New Wabash outperforms new Tibco; Titan Machinery on tap; Chesapeake falls; Illumina flat

By Rebecca Melvin

New York, April 18 - Wabash National Corp.'s $150 million of newly priced 3.375% convertibles moved sharply higher on their debut in secondary market dealings Wednesday after pricing at the cheap end of coupon talk and midpoint of premium talk late Tuesday.

On a dollar-neutral, or hedged, basis, the new Wabash was higher by about 2.5 points, while the $525 million of newly priced Tibco Software Inc. 2.25% convertibles rose only about 1.5 points on a dollar-neutral basis, market sources said.

Wabash, the smaller deal and weaker credit, did well because the terms were favorable for hedged players to be able to squeeze a lot of juice out to the deal, sources said.

On a valuation basis, the new Wabash deal looked to have a fair value of 103 to 104 ahead of pricing, using a 400 basis points credit spread and a 33% vol., and the new Tibco looked to have fair value at 101 ahead of pricing, a New York-based analyst said.

A third new deal emerged during the session: Titan Machinery Inc. launched a $115 million of seven-year convertible senior notes that were seen cheap and expected to be repriced from initial talk toward the richer end of terms, which was for a 3.625% to 4.125% yield and 30% to 35% initial conversion premium.

Syndicate sources could not be reached to confirm the chatter about repricing.

Convertibles new issuance has been depressed for an extended period, and the flurry of new deals, including last week's Micron Technology Inc., DFC Global Corp. and Prospect Capital Corp., come as a welcome relief.

What was driving the flurry was a matter of conjecture, however. Sources said it a combination of where stock prices are right now and the expectation that interest rates will begin to creep higher that may be driving it, or it might have more to do with the general tendency of issuance to come in clumps.

"There may be a fear of interest rates and the potential that rates could drift higher with Operation Twist coming to an end," an analyst said.

Back in the established issues, Chesapeake Energy Corp.'s multiple convertible bonds traded down either in line with the underlying shares or worse on a hedged basis after an article appeared on the Oklahoma City-based natural gas company saying chief executive Aubrey McClendon borrowed as much as $1.1 billion over the last three years against his stake in company wells.

The previously undisclosed loans raised concerns about conflict of interest.

Illumina Inc. slipped on a hedged basis initially on Wednesday but came back to the unchanged mark by the end of the session after Swiss drugmaker Roche said it was walking away from a $6.8 billion hostile offer for the San Diego-based developer of genetic research tools.

Wabash outperforms

Wabash National's newly priced 3.375% convertibles due 2018 were said to close at 104.5 bid, 105 offered with the share price at .$9.03 on their debut in the secondary market.

Earlier they had traded up to 105 bid, 106 offered versus an underlying share price of $9.10. They were also quoted early on at 103 versus a share price of $8.84.

The underlying shares of the Fargo, N.D.-based agricultural and construction equipment store owner and operator gained 36 cents, or 4.2%, on the day.

"With the stock here, it's probably up 2.5 points dollar neutral," a New York-based analyst said.

Sometimes the fact that a deal is smaller can be a strike against it, but in this case the high demand for a limited supply of paper helped boost the deal.

Also the stock gain helped the deal, and the stock may have gained strongly because the capital that the company raised has removed some of the risk of the completion of that acquisition, an analyst said.

The Wabash and Tibco deals were "totally different deals," sources said.

"Even though Wabash is a significantly worse credit, there was more juice in the deal," the analyst said.

Wabash priced $150 million of six-year convertible senior notes after the market close Tuesday at par to yield 3.375% with an initial conversion premium of 35%.

The registered, off-the-shelf deal was sold via joint bookrunners Morgan Stanley & Co. LLC and Wells Fargo Securities LLC, with BMO Capital Markets Corp. and RBS Securities Inc. as co-managers.

The notes are non-callable.

Wabash also planned to price a $300 million seven-year secured term note. Both offerings will be used to finance the planned acquisition of Walker Group Holdings LLC, a New Lisbon, Wis.-based manufacturer of liquid-transportation systems and engineered products, for $360 million.

If the Walker Group deal is not completed, Wabash will use proceeds of the convertible notes either to redeem the notes or for general corporate purposes.

Tibco adds on hedge

Tibco's newly priced 2.25% convertibles, with an outsized 52.5% premium, traded up to 102.75 bid, 103 offered versus an underlying share price of $34.00 on its debut in secondary dealings Wednesday after pricing at the rich end of talk after the market close on Tuesday.

The paper closed at 102.75 with the shares at $34.20.

That was up 1.5 points on a dollar-neutral basis, an analyst said. The shares gained $1.04, or 3%.

The Lafayette, Ind.-based maker of semi trailers is a better credit than the Wabash company, but the deal had a few strikes against it, such as the high premium, which may have been a bit difficult even for outright players to swallow, and not very compelling for hedged players, an analyst said.

Titan to price

Titan's $115 million offering of seven-year convertible senior notes was expected to be repriced. But initial talk was for a coupon of 3.625% to 4.125% and a 30% to 35% initial conversion premium.

The deal was seen pricing after the market close on Wednesday.

The Rule 144A offering has an expected $17.25 million greenshoe and was being sold via joint bookrunners Bank of America Merrill Lynch and Wells Fargo Securities LLC.

Proceeds are expected to be used for working capital and general corporate purposes, which could include repaying portions of its floor plan financing facilities and the acquisition or investment in companies or assets that complement Titan's business.

The notes are non-callable for three years and then are provisionally callable if Titan's common stock is at least 120% of conversion for 20 out of 30 consecutive trading days.

The notes have a change-of-control make-whole provision and dividend protection via a conversion ratio adjustment. They also have net share settlement.

Chesapeake drops

Chesapeake's 2.5% and 2.75% convertibles were actively traded on Wednesday with the 2.5's ending the session around 83.5 bid, 84 offered, which was down compared to 86 bid, 86.5 offered previously.

"The whole cap structure was down on a dollar-neutral basis by about 2 points," an analyst said.

But the analyst, who said he always felt these convertibles traded rich, said he still saw them as rich.

There were a ton of sellers, nevertheless, he said.

Chesapeake stock was "getting hammered" after a Reuters article said that Chesapeake's chief executive had taken loans against his well assets.

The analyst said that the market reaction might have been over blown, The chief executive has to fund up front drilling costs that no one could be expected to be able to fund, he said. At the same time, this chief executive has a history of taking unnecessary risks.

The convertible bonds trade with a lot of outright interest and there is also a theoretical delta for them, which means they trade on hedge.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Illumina Inc. Nasdaq: ILMN

Tibco Software Inc. Nasdaq: TIBX

Titan Machinery Inc. Nasdaq: TITN

Wabash National Corp. NYSE: WNC

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