Primary market resets with launch of four deals; secondary market puts in ‘dull’ session

By Rebecca Melvin

New York, June 23 – Trading action in the U.S. convertibles secondary market was quiet on Monday to start the first official week of summer, with equities ending narrowly mixed.

“There’s nothing going on. It’s very dull,” a New York-based trader said.

In the primary market, however, four new deals that tally up to $1.3 billion in base deals were launched.

Fort Worth, Texas-based Energy & Exploration Partners Inc. launched an offering of $375 million of five-year convertible subordinated notes early Monday that will price prior to its initial public offering of common shares.

The company had attempted an IPO previously in 2012 but had pulled the deal, a New York-based source noted.

After the market close, three additional deals were launched. They included California network security company Palo Alto Networks Inc.’s $500 million of convertible senior notes that were seen pricing late Tuesday. Latin American online commerce host MercadoLibre Inc.’s $300 million of five-year convertible senior notes were also pricing late Tuesday, and AmSurg Corp.’s $125 million offering of mandatory convertible preferred shares were seen pricing late Thursday together with a secondary stock deal.

Pre-IPO deal on tap

Energy & Exploration, a developer of onshore, unconventional oil and gas assets in the United States, said that it plans to price $375 million of five-year convertible subordinated notes prior to an initial public offering of common shares.

A pre-IPO convertible is rare but not unheard of. “It probably appeals to a different group of investors and is generally a play on their IPO. It converts at a slight discount to the IPO valuation rather than to the current stock price. It can be advantageous from the corporate financing perspective,” the New York-based source said.

Earlier this year, American Energy – Utica LLC, an affiliate of American Energy Partners LP, priced a pre-IPO convertible offering, which was an upsized $750 million of 3.5% seven-year convertible subordinated notes under Rule 144A.

The American Energy deal had “similar features” to the new deal, the New York-based source said. One such feature was that it effectively ratchets down the conversion within a year or the company postpones the IPO, then the discount goes a little further.

“An IPO is usually imminent as these converts are tied to a specific IPO event,” the source said.

In the meantime, the Energy & Exploration deal “is starting out with more debt [than American Energy],” an East Coast-based buysider said.

“They’ve raised a lot of senior secured bank debt,” he said, adding that he doesn’t yet have an opinion on the new convertible deal.

Timing and price talk has not yet emerged, and it could be several days before it does, sources said.

In regard to the American Energy convertible deal, which priced in February, an IPO has not yet been executed.

“They have said they are not going to do another fund raising before an IPO, and doing it before 18 months might be going to market before they should,” the buysider said.

“There needs to be a good trend of rig count and well growth, and operational and fiscal prudence before they do the IPO,” he said.

Proceeds of the Energy & Exploration deal will be used to help pay for its recently announced acquisition of oil and gas assets from TreadStone Energy Partners LLC, to refinance and replace its outstanding senior unsecured notes and to fund a portion of its 2014 and 2015 capital expenditure budget.

Palo Alto to price

Palo Alto’s planned $500 million of convertible senior notes were being talked to yield 0% to 0.5% with an initial conversion premium of 35% to 40%, according to a market source.

The Rule 144A deal has a $75 million greenshoe and was being priced via bookrunners J.P. Morgan Securities LLC, RBC Capital Markets, Morgan Stanley & Co. LLC, Goldman Sachs & Co. and UBS, with Raymond James & Associates as a passive bookrunner.

In connection with the notes offering, Palo Alto plans to enter into privately negotiated convertible note hedge and warrant transactions, or a call spread, with initial purchasers of the notes or their affiliates.

A portion of the proceeds will pay the cost of the call spread, with remaining proceeds for general corporate purposes, which may include working capital, capital expenditures, potential acquisitions and strategic transactions. But Palo Alto Networks does not currently have any agreements or understandings with respect to any acquisitions or strategic transactions.

Santa Clara, Calif.-based Palo Alto Networks is a network security company.

MercadoLibre to price

MercadoLibre’s planned $300 million of five-year convertible senior notes were being talked to yield 2.25% to 2.75% with an initial conversion premium of 32.5% to 37.5%.

Buenos Aires-based MercadoLibre is the host of online commerce platforms in Latin America. Its Rule 144A deal has an over-allotment option for up to an additional $30 million of notes and was being sold via Goldman Sachs, JPMorgan, Deutsche Bank Securities Inc. and BofA Merrill Lynch.

The bonds are non-callable. They are convertible under certain conditions. Upon conversion, holders will receive shares, cash or a combination of shares and cash at the company’s election.

In connection with the pricing of the notes, MercadoLibre plans to enter into privately negotiated capped call transactions with initial purchasers of the notes.

A portion of the proceeds will be used to pay the cost of the capped call transactions. Remaining proceeds will be for general corporate purposes.

AmSurg to price $125 million

AmSurg’s planned $125 million of mandatory convertible preferred shares was expected to be marketed for three days until late Thursday, when it will price together with an equity deal.

The three-year mandatory is for 1.25 million shares at $100 each. It was being talked to yield 5.25% to 5.75% with an initial conversion premium of 17.5% to 22.5%, according to a syndicate source.

The registered mandatory deal is coming concurrently with a common stock offering of 8.5 million shares. The offerings are not contingent on each other or upon the consummation of the recently announced transaction between AmSurg and Sheridan Healthcare Inc.

The mandatory deal has a greenshoe for up to an additional $18.75 million of shares.

Proceeds from the offerings, together with shares of stock to be issued in the Sheridan Transaction, additional debt financing and cash on hand will be used to finance the Sheridan Transaction as well as to repay borrowings under AmSurg’s existing credit facility, to repay the outstanding balance on its senior secured notes due 2020 and to pay fees and expenses related to the Sheridan Transaction.

Citigroup Global Markets Inc., SunTrust Robinson Humphrey, Barclays, Deutsche Bank Securities, Goldman Sachs, JPMorgan and Raymond James are the joint bookrunning managers for the common stock and mandatory offerings.

Co-managers are BMO Capital Markets, Piper Jaffray & Co. and Cantor Fitzgerald & Co.

Nashville, Tenn.-based AmSurg acquires, develops and operates ambulatory surgery centers.

Mentioned in this article:

AmSurg Corp. Nasdaq: AMSG

MercadoLibre Inc. Nasdaq: MELI

Palo Alto Networks Inc. Nasdaq: PANW

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.