Volcano deal upsized, trades up in gray market; existing Volcano quiet; Seacor deal on tap

By Rebecca Melvin

New York, Dec. 4 - Volcano Corp.'s planned $400 million convertible deal was a primary focus of convertible players Tuesday, trading up in the gray market by more than 2 points ahead of final terms seen being fixed after the market close.

During marketing Tuesday, the deal was upsized to $400 million from $350 million and terms were revised.

"It's a nice, healthy deal and a decent company. But everyone has their opinion on it," a West Coast-based trader said.

Volcano's existing 2.875% convertibles were not seen in trade during the session but were offered at the market close at 115.98 bid, with no offer. The company planned to buy back some of these convertibles with a portion of proceeds.

Also in primary market action, Seacor Holdings Inc. launched an offering for $250 million of 15-year convertible bonds after the close, which was talked to yield 2.5% to 3%, with an initial conversion premium of 27.5% to 32.5%, according to a syndicate source.

Back in the secondary market, it was not a high-volume day, traders said.

Medtronic Inc.'s convertibles, which are a short-dated, yield play, were in trade, as were the convertibles of Newmont Mining Corp.

There was no obvious trading catalyst for the convertibles of Newmont, a Greenwood Village, Colo.-based gold and copper mining company. Both Newmont convertible issues are longer dated than the Medtronic bonds.

The convertibles of Vertex Pharmaceuticals Inc. were quiet despite volatility in the underlying shares of the Cambridge, Mass.-based specialty pharmaceutical company. The shares ended 1% higher on Tuesday after dropping on Monday.

There was a seller of Vertex convertibles at 111.5 versus an underlying share price of $39.08, a trader said. He said the offer was about 0.125 point higher than his own.

Volcano trades up in gray

Volcano's planned convertible deal was traded in the gray market at plus 2.25 points, plus 2.75 points. There has not been a gray market in new convertible bond issues of late, and Volcano's was indicative of the interest it generated among market players.

"We were starved for it," a New York-based trader said.

The deal, which comes with a call spread, was seen cheap by market players. One trader said using a credit spread of 600 basis points over Libor and a 31% vol., the deal looked to be worth 103 at the midpoint of revised terms.

Some players were tighter on the credit by as low as 500 bps above Libor, but most inputs were sprinkled around the area of 600 bps credit and 30% vol.

"I heard it was tight as 500 [bps] depending on who you were talking to. I was going 600 [bps] with little higher vol. and some others were 600 [bps]with 30. But given the way it was trading in the gray, those pairings were all in the ball park," a trader said.

During marketing, terms were revised to fix the coupon at 1.75%, which was tightened from 1.75% to 2.25%, and the initial conversion premium was revised upward to 27.5% to 32.5% from initial talk of 22.5% to 27.5%. Deal size was boosted to $400 million with a $60 million greenshoe, from an initially talked deal of $350 million in size with a $52.5 million greenshoe.

Volcano shares fell $1.67, or 6.25%, to $25.06, near its lows for the year, in heavy volume.

Volcano is a Rancho Cordova, Calif.-based developer, maker and seller intravascular ultrasound and functional measurement products for vascular and structural heart disease.

The registered, off-the-shelf deal was being sold via joint bookrunners J.P. Morgan Securities LLC and Goldman Sachs & Co.

Concurrently with the deal, Volcano plans to enter into convertible bond hedge and warrant transactions. A portion of the proceeds will be used to pay the cost of the hedge transactions.

Up to $50 million of the proceeds will be used to repurchase its 2.875% convertible senior notes due 2015. Volcano may also use a portion of the proceeds to invest in or acquire complementary products, businesses or technologies. Remaining proceeds are intended for working capital and general corporate purposes.

The five-year notes will be non-callable for life with no puts.

Volcano's existing 2.875% convertible due 2015 priced originally in September 2010.

"A bunch went up at the close, they traded 350 over," a trader said of trades in the existing Volcano bonds.

Seacor plans deal

Seacor, a Fort Lauderdale, Fla.-based provider of marine support and transportation services, launched an offering for $250 million of 15-year convertible bonds after the market close on Tuesday that were seen pricing late Wednesday.

The deal was talked to yield 2.5% to 3% with an initial conversion premium of 27.5% to 32.5%.

The Rule 144A offering has a greenshoe of $50 million and was being sold via bookrunner Goldman Sachs & Co.

The bonds are non-callable for three years, then provisionally callable at a 130% price hurdle for two years, before becoming freely callable. There are puts in years five and 10.

Proceeds will be used primarily to repay amounts outstanding under its revolving credit facility. Remaining proceeds will be for general corporate purposes, including the possible repurchase of common stock and payment of a dividend to stockholders.

Shares repurchased with the proceeds from the offering may be purchased from buyers of the convertible notes and in open transactions.

Mentioned in this article:

Medtronic Inc. NYSE: MDT

Newmont Mining Corp. NYSE: NEM

Seacor Holdings Inc. NYSE: CHK

Vertex Pharmaceuticals Inc. Nasdaq: VRTX

Volcano Corp. Nasdaq: VOLC

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