous level, a trader said.

"They were right around there, but they held up well [when shares were lower]," the trader said.

Goldcorp's convertibles closed at 100.375 bid, 100.625 offered, which was on the bid side compared to Friday's close, a trader said.

Goldcorp shares closed down 19 cents, or 0.8%, at $22.93.

Mentioned in this article:

B2Gold Corp. NYSE: BTG

Detour Gold Corp. Toronto: DGC

Goldcorp Inc. NYSE: GG

Nvidia Corp. Nasdaq: NVDA

Stanley Black & Decker Inc. NYSE: SWK

Yahoo! Nasdaq: YHOO

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