Planned Microns look cheap, but welcome wears thin; Virgin ticks back after early weakness

By Rebecca Melvin

New York, Feb. 6 - Convertibles players weighed Wednesday the value of another Micron Technology Inc. dual-tranche offering ahead of final terms seen being fixed after the market close. Sources said both the E notes and the F notes were looking cheap, but many players were not seeing much appetite for more of this brand of paper in the market.

"People seem to be saying there are too many of the Micron [deals], and they don't want it. They want some diversification," a New York-based convertibles analyst said.

A Connecticut-based trader said, "Everyone says that they are cheap, but they are cheap because there is so much paper already in the market to begin with."

Micron's existing issues were said to be trading actively. The Boise, Idaho-based chip maker's existing 1.5% convertibles due 2031, known as the A notes, were seen down 0.5 point on swap.

Meanwhile, Micron shares rose 8 cents, or 1%, on the day to $7.95.

Elsewhere, Virgin Media Inc.'s convertibles continued to trade actively on the heels of merger news. The notes were said to have opened lower Wednesday but rallied through the session to end flat to lower outright but better on a hedged basis.

One source put the Virgin convertibles better by 0.125 point on the day on hedge.

On Tuesday when news first surfaced of a takeover of Virgin by Liberty Global Inc., the underlying shares surged 18%, and some convertibles sources said the paper expanded as well. But on Wednesday, several sources contradicted the expansion and said the move was a 0.5 point to 1.5 point contraction instead, using a heavy delta of 90% to 95%.

Take-Two Interactive Software Inc. saw the newest of its two convertible issues trade much stronger outright on Wednesday and better on hedge as well. The New York-based video game publisher reported better-than-expected third-quarter results on sales of its latest basketball game. Shares surged 14%.

Back in the primary arena, Accuray Inc. launched a small $75 million offering of five-year convertibles after the market close Wednesday that were seen pricing after the market close on Thursday.

Sunnyvale, Calif.-based Accuray is a developer of robotic radiosurgery for the treatment of tumors.

The deal was talked to yield 3.25% to 3.75% with an initial conversion premium of 17.5% to 22.5%.

Bookrunner J.P. Morgan Securities LLC and co-manager Goldman Sachs & Co. Inc. were bringing the Rule 144A deal, which has a $10 million greenshoe.

The notes will be non-callable for life with no puts. There is takeover and dividend protection.

Proceeds are intended for working capital and general corporate purposes, including investing strategically in expanding business and new product initiatives.

Micron looks cheap

The $440 million dual-tranche offering of Micron was seen cheap, with one analyst using a credit spread of 550 basis points over Libor and a 38% vol., finding the E notes at the midpoint 2.9 points cheap, while the F notes, using the same spread and volatility, looking 3.25 points cheap at the midpoint of talk.

The E notes were talked to yield 1.75% to 2.25% and the F notes were talked to yield 2.125% to 2.625%, both with an initial conversion premium of 32.5% to 37.5%.

Despite the apparently favorable cheapness, an overabundance of paper from the company was viewed as a definite detraction for the deal and also weighed on the existing paper.

Among its existing issues is a $1 billion deal of 20-year convertibles priced in April 2012, including $480 million of 2.375% convertibles, or the C notes, and $390 million of 3.215% convertibles, or the D notes.

That offering followed on a $690 million of 20-year notes that Micron priced in July 2011. And that was after Micron priced $200 million of 4.25% convertibles in April 2009. In May 2007, Micron priced $1.3 billion of 1.875% convertibles that are due June 1, 2014.

"Sometimes a new issue helps an existing issue," a New York-based trader said. "The new ones are longer-dated and represent cash on the books and the old paper has its bond floor and credit worthiness improve. This is an example of a busted convert improving on the back of a new issue, which has equity sensitivity. But when you have issues somewhat the same, then the new issue has to have better pricing to sell. That's this case."

Shares of the company were higher by 1% on Wednesday and undimmed by the prospects of more convertible debt. One sellsider said that he didn't know why the shares were up but it may have been related to equity analysts that have been positive on the stock as of late because DRAM prices have been firm.

The point of two tranches - which seems to exacerbate the sense of there being too many issues, may be Micron's strategy to appeal to different investor bases, or to spread out the payment schedule, or maturity, an analyst said.

Morgan Stanley & Co. LLC, Goldman Sachs & Co. and J.P. Morgan Securities LLC are the joint bookrunners of the deal.

There is a $30 million greenshoe for each tranche.

The E notes are non-callable for five years and freely callable thereafter, with investor puts in years five and 10.

The F notes are non-callable for seven years and freely callable thereafter, with investor puts in years seven and 10.

Micron plans to enter into capped call transactions with counterparties in connection with the convertibles.

Proceeds will be used to redeem part of Micron's 1.875% convertible senior notes due 2014 and for investments.

Virgin remains active on deal

Virgin Media's 6.5% convertibles due 2016 were seen trading around 243 to 244 on Wednesday.

Shares traded actively and slipped 72 cents, or 1.6%, to $44.89, after surging 18% on Tuesday.

The Liberty Global cash and stock takeover of Virgin for $23 billion represents a 24% premium over Virgin shares prior to the merger news.

Liberty will refinance Virgin's current debt and gear up with about $7.9 billion more, including high-yield debt and new loan financing.

The new debt will finance about $3 billion, or about half, of the cash that will be paid to Virgin shareholders.

Virgin Media is the No. 2 cable company in the United Kingdom and has almost 5 million customers.

Liberty Global, based in Englewood, Colo., focuses on broadband markets outside of the U.S. and has networks in 13 countries, mainly in Europe.

Newer Take-Two adds

Take-Two's 1.75% convertibles due 2016 traded up about 7 points to 109.25, according to Trace data, and represented an expansion on a dollar-neutral, or hedged, basis of about 0.5 point.

Take-Two's 4.375% convertibles due 2014 were unchanged.

Take-Two reported net income of $71.36 million, or 66 cents per share, compared with $14.1 million, or 16 cents per share a year ago. The profit beat estimates of 54 cents a share.

Adjusted sales rose 71% to $405 million. Analysts had projected $363.8 million on average.

The company cited strong sales of its NBA 2K13 game and Borderlands 2.

Last week, Take-Two delayed its next version of its top selling Grand Theft Auto game.

For the current year ending March 31, Take-Two forecasts profit of 5 cents to 20 cents per share, excluding some items, compared to the 14 cent average. It forecasts $1.15 billion to $1.2 billion of sales, compared to the $1.18 billion average estimate.

Mentioned in this article:

Accuray Inc. Nasdaq: ARAY

Electronic Arts Inc. NYSE: EA

Micron Technology Inc. NYSE: MU

Take-Two Interactive Software Inc. Nasdaq: TTWO

Virgin Media Inc. Nasdaq: VMED

© 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.