Kinder Morgan plans $1.6 billion mandatory; Endologix on tap for $150 million; Ctrip jumps in active trade

By Rebecca Melvin

New York, Oct. 26 – Three new issues launched on Monday in the U.S. convertible primary market, which has been in a dry patch of late. Kinder Morgan Inc. launched a $1.6 billion mandatory convertible preferred deal for same-day pricing; Endologix Inc. planned to price $150 million of three-year convertible senior notes; and CTI BioPharma Corp. is offering convertible preferred shares.

Houston-based Kinder Morgan, an energy pipeline company, also reported earnings that missed estimates and the company’s common stock ended down 5.7% on the day.

Endologix planned to price after the market close on Tuesday, and those bonds were talked to yield 2.75% to 3.25% with a 27.5% to 32.5% initial conversion premium.

The Irvine, Calif.-based aortic therapies company also reported a third-quarter loss and unveiled an acquisition – all after the market close – but its common shares remained unchanged in after-hours action. They were only fractionally lower at the end of the regular session.

CTI, a Seattle-based biopharmaceutical company, launched an offering of convertible preferred shares for $1,000 per share in a registered deal. But the series N-1 preferred shares will be converted no later than 30 days after issuance and therefore are more similar to a follow-on than a regular deal. No pricing details were immediately available.

A single name dominated trade in the U.S. convertibles secondary market: Ctrip.com International Ltd.

The Chinese internet travel company announced a share swap partnership with Qunar Cayman Islands Ltd. and its convertible bonds surged on an outright basis and expanded on swap as the common shares rose. The newer D convertibles outperformed the others, expanding by 3 points, a New York-based trader said after the market close.

The Ctrip deal, which includes backing by Baidu Inc. as owner of Qunar, is supportive of Ctrip credit and a significant development for the company, the trader said.

“It’s the biggest online travel agency in China merging with the second biggest travel agency, so yes, it’s a pretty big deal,” the trader said.

Away from Ctrip, there just wasn’t much going on, other traders said. SanDisk Corp. was a little bit weaker but not significantly so, a New York-based trader said.

SanDisk was a major focus of convertibles secondary market trading action last week, before and after news that it is being acquired by Western Digital Corp. for about $19 billion.

“It was a little bit weaker just because the equity risk arb collapsed. With the equity down, the spread to yield to close is wider, suggesting that it is more difficult or longer to close than anticipated,” a trader said.

In the broader markets, the Standard & Poor’s 500 Index slipped 0.2%, retreating from a two-month high, with energy shares down as oil prices came down. The S&P index is on track for its best month since 2011 after surging 11% from a low touched in August. Meanwhile the Dow Jones industrial average was also fractionally lower – but only just – and the Nasdaq Stock market was fractionally higher.

Kinder Morgan plans mandatory

After having little by way of issuance for more than a month, Kinder Morgan’s deal for $1.6 billion was an attention grabber, but there was little portfolio adjusting going on to make room for the new paper, sources said.

The mandatories of the Houston-based energy pipeline company were talked at a fixed 9.75% dividend and 17.5% to 22.5% initial conversion premium.

The company pays a high dividend on the common, a New York-based trader said by way of explaining the fat dividend talk on the preferred. The stock pays a 7% dividend.

Kinder Morgan operates pipelines and terminals for oil and natural gas and distillates.

Sources said the price per mandatory will be $49 or $50 each, and the dividend paid was talked at a fixed 9.75%. The initial conversion premium was talked at 17.5% to 22.5%.

The deal includes a 32 million share base deal and a 4.8 million share greenshoe.

Joint bookrunning managers are Citigroup Global Markets Inc., BofA Merrill Lynch and Morgan Stanley & Co. LLC, and there is involvement from other banks.

There is dividend protection with a threshold of 51 cents per share per quarter, and takeover protection in the form of a standard make-whole adjustment.

Proceeds will be used to repay borrowings under its revolving credit facility and commercial paper debt and for general corporate purposes.

Ctrip dominates market

Ctrip’s 1.99% convertibles, or the D convertibles were quoted at 112 bid, 113 offered versus an underlying share price of $91.00, by a New York-based trader during that session. Previously the bonds were at about 97.75 bid, 98 offered.

At the market close, the D convertibles were said to have expanded by 3 points on swap.

Ctrip shares were last up $16.44, or 22%, to $90.78.

Ctrip’s 1% convertibles due 2020, or the C tranche, traded up to 110, which was from about 99, according to market sources.

The Ctrip 1.25% convertibles were seen closing at 131.6, which was up from 116.25 previously.

The Bs expanded about 0.75 point, the Cs expanded about 1.5 points, and the Ds expanded 3 points, a trader said.

Ctrip’s common shares had jumped by nearly 30% after the partnership was announced. The shares closed up 22%.

Under the deal, Baidu Inc., which controls Qunar, will own 25% of Ctrip, and Ctrip will have a 45% voting interest in Qunar. The exchange ratio represents a 36% premium to Qunar’s closing share price on Friday.

“Ctrip was 90% of our business,” a New York-based trader said regarding trading in the Ctrip convertibles.

According to Trace data, Ctrip’s B, C, and D convertibles accounted for about $127 million of bonds that changed hands, or about 26%, out of $483.9 million total volume.

“People are trying to weight the impact of this equity swap. It takes a big overhang out of the equity,” a trader said.

Mentioned in this article:

CTI BioPharma Inc. Nasdaq: CTIC

Ctrip.com International Ltd. Nasdaq: CTRP

Endologix Inc. Nasdaq: ELGX

Kinder Morgan Inc. NYSE: KMI

SanDisk Corp. Nasdaq: SNDK

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