Tibco's planned $500 million deal looks cheap; $150 million Wabash National deal eyed

By Rebecca Melvin

New York, April 16 - Two new deals appeared in the convertibles market after the market close on Monday.

Tibco Software Inc.'s planned $500 million of 20-year convertible notes was seen being distributed under Rule 144A and pricing after the market close on Tuesday, according to market sources.

Sources said the deal looked cheap, using credit spreads of 400 basis points to 450 bps over Libor and volatility inputs of 30% to 33%.

Wabash National Corp. was seen doing $150 million of convertibles along with a $300 million seven-year secured term note to finance its previously announced acquisition of Walker Group Holdings LLC for $360 million, according to a regulatory filing. No details on the new convertibles deal emerged by Prospect News' deadline.

Back in the secondary market, Illumina Inc. was in about 0.5 point on an outright basis and in slightly on a hedged basis, as well, at 91.5 bid, 92.5 offered, with the shares down nearly 5% during the session.

Molina Healthcare Inc. traded at 111.75 versus a share price of $25.78 on a delta hedge of about 55%, which was in line with the underlying shares, which were off less than 1%, a New York-based trader said.

There was virtually no follow through in Monday trade from Friday. Even volume in Micron Technology Inc.'s new 2.375% and 3.125% convertibles slowed to a trickle. And if anything, the $870 million of new bonds of the Boise, Idaho, maker of semiconductor devices were a little weaker on Monday after weakening on their debut Friday.

Monday's session was very quiet though. Some players said tone was weak with most of the pressure on the downside, although one source said there was some leveling out compared to last week when the broader markets sold off.

There was selling on the margin, but it flattened out on Monday, after being heavier last week, the source said.

Nevertheless it was so quiet as to be difficult to draw conclusions," he said.

"When it is really slow, people tend to be better sellers for all good reasons; there is not so much liquidity, not a lot of volatility. And it's been heavy for nine out of the last 10 days in equities and other markets; I don't think that we are overly being punished," the trader said.

Tibco launches $500 million

The planned 20-year convertibles of Tibco, a Palo Alto, Calif.-based business software and services company, were talked to yield 2.25% to 2.75% with an initial conversion premium of 47.5% to 52.5% and were seen pricing after the market close Tuesday.

Several market sources said they thought the deal looked cheap and didn't suspect there would be any trouble getting the rather sizable offering placed.

Using a credit spread of 400 basis points over Libor and 33% volatility, the deal looked fair value at 103, one trader said.

A second source said he was using 30% vol. "to be conservative" and was tight on the credit and got the paper 5% cheap.

The Rule 144A offering has a $75 million greenshoe and is being sold by active bookrunners Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC and by passive bookrunners Citigroup Global Markets Inc. and Bank of America Merrill Lynch.

The bonds are non-callable for five years with puts in years five, 10 and 15. They have takeover and dividend protection.

Proceeds will be used to repurchase up to $150 million of common stock in transactions negotiated with institutional investors, and about $150 million will be used to repay outstanding debt under the company's revolving credit facility.

The balance of proceeds will be used for general corporate purposes, including working capital and capital expenditures and potential acquisitions and other strategic transactions.

Illumina fades

Illumina's 0.25% convertibles due 2016, which priced in March 2011, traded down about 0.5 point outright to 91.5 bid 92.5 offered, with the underlying shares down $2.20, or 4.7%, at $44.97.

And it was a little weaker on hedge, but delta hedging was difficult because a holder's view was either that a takeout deal was going to get done or it wasn't going to get done, a New York-based trader said.

"It's a deal name; it's all a matter of how you view the deal," the trader said.

Using a 25% to 30% delta, it looked to be in slightly, he said.

The Illumina convertibles jumped about 11 points to 96 in late January and expanded 3 or 4 points on a hedged basis using about a 40% delta after Roche Holdings said it would pay $44.50 per share, or about $5.7 billion, for the company.

Illumina immediately adopted a shareholder rights plan, or poison pill, to try to block a hostile takeover by the Swiss drug maker.

Currently, Illumina shares have fallen steadily since the middle of last week.

As for why shares were dropping, the trader said, "People assume the deal is not going to get done."

Meanwhile, the health care sector is one of the better performing sectors of the year to date, and with negative stock events over the last week or so, convertible players have been selling some of the paper that had been better, a second New York-based trader said.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Micron Technology Inc. NYSE: MU

Molina Healthcare Inc. NYSE: MOH

Tibco Software Inc. Nasdaq: TIBX

Wabash National Corp. NYSE: WNC

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