Convertibles players eye new paper from Granite, Winnebago, DTE Energy; Wayfair drags

By Rebecca Melvin

New York, Oct. 29 – Granite Construction Inc. announced early Tuesday a $200 million offering of five-year convertible bonds that were viewed as coming to the market pretty cheaply if they price at the midpoint of talk.

The Granite deal, which was announced ahead of the market open and is pricing after the close, was being talked at a 2.25% to 2.75% yield and a 32.5% to 37.5% initial conversion premium.

Using a credit spread of 450 basis points over Libor and a 30% vol., the deal was seen to be worth 103.65 at the midpoint of talk, a New York-based trader said.

By way of comparison, the Winnebago Industries Inc. $270 million convertible bond deal announced on Monday was seen worth 103.13 at the midpoint of talk, using a credit spread of 550 bps over Libor and 40% vol. as the underwriters suggested.

A second New York-based source offered alternate inputs. A credit spread of 450 bps over Libor and 35% vol. gets the Winnebago deal at fair value around 101.50, the source said.

The Winnebago 5.4-year notes were being talked to yield 1.5% to 2% with an initial conversion premium of 27.5% to 32.5%.

The Granite deal is non-callable for three years, then provisionally callable at a 130% price hurdle. It is coming with a call spread for which the warrant strike will be at least 100%.

The proceeds of the Granite deal are being used to purchase the call spread, repurchase $30 million of common shares and repay an outstanding revolving credit agreement.

The Watsonville, Calif.-based company is a heavy civil construction and transportation contractor, serving both public and private sector clients. Its projects are mainly related to infrastructure, including the construction of roads, bridges, dams, tunnels, mass transit facilities and airports.

A third deal slated to price after the market close on Tuesday is DTE Energy Co.’s $1.15 billion registered underwritten public offering of mandatorily convertible equity units.

DTE is also pricing an offering of $300 million of common stock. The mandatory equity units include a greenshoe of $150 million.

The mandatory deal was being talked to yield 6% to 6.5% with an initial conversion premium of 20% to 25%.

Back in secondary market trading, two Wayfair Inc. convertible issues were trading actively as the underlying shares of the Boston-based furniture and home furnishings e-commerce company dropped at the market open and slipped slightly lower through the session. The stock closed down $7.80, or 7%, to $101.51. The Wayfair 1.125% convertible notes due 2024 were a top volume issue with more than $13 million in reported volume.

The notes dropped 6.6 points on an outright basis to 113.9, according to Trace data. Wayfair’s 1% notes due 2026, an $825 million deal that priced during the summer, dropped 4.3 points to 97.1, also on decent volume.

But NXP Semiconductors NV’s 1% convertibles, which are going away on Dec. 1, jumped in tandem with their underlying shares, which rose after the company reported its third-quarter results were the day’s most actively traded notes. There were more than $25 million of the notes that traded. The bonds were seen higher by 5.5 points on an outright basis to 112.25, as shares of the Dutch chip maker jumped $5.75, or 5.3%, to $114.41.

This bond has been trading around in recent sessions as market players eye the upcoming maturity, sources have said.

The company reported slightly better-than-expected revenue. For its third quarter, net income of $119 million, or 38 cents a share, compared with $1.82 billion, or $5.60 a share, in the year-earlier period. Revenue declined to $2.27 billion from $2.45 billion in the year-ago period