Post, Finisar deals get mixed reviews; Ares adds on hedge; Yandex, E-House, Trulia launch

By Rebecca Melvin

New York, Dec. 10 - Convertible market players were focused on two new deals Tuesday for a combined $500 million in issuance expected to price after the market close. Three more new issues launched after the close for a combined $930 million in issuance.

Post Holdings Inc.'s planned $300 million of perpetual convertible preferred shares were seen fair value to cheap, according to sources.

Post's existing 3.75% perpetual convertible preferred shares, of which $241.5 million priced earlier this year in February, were pulled into focus with the new offering, but they were not seen in trade, sources said.

Finisar Corp.'s planned $200 million of convertibles, which were also expected to price late Tuesday, were seen cheap by one source and not very appealing to a second source.

After the market close, Yandex NV, an internet search engine in Russia and internationally, launched $600 million of five-year convertible bonds, E-House (China) Holdings Ltd., a Beijing-based real estate services company, launched an offering of $180 million of five-year convertibles, and Trulia Inc., a San Francisco-based real estate site, launched an offering of $150 million of seven-year convertible senior notes. All the deals were seen pricing late Wednesday.

Back in established issues, several series of the Ares Capital Corp. convertibles were trading actively and were lower outright with lower shares after the New York-based private equity firm launched a secondary stock offering overnight. But the convertibles were better on a dollar-neutral, or hedged, basis amid support from outright buyers at the lower pricing, a New York-based trader said.

Elsewhere, the mandatory preferred of the newly merged American Airlines and US Airways was a little higher after active trade. It began trading on Monday under ticker symbol AALCP.

The new airline called American Airlines Group Inc. (ticker symbol AAL) completed its merger Monday.

"It's a mandatory convertible that will convert 25% every 30 days. It uses the volume weighted average price of the last five days less 3.5% when it converts. (That is a kiss.) So it should only exist for four months."

"It's what a bunch of the unsecured creditors got," a second trader said.

Post looks 'decent'

Post, the St. Louis-based cereal maker, was about to price its second perpetual convertible preferred inside of a year. The new $300 million of perpetual convertible preferred shares was said to "look decent," with the Connecticut-based trader, noting that it breaks even with the hard call.

The Rule 144A offering was talked to yield 2% to 2.5% with an initial conversion premium of 10%.

Proceeds will be used for general corporate purposes, which may include pending or future acquisitions, working capital and capital expenditures.

A second source said he saw the Post preferred deal looking "fair."

The existing Post 3.75% perpetual convertible preferred, which priced in February, was not heard in trade, and was said not to trade that much.

After the close, Post sold $300 million of the convertible preferreds at par of $100 to yield 2.5% with an initial conversion premium of 10%. There is a $45 million greenshoe.

Bookrunners were Credit Suisse Securities (USA) LLC, Barclays, Goldman Sachs & Co. and Wells Fargo Securities LLC.

Finisar gets mixed reviews

Using valuation inputs of 350 basis points over Libor and a 38% volatility, the Finisar deal was seen worth about 100.6 at the midpoint of talk, one trader said.

The deal was seen pricing at a 0.5% coupon and a 40% initial conversion premium, which is "ugly," the trader said.

A second source said the Finisar deal looked 3% cheap, using a higher 45% vol. And even at 40% vol., the convertibles are fair value, he said.

A third source said he wouldn't use a 45% vol. but would use some discounted vol. input given that there is no guarantee the current vol. number will be valid down the line.

The Finisar deal was being sold via bookrunner BofA Merrill Lynch.

Finisar, a Sunnyvale, Calif.-based maker of fiber optic subsystems, plans to price $200 million of convertible senior notes due 2033 with a $30 million greenshoe.

The bonds have contingent conversion and net share settlement.

The bonds will be callable at dates to be determined, and holders will have the right to put the bonds on certain dates. There is also a change-of-control put.

