DISH Network expands on swap; Yahoo! gains; Vipshop steady to higher ahead of earnings

By Rebecca Melvin

New York, Aug. 15 – DISH Network Corp.’s recently priced convertible bonds expanded on a dollar-neutral, or swap, basis on Monday, as did Yahoo! Inc.’s convertible senior notes due 2018, which were up about 0.5 point on swap and were still being looked at to determine what impact Verizon Communications Inc.’s buyout of Yahoo!’s operations may have on the bonds, convertibles traders said.

Otherwise, the convertible bond market was quiet on Monday as equities and commodities, including oil, strengthened on the day. U.S. stock indices rose to new all-time highs, and crude oil touched a one-month high. But stock moves were on light volume.

The DISH 3.375% convertible notes due 2026 traded up a couple of points on an outright basis and were better by about 0.375 point on a swap basis, with better shares. The DISH convertible was the most actively traded name in the convertibles space on the first day of the last half of August.

The $3 billion DISH deal, which priced earlier this month, traded last at 107.1, which was up 2 points from the previous level, according to Trace data. The DISH common shares that underlie the debt were up $1.50, or 3%, at $52.51.

The Yahoo! 0% convertibles were about 101 in decent volume, against the common shares that underlie the convertibles, which were down about 0.5%.

There were more buyers than sellers in Yahoo!, a New York-based trader said, noting that there was nothing new related to the Verizon buyout. At the end of July, Verizon agreed to buy Yahoo!’s operating business for $4.83 billion in cash.

They didn’t file anything new. There is not really anything that could have changed,” a trader said of the Verizon-Yahoo! tie up.

A second trader said, “People have to figure out just how they think the bonds will be affected.”

Elsewhere, Vipshop Holdings Ltd.’s 1.5% convertibles were slightly higher, changing hands at 107.45, or up about 0.25 point on the day, with the underlying shares up about 2%. The Guangzhou, China-based online discount retailer is slated to report quarterly earnings after the market close.

Volume in the convertibles market overall was thin as another Monday in August got underway, a New York-based trader said. Equities were trading higher, and the S&P 500 index notched an intraday market high, but there wasn’t much focus on convertibles, the trader said.

The Dow Jones industrial average gained 59.58 points, or 0.3%, to 18,626.05; the S&P 500 stock index gained 6.10 points, or 0.3%, to 2,190.15 and the Nasdaq composite stock index rose 29.12 points, or 0.6%, to 5,262.02. Meanwhile, U.S. Treasuries slipped, with the yield of the 10-year Treasury note at 1.554% compared to 1.515% on Friday.

Recent DISH deal in focus

The DISH 3.375% convertible notes due 2026 traded up a couple of points to 107 on an outright basis and were better by about 0.375 point on a swap basis, with higher shares.

“They are grinding better,” a New York-based trader said, quoting the paper at 107 versus an underlying share price of $52.25 near the end of the session.

The new $3 billion bond has cheered the market in that it is a very large deal that would typically be a mandatory piece of paper, in terms of its structure, given its size.

“It is pretty unique in that regard and it is an incredibly good sign for the market,” a New York-based trader said, referring to the fact that it is a bond structure and not a preferred share or equity unit, which would typically be the case for a multi-billion-dollar deal. Also it is a household name, and for that reason it is “pretty unique in the convert space and caught a lot of attention.”

“It checks a lot of boxes for investors,” the trader said, and for that reason has sent some optimism in the market that the deal will encourage other issuers as well as investors to use the convertible market.

The DISH deal affords the market a great opportunity to gain exposure to the media/entertainment sector. It is not the only deal in that space. On Friday, Liberty Media Corp.’s new notes exchangeable for common shares of Time Warner Inc. debuted in the market, and the upsized $444.6 million of 2.25% paper traded up to about 101.25 bid, 101.5 offered.

But there was a cloud over that deal in that it came minus takeover protection, something that is extremely rare at this point.

“Ninety-nine point nine percent of convertibles since June 2006 have been issued with takeover protection,” a New York-based trader said. “The Time Warner deal coming without takeover protection is like a slap in the face, and the fact that anyone would even accept it is sort of embarrassing.”

The trader said that stripping out what is arguably the most significant protection for investors is “pretty disheartening,” and he said that it is early to determine if the exchangeable will suffer in the market because of the omission.

“It’s tough to say in the short term. It’s one of those things that no one will likely care about until they need to care,” he said.

The trader did not suspect that there would be other deals coming without takeover protection. “I think it is an isolated case and I can’t imagine that it would be repeated.”

DISH Network is an Englewood, Colo.-based direct broadcast satellite subscription television service company. Liberty Media is an Englewood, Colo.-based broadcast media and communications company, and Time Warner is a New York-based cable and digital media company.

Mentioned in this article:

DISH Network Inc. Nasdaq: DISH

Liberty Media Corp. Nasdaq: LMCA

Time Warner Inc. NYSE: TWX

Vipshop Holdings Ltd. Nasdaq: VIPS

Yahoo! Inc. Nasdaq: YHOO

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