Knight Capital trades around par on its debut; Hartford Financial plans mandatory offering

By Rebecca Melvin

New York, March 16 - Knight Capital Group Inc.'s newly priced 3.5% convertibles traded right around par on their debut Tuesday, marking a contraction on a hedged basis versus its underlying shares, which were flat to higher during the session and lifted toward the close, market sources said.

"The premium has come in a little bit on that," a New York-based sellside trader said.

Group 1 Automotive Inc. was quiet in the gray market ahead of final terms seen coming after the close of markets, with sellsiders saying that the $100 million offering's 10-year term was a detraction for investors.

"[Group 1] already has 10-year paper that's trading at 80. Why would you want to buy more 10-year paper and watch it go down to 80?" a sellsider said.

United States Steel Corp.'s convertibles were in trade at double par, marking a strong rise in the last month along with its underlying shares amid news that the Pittsburgh-based steel maker planned to price $500 million o of straight bullet notes with a 10-year term.

The new paper was talked to yield 7.5% to 7.625% and was seen pricing after 2 p.m. ET.

Transocean Ltd. and ProLogis convertibles were the top trading names in terms of volume. The new ProLogis 3.25% notes, which priced a week ago, traded at 102.25 versus a share price of $13.90 during the session, according to a sellsider.

The new Ciena Corp. 4% convertible, which also priced a week ago on March 9, traded at 107 versus a share price of $15.90.

Intel Inc., which saw its shares rise along with a sector move on Tuesday, wasn't mentioned among top trading names, but the company's newer paper was a 97.5 versus a share price of $21.50.

Hartford offering emerges

In the primary market, Hartford Financial Services Group Inc. launched a $500 million mandatory convertible preferred offering that was talked to yield a dividend of 7.25% to 7.75% and an initial conversion premium of 18% to 22%. Final pricing of that deal is expected after the market close on Thursday.

The stock market spiked but then moved back down on news the Federal Open Market Committee is standing pat on its target range for the Federal Funds rate at zero to 0.25%.

The tone of the Fed's policy statement was one of rates remaining low for some time. In response, the fixed-income assets saw prices improve, with investment-grade corporate debt up 0.375 to 0.5, while the high-yield market was better by a lesser 0.125 to 0.25 on the day.

The FOMC said it continues to anticipate economic conditions are likely to warrant exceptionally low levels for an extended period. Nevertheless, economic activity has continued to strengthen and the labor market is stabilizing, according to the FOMC policy statement.

Knight Capital flat to weaker

Knight Capital's newly priced 3.5% convertibles due 2015 traded to as high as 101 versus a share price of $15.75 early in the session. But for most of the day, the paper was right around 100, with a few trades seen slightly under par as well, at about 99.875, according to a West Coast-based sellside trader.

Shares of the Jersey City, N.J.-based financial services firm rose 27 cents, or 1.7%, to $16.02.

The company priced an upsized $325 million issue of five-year convertibles at the midpoint of price talk late Monday.

"They looked better for sale," the sellside trader said of the new Knight notes that were right around par.

Another sellsider said they were contracting and that perhaps the reason why was that the placement of the paper was with investors who were flipping out of it.

The West Coast-based sellsider concurred that accounts appeared to be "renters" in the name. "They said 'yes, we'll buy,' and then they were printing sell after they bought it," the sellsider said.

What the weakness was being chalked up to was the pricing and sector, rather than the structure of the deal.

"I think it's a little bit of pricing - the premium is a little bit on the high side - and also the fact that it's a financial company, and people are just not comfortable in that sector right now."

"I guess in this particular market there are some questions still about financial reform," he said.

The deal was upsized by $25 million from $300 million.

The Rule 144A offering launched ahead of the market open on Monday and was sold via J.P. Morgan Securities Inc.

There are no calls or puts, and the notes will be cash settled, which is less dilutive to shareholders, as opposed to net-share settled.

Proceeds will be used to repay $140 million in a senior secured term loan facility and senior secured revolving facility and to pay for hedge and warrant transactions. The remainder will go toward general corporate purposes.

Group 1 quiet in the gray

The fact that the new Group 1 paper is 10-year paper with no calls or puts was focused on as a problem for the deal.

The deal was also small at only $100 million with a $15 million greenshoe, which is generally viewed as a detraction.

The Rule 144A issue was sold via joint bookrunners JPMorgan and Bank of America Merrill Lynch.

Proceeds will be used to redeem Group 1's existing $74.6 million balance of 8.25% senior notes and to pay the cost of the convertible hedge and warrant transactions.

Houston-based Group 1 is an automotive products and services retailer.

Mentioned in this article:

Ciena Corp Nasdaq: CIEN

Group 1 Automotive Inc. NYSE: GPI

Hartford Financial Services Group Inc. NYSE: HIG

Intel Inc. Nasdaq: INTC

ProLogis NYSE: PLD

Knight Capital Group Inc. Nasdaq: NITE

Transocean Ltd. NYSE: RIG

United States Steel Corp. NYSE: X

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