Green Plains expands 6 points on debut; Volcano gains dollar neutral; DryShips weaker

By Rebecca Melvin

New York, Sept. 17 - Green Plains Renewable Energy Inc.'s newly priced 3.25% convertibles traded up on their debut in the secondary market on Tuesday after the upsized $100 million of five-year convertible senior notes priced in an overnight deal at the midpoint of talk.

The Green Plains bonds were initially 102 bid and lifted to 102.25 bid, 102.75 offered in the early going, with the stock a $15.73. They closed up about 3 points on an outright basis and expanded about 6 points on a dollar-neutral, or hedged, basis, with the shares down nearly 8%.

Volcano Corp.'s 1.75% convertibles due 2017 were "extremely active" and up by about 1.5 points on a hedged basis with shares higher by about 4% during the session after a share rating upgrade and price target increase by BMO Capital Markets.

Elsewhere, DryShips Inc.'s convertibles were down marginally despite higher shares for the Athens-based drybulk carrier and tanker company; and NorthStar Realty Financial Corp.'s 5.375% convertibles were down about 0.25 point with outright sellers and hedged fund buyers. The new level on the NorthStar convertible was 101.25 versus an underlying share price of $9.13 at the market close Tuesday, compared to 101.5 versus an underlying share price of $9.12 at the market close on Monday.

Overall, the convertible bond market felt a little weaker, a New York-based sellsider said. On Monday, the convertible market had had an upward bias, but on Tuesday it was downward as credit spreads softened slightly.

The broader markets ended the session modestly better with both equity indices and bond prices slightly better despite expectations that the Federal Reserve will announce at the conclusion of the two-day Federal Open Market Committee meeting Wednesday that it is beginning a mild cutback of its asset purchase program.

Green Plains expands on debut

Green Plains' newly priced 3.25% convertibles were 102 bid out of the chute Tuesday and were later seen at 102.25 bid, 102.75 offered with the stock price at $15.73. At the end of the day, the bond was called 102 bid, 102.5 offered versus a share price of $15.68.

That represented about 6 points of expansion on a hedged basis, a syndicate source said.

Shares of the Omaha-based ethanol company skidded $1.34, or 7.9%, to $15.68 Tuesday after the overnight deal was priced.

Green Plains' deal was upsized by $25 million to $100 million and came at the midpoint of price talk, which was for a 3% to 3.5% coupon and 20% to 25% initial conversion premium.

There is a $20 million greenshoe, which was upsized from $15 million. Jefferies & Co. was the bookrunner, with co-managers Macquarie and Stephens Inc.

The notes are non-callable until Oct. 1, 2016 and then are provisionally callable if shares rise to 140% of the conversion price. There is takeover and dividend protection.

Proceeds will be used for general corporate purposes. The company may use a portion of the proceeds to acquire or invest in additional facilities, assets or technologies. In addition, the company may use a portion of the proceeds to repurchase some of its outstanding 5.75% convertibles through open-market repurchases.

The notes are not convertible before April 1, 2018 unless shares rise to 130% of the conversion price for 20 out of 30 consecutive trading days. There is net share settlement.

Volcano adds on hedge

Volcano's 1.75% convertibles due 2017 were higher in active trade on Tuesday with the underlying shares up 4% after a share rating upgrade and target price hike from BMO Capital Markets.

The bonds were wrapped around 103 at the close, versus $24.00, a trader said. Previously, they had been around par with the shares at $23.00.

That represented about 1.5 points of expansion on a hedged basis, assuming a 50% delta, a New York-based trader said.

Shares of the San Diego-based medical device company added 99 cents on the day to $23.99, which represented a 4.3% rise.

"The BMO upgrade bodes well for the credit," the trader said.

The BMO analyst raised the stock rating to "outperform" from "market perform" and increased the price target to $28.00 from $23.00.

The analyst cited the fact that its foreign-exchange-rate issues and its exposure to the Japanese yen are better understood by investors and therefore the exposure is more acceptable. The BMO analyst also noted that the company's acquisition last month of Pioneer Plus will be beneficial for the company going forward and that its valuation has room to expand.

"Looking at it from a valuation basis over the last three years, it looks like it is going higher," the trader said.

DryShips weaker

DryShips' 5% convertibles due December 2014 were seen at 96.5 to 96.76 at the end of the session Tuesday, which was down from the low 97 range at the end of the session on Monday, according to Trace data.

But shares were up 12 cents, or 4%, at $3.09.

The bonds, with more than a 100% premium, are not equity sensitive and were marginally lower, an analyst noted.

DryShips shares are up 88% for the year to date, and they are higher by 25% for the last 12 months.

Mentioned in this article:

DryShips Inc. Nasdaq: DRYS

Green Plains Renewable Energy Inc. Nasdaq: GPRE

NorthStar Realty Financial Corp. NYSE: NRF

Volcano Corp. Nasdaq: VOLC

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