Boston Properties deal prices at cheap end of talk; ExpressJet improves; quarter's end spurs activity

By Rebecca Melvin

Princeton, N.J., March 31 - Convertibles trading Friday was a little busier than the typical end-of-week session of late, with a bustle of activity early in the day and then again late attributed to the end of first-quarter business, including clearing or building positions, traders said.

A new convertible launched at the beginning of the day was set to price after the close. But the $400 million issue of Boston Properties LP, a subsidiary of Boston Properties Inc., didn't seem to raise too much excitement despite the fact that it was "decent" in terms of credit and terms, traders said.

There was some skepticism about the issue being launched and priced on Friday, which is rarely done, and then not available for trade until Monday.

But the new issue of 30-year convertibles, which are non-callable for seven years with a put in year seven, was trading in the gray market at par, according to a midwestern-based buyside source, who added, "We don't like it."

Among individual sectors, airlines were active, with improvement seen in the 4.25% convertibles of Houston-based ExpressJet Holdings Inc.

The ExpressJet 4.25s lifted along with their shares early in the session and were still said to have improved despite their underlying shares dropping down to a lower close.

"They were better on the buyside," a New York-based sellside trader said of ExpressJet.

Among commodities, the convertibles of Cayman Islands-based Apex Silver Mines Ltd. traded lower by about 2.5 points as its shares dropped lower by as much as 8.7% before clawing back to a 4.8% lower close.

Medtronic Inc. saw its 1.25% convertibles trade slightly lower by about 0.125 to 99.125 even as its shares lost 1.6% after a downgrade on its stock by Bernstein to "market perform" from "outperform."

And the 4% convertibles of Branford, Conn.-based Curagen Corp. were a little weaker in active trade despite the transformation of its shares from a weaker start to a 3.1% gain by the close.

Also "a little weaker" were the Intel Corp. 2.95% convertibles on the back of a shelf registration filed with the Securities and Exchange Commission.

GM unfazed despite Delphi news

Notably quiet despite a news bombshell were convertibles in the automotive sector. The convertible bonds of General Motors Corp. were thinly traded as its underlying shares began weak but then strengthened to a 1% gain.

This was despite news that Delphi Corp., GM's largest parts supplier and the biggest in the United States, said it filed motions with the federal judge overseeing its bankruptcy proceedings to shed contracts with the United Auto Workers union (UAW) and another union, planned to sell or close 21 of its 28 plants, and filed to void about half of its contracts to supply GM's North American plants.

Also during the day news ran on the tape that GM's board is possibly making a decision this weekend on whether to sell a controlling stake of General Motors Acceptance Corp., its financial services arm, for about $11 billion.

Detroit-based GM said it was disappointed with Delphi's moves, adding it disagreed with Delphi management's approach. But it said it still hoped to reach a three-way agreement with the unions and Delphi.

A strike at Delphi could spell bankruptcy for GM, experts have said. GM lost $10.6 billion last year and is struggling with its own restructuring plan, and the company would be in worse shape if a lack of parts resulted in a shutdown of its plants.

The three $25 par value convertible GM bonds, which are popular with retail investors, were mixed, with the 6.25% convertibles ending little changed at 17.35, down 0.03 point, or 0.17%, and the 5.25% bonds edging up through the session to end at 16.24, higher by 0.22 point, or 1.37%.

Boston Properties called 'decent'

Analysts looking at the new issue of Boston Properties commented on the company's strong BBB credit and investment-grade status but said the problem was that the company is a real-estate investment trust, and the high dividends associated with REITs make them unpalatable to hedge players.

"There's not anything especially wrong with it [the new issue], it's just not their cup of tea," one sellside analyst said of hedge investors. "The dividend can be a problem as it makes it too much of a drain on cash flow."

Boston Properties LP, a subsidiary of Boston Properties Inc., priced Friday after the close $400 million of 30-year convertibles to yield 3.75% with an initial conversion premium of 20%, according to a syndicate source. The pricing came at the cheap end of talk, which was for a coupon of 3.25% to 3.75% and an initial conversion premium of 20% to 25%.

Boston Properties is an office space REIT with properties in Boston, Washington, D.C., San Francisco, Princeton, N.J., and New York. It announced after the close that it had been added to the Standard & Poor's 500 Index. Rumors that it was a candidate for the S&P 500 earlier Friday were posited as a reason for it pricing its convertible deal on Friday.

Although pricings on Friday are not unprecedented, it's unusual. In January, Parsippany, N.J.-based DRS Technologies Inc. priced $300 million of 20-year convertibles via bookrunner Bear Stearns on a Friday.

Boston Properties, into which the exchangeable senior notes will be convertible, also filed a shelf registration to register the sale of about 3.25 million common shares by certain stockholders. There was an over-allotment option of up to an additional 487,500 shares, or 15%.

Morgan Stanley was bookrunner for the proposed offerings.

The exchangeables are non-callable for seven years and putable in years seven, 10, 15, 20 and 25. The registered deal has a $60 million greenshoe.

At the midpoint, using a credit spread of 100 basis points over Treasuries and a volatility of 18%, one analyst said the deal looked fair value at 101 and 1% cheap at par. A second analyst had similar inputs, with the deal looking 99.75 at the midpoint using 60 bps over Libor and 18% volatility.

But a third analyst said that 18% volatility "was a little generous," and he backed off to 16% volatility, with a credit spread of 40 bps over Libor.

In general this is something that will interest outrights, an analyst said. "If you like the stock, then you will like this."

ExpressJet improves

The 4.25% convertibles of ExpressJet gained about a point to 89.42 bid, 90.42 offered on Friday, from 88.72 bid, 89.22 offered on Thursday, according to a New York-based sellside shop.

"They've been improving over the last month since being beaten down since the beginning of the year when Continental Airlines pulled 25% of their flights," a sellsider said.

They've been doing better since the company authorized in February the inclusion of its convertible notes due 2023 in its previously announced $30 million securities repurchase program, which includes the company's common stock, the analyst said.

ExpressJet shares (NYSE: XJT) edged lower through Friday to close at $7.44, down 5 cents, or 0.67%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.