Liberty, Ctrip.com deals look cheap; Ctrip adds in gray; BioMarin extends 'impressive' gains

By Rebecca Melvin

New York, Oct. 10 - Liberty Media Corp.'s planned $500 million of 10-year convertibles notes were looking slightly cheap to market players Thursday ahead of final terms expected to be fixed after the close. But there was no gray market reported in the issue, according to sources queried.

One trader valued the Liberty Media paper at two-points-plus cheap, while a second trader, using a wider credit spread, valued the bond at one point cheap.

"It looks OK. But it's long," a Connecticut-based trader said of the Liberty deal, which is 10-year, non-callable paper. It was talked with a 1.5% to 2% coupon and a 17.5% to 22.5% initial conversion premium.

There were two other deals on tap during the session that were expected to price after the market close. They included Ctrip.com International Ltd.'s $500 million of convertible senior notes, which was viewed about 4.5 points cheap by one trader and seen in the gray market ahead of final terms being fixed trading in the 103.5 to 104.5 context, he said.

A second trader hadn't seen the Ctrip deal in the gray. That deal was talked at 1.25% to 1.75% coupon and 37.5% to 42.5% premium.

Seaspan Corp., a Hong Kong-based containership company, was also on tap, bringing $125 million of convertibles notes at a coupon of 2.75% to 3.25% and 22.5% to 27.5% premium.

Back in the secondary market, BioMarin Pharmaceutical Inc.'s new five- and seven-year convertible bonds, which debuted on Wednesday, extended gains on Thursday, lifting another 3 points to 3.5 points on an outright basis and tacking on another 0.25 point to 0.5 point dollar neutral, or hedged, gain on top of 5.5 points of expansion on Wednesday, a New York-based trader said.

"The new deals have been interesting. BioMarin did so well. It was impressive," the trader said.

Meanwhile, Alcoa Inc.'s 5.25% convertibles due 2014 were active again post earnings. The paper looked about in line with a contraction of about 0.375 point on a hedged basis on Wednesday. The New York-based aluminum maker swung to a profit that was better than expected for its third quarter.

This week's primary market has been of particular note, with $1.1 billion already priced and another $1.13 billion due to be priced late Thursday.

That contrasts to the previous week when only one new deal priced in the primary market. It was from Campus Crest Communities Inc. for $85 million. And September was not much better with only one U.S. deal priced during the last week of September from Maiden Holdings Ltd. for $150 million. Earlier in September, new issuance had been slightly more robust, although not as strong as this week.

One trader said he didn't see any particular reason for the surge in issuance this week. "It could be related to uncertainty with the debt ceiling. On the other hand, it could be pure coincidence," he said.

Equities surged Thursday on hopes that lawmakers in Washington were close to clinching a deal with the Obama administration and Democratic Senate on the debt ceiling and budget impasse. House Republicans brought a plan to allow a short-term debt limit increase with no added deficit reduction requirements.

The Dow Jones industrial average surged 323.09 points, or 2.2%, to 15,126.07, the S&P 500 stock index rose 36.16 points, or 2.2%, to 1,692.56, and the Nasdaq jumped 82.97, or 2.3%, to 3,760.75.

Planned Liberty looks cheap

Liberty Media's planned $500 million of senior convertible notes was looking fairly cheap to market players ahead of final terms expected to be fixed late Thursday.

One trader said that using a credit spread of 250 basis points over Libor and 20% vol., the deal was about 2.6 points cheap at the midpoint of talk.

A second source said a credit spread of 250 bps was too high, but he would be using a slightly higher vol. The underwriter was said to be using a 30% vol. in its valuation, which was deemed too high.

A third source said that using a credit spread of 300 bps over Libor, the deal looked to be worth 101.

"I think the credit is better than people were thinking; it's probably going to be fine," the third source said, adding that Liberty Media, the Englewood, Colo.-based owner of interests in electronic retailing, media, communications and entertainment businesses, has a market capitalization of about $18 billion.

The deal was talked to yield 1.5% to 2%, with an initial conversion premium of 17.5% to 22.5%.

