CenterPoint on tap; Liberty Media convertibles expand; Pandora contracts; Splunk better

By Abigail W. Adams

Portland, Me., Sept. 24 – The convertibles primary market remained active in the last week of September with one deal launching after the market close.

CenterPoint Energy Inc. plans to price $750 million of three-year series B mandatory convertible preferred stock after the market close Tuesday.

Price talk is for a dividend of 6.75% to 7.25% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, Citigroup Global Markets Inc. and Wells Fargo Securities LLC are joint bookrunners for the registered offering, which carries a greenshoe of $112.5 million.

Meanwhile, the secondary space launched the week with “pretty hefty” trading volume for a Monday, a market source said.

There was $60 million on the tape shortly after the opening bell and about $388 million on the tape shortly before the market close.

The convertible notes of Liberty Media Corp. and Pandora Media Inc. were the focus of trading activity after Sirius XM Holdings Inc. announced it would acquire Pandora for $3.5 billion.

While Liberty Media’s 2.125% exchangeable debentures due 2048 expanded on the acquisition news, Pandora’s outstanding convertible notes were down several points dollar-neutral.

The notes will remain outstanding post-acquisition but will be much less attractive with the bonds’ vol. declining, a market source said.

Meanwhile, trading activity surrounding Splunk Inc.’s two tranche convertible notes offering died down on Monday.

However, the notes were seen improved dollar-neutral after trading flat for most of last week.

DocuSign Inc.’s recently priced 0.5% convertible notes due 2023 were also improved dollar-neutral on Monday while the notes continue to trade below par.

The acquisition

Liberty Media’s 2.125% exchangeable debentures due 2048 and Pandora’s 1.75% convertible notes due 2020 and 1.75% convertible notes due 2023 were in focus on Monday on news Sirius XM Holdings would acquire Pandora in an all-stock deal.

Liberty Media’s 2.125% exchangeables were down outright but improved on a dollar-neutral basis after the announcement.

The bonds dropped about 2 points outright to trade around par early in the session, a market source said.

They continued to trade down and were seen changing hands at 99.5 mid-afternoon. The 2.125% notes were seen trading at 98.8 versus an equity price of $6.34 shortly before the market close.

They were expanded about 0.5 point dollar-neutral, a market source said.

About $20 million of the bonds changed hands during Monday’s session.

While the notes are convertible into either Sirius XM Holdings common stock or Liberty’s series C Liberty Sirius XM common stock at the company’s option, the exchangeable debentures were priced against Sirius XM Holdings.

Sirius XM Holdings stock closed Monday at $6.26, a decrease of 10.32%.

Pandora Media’s 1.75% convertible notes due 2020 and 1.75% convertible notes due 2023 were down on both an outright and dollar-neutral basis.

The 1.75% convertible notes due 2020 dropped about 3 points outright to trade between 96.75 and 97, a market source said.

The notes were also contracted about 3 points dollar-neutral, a market source said.

About $11 million of the bonds were on the tape shortly before market close.

The music streaming company’s 1.75% convertible notes due 2023 saw a much steeper decline dollar-neutral. The notes were down about 4 points outright to trade at 112.5 mid-afternoon.

However, the notes rebounded on an outright basis and were seen trading at 116 versus an equity price of $9.10 shortly before the market close.

The 1.75% notes due 2023 were contracted about 5 points dollar-neutral, a market source said. About $17 million bonds were on the tape by market close.

Pandora stock closed Monday at $8.98, a decrease of 1.10%.

Sirius XM announced on Monday it will acquire Pandora in a $3.5 billion all-stock deal, which values Pandora stock at $10.14 a share. The deal is expected to close in the first quarter of 2019.

Pandora’s convertible bonds will remain outstanding post-merger. However, they will be far less attractive, a market source said.

While Sirius XM is a better credit than Pandora, the vol. is much lower. The vol. on Pandora stock is expected to drop by as much as 15 basis points post-acquisition, the source said.

While the drop in vol. should have equated to a larger dollar-neutral contraction, there is speculation an “overbidder” may come along and offer a higher price for Pandora, a market source said.

The “no-shop period” for Pandora does not begin until Oct. 24. Until then, Pandora will have the right to solicit and negotiate a competing acquisition proposal, according to an 8-K filing with the Securities and Exchange Commission.

However, Sirius XM and Liberty Media already own a large stake in Pandora. “They would be opening Pandora’s box,” by considering a competing proposal, a market source said.

Splunk improves

Splunk’s two tranches of convertible notes were seen expanded on Monday after trading largely flat since hitting the market on Sept. 19.

Splunk’s 0.5% convertible notes due 2023 were trading around 100.5 on Monday. About $14 million of the bonds were on the tape.

The 1.125% convertible notes due 2025 were trading around 100.25 with about $12 million of the bonds on the tape.

Both tranches were expanded about 0.5 point dollar-neutral, a market source said.

Splunk stock closed Monday at $116.11, a decrease of 0.25%.

While both tranches dropped below par in secondary trading last Thursday, they improved outright to close out the week above par.

However, the 0.5% and 1.125% convertible notes have traded largely flat dollar-neutral since pricing, sources said.

While the deal modeled cheap, the lack of price movement in the secondary space was largely attributed to the size of the deal.

The $1.85 billion dual-tranche offering was the largest convertible deal to price year to date.

While trading of the notes slowed, they were showing signs of improvement on Monday, a market source said.

DocuSign up on swap

DocuSign’s recently priced 0.5% convertible notes due 2023 also improved on swap on Monday although the notes continued to trade below par on an outright basis.

They were seen at 98.5 bid, 99 offered Monday afternoon. About $8 million of the bonds were on the tape by late afternoon.

The notes were expanded about 1 point dollar-neutral, a market source said.

DocuSign stock closed Monday at $51.83, a decrease of 1.35%.

Mentioned in this article:

DocuSign Inc. Nasdaq: DOCU

Pandora Media Inc. NYSE: P

Sirius XM Holdings Inc. Nasdaq: SIRI

Splunk Inc. Nasdaq: SPLK

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