Proceeds will be used for general corporate purposes, including working capital, and a portion of the proceeds may be used to acquire complementary businesses, products or technologies, although Finisar has no present commitments with respect to any such acquisitions.

Yandex to price

Yandex plans to price $600 million of five-year convertible bonds after the market close Wednesday. The convertibles were talked to yield 0.75% to 1.25% with an initial conversion premium of 35% to 40%, according to a market source.

The deal has a $90 million greenshoe and was being sold via Goldman Sachs & Co. under Rule 144A and Regulation S.

The notes are non-callable with no puts. There is full dividend protection in the form of a conversion rate adjustment and takeover protection. There is net share settlement.

Proceeds will be used to repurchase shares and for general corporate purposes.

The Hague, the Netherlands-based Yandex is an internet search engine in Russia and internationally.

E-House to price

Shanghai-based E-House, a real estate services company, launched an offering of $180 million of five-year convertibles late Tuesday that was talked at a 2.5% to 2.75% coupon and a 30% to 35% initial conversion premium.

The Rule 144A and Regulation S offering has a $20 million greenshoe and was being sold via Credit Suisse Securities, acting as the initial purchaser of the notes.

The notes are non-callable for life, with an investor put at year three. They have dividend protection via an adjustment to the conversion rate for all dividends and takeover protection.

About $20 million of the proceeds will be used to repurchase the company's ordinary shares and American Depositary Shares and about $50 million will be used to pay the premium of a call option intended to allow investors to hedge the investment in the notes. Remaining proceeds will be used for general corporate purposes, including working capital needs and potential investments in or acquisitions of complementary businesses.

In connection with establishing its initial hedge of the zero-strike call option, the option counterparty or its affiliate expects to enter into one or more derivative transactions with respect to the ADSs with purchasers of the notes.

Trulia to price

Trulia launched $150 million of seven-year convertible senior notes after the market close Tuesday that were talked to yield 2.25% to 2.75% with an initial conversion premium of 30% to 35%, according to a market source.

The Rule 144A offering has a $22.5 million greenshoe and was being sold via joint bookrunners J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and RBC Capital Markets LLC, with co-managers Craig-Hallum, Needham, Cantor Fitzgerald & Co., Raymond James & Associates Inc. and William Blair.

The notes are non-callable until Dec. 20, 2018 and then are provisionally callable if shares rise to at least 130% of the conversion price. There are no puts. There is also takeover protection.

Up to $30 million of the proceeds will be used to repurchase shares of common stock and about $7.2 million will be used to repay amounts outstanding under its credit facility, which will be terminated.

Remaining proceeds will be used for working capital and other general corporate purposes, including potential acquisitions.

San Francisco-based Trulia is a real estate site that provides tools to research homes and neighborhoods.

Ares Capital adds on hedge

Of Ares Capital's several convertible series, the 4.75% convertibles and the 5.75% convertibles were the most actively traded issues, according to one New York-based bank.

The convertibles traded lower with the underlying shares after the company issued a secondary stock offer overnight, which pulled the stock lower.

"The stock trading lower off the equity raise is what is driving some of the convert trading," a trader said.

Ares' 4.75% convertibles were seen late in the session at 105 bid, 105.5 offered versus an underlying share price of $17.75. That compared to trading at 108 versus a share price of $18.30 on Monday and represented a 0.5 point improvement on a dollar-neutral, or hedged, basis, on a delta of about 25%.

The Ares' 5.75% convertibles were seen at 107.5 bid, 108 offered with the underlying shares at $17.75.

The Ares convertibles found support from fundamental investors at the lower pricing, the trader said.

"Fundamental convert buyers are using it as a buying opportunity," the trader said.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Finisar Corp. Nasdaq: FNSR

Post Holdings Inc. Nasdaq: POST

Trulia Inc. Nasdaq: TRLA

Yandex NV Nasdaq: YNDX

© 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.