It was being sold by a jumbo crew of 12 underwriters with active bookrunners Citigroup Global Markets Inc., Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC.

The company has no existing convertibles.

The Rule 144A offering has a $75 million greenshoe. They are non-callable for life with no puts, and they will be cash-only settled.

Proceeds are expected to be used to pay the net cost of a call spread, to pay down margin loans and for general corporate purposes.

Ctrip trades up in gray

Shanghai-based Ctrip.com, a travel services provider, launched an offering of up to $500 million of five-year convertible senior notes after the market close Wednesday that was seen pricing after the market close Thursday.

Using a credit spread of 450 bps over Libor and a 35% vol., the deal looked worth 104.5 on the midpoint of talk, according to a Connecticut-based trader.

A second market source said he thought the credit spread and vol. should both be wider, and he was getting the paper to value more than 6% cheap at the midpoint of talk.

The securities were talked to yield 1.25% to 1.75% with an initial conversion premium of 37.5% to 42.5%.

The bonds are being distributed under Rule 144A in the United States and to certain persons offshore under Regulation S.

There is a $75 million greenshoe for the deal, which was being sold via JPMorgan.

The notes are non-callable for life, but holders can put the bonds on Oct. 15, 2016.

These bonds also have a call spread.

BioMarin adds to big debut

BioMarin's 0.75% convertibles due 2018, or A tranche, traded at 106.84 during the session, which was up 2.6 points on an outright basis from the previous session.

The BioMarin 1.5% convertibles due 2020, or the B tranche, were slightly below that level at 106.74.

Shares rose to $68.55, which was higher by $3.55, or 5.5%.

The new bonds were "in the same ballpark" but did add another 0.25 point to 0.5 point on top of a 5.5 point expansion on Wednesday.

On Wednesday, the As closed at 103.5 bid, 104.25 offered and the Bs closed at 103.375 bid, 104.125 offered versus the $65.00 closing share price.

The shares were buoyed by a general updraft in equities on the day, and in addition, BioMarin announced that the underwriters for its notes offering exercised in full their over-allotment option, lifting the total deal size to $750 million from $680 million.

On Wednesday, both BioMarin tranches were initially seen at 106.5 bid but then pulled back to 103 to 104.

BofA Merrill Lynch, Goldman Sachs & Co., JPMorgan and Morgan Stanley were the joint bookrunners of the registered offering. Barclays was a co-manager.

The notes are non-callable for life with no puts, and the deal has a call spread.

The strike on the capped call transactions is $121.05, which raises the initial conversion premium from the issuer's perspective to 80%.

BioMarin is a Novato, Calif.-based biopharmaceutical company focused on therapeutic enzyme products.

Alcoa in line after slip

Alcoa's 5.25% convertibles due 2014 were seen toward the end of Thursday at 131.75 versus an underlying share price of $8.36. That was a point or so higher on an outright basis but represented an in-line move on a hedged basis, a New York-based trader said.

It compares to Wednesday's move when the Alcoa convertible were higher on an outright basis but slipped about 0.375 point on a dollar-neutral basis.

Alcoa shares added another 25 cents, or 3.09%, to $8.35 on Thursday, on top of a 2% gain on Wednesday.

"They were active again today and in line," the trader said about the paper's dollar neutral move.

"These things cheapen when earnings are sort of in line or OK; they were due to beat," the trader aid.

In fact, Alcoa posted a third-quarter profit that reversed a year-earlier loss with $24 million, or 2 cents per share, earned in the most recent quarter, compared to a loss of $143 million, or 13 cents per share, in the year-earlier period.

Excluding restructuring and other one-time items, the company earned 11 cents per share, which was more than double the 5-cent-per-share profit that analysts forecast.

Revenue was down 1% to $5.77 billion, but it was better than the $5.64 billion analysts had expected.

Mentioned in this article:

Alcoa Inc. NYSE: AA

BioMarin Pharmaceutical Inc. Nasdaq: BMRN

Ctrip.com International Ltd. Nasdaq: CTRP

Liberty Media Corp. Nasdaq: LMCA

Seaspan Corp. NYSE: SSW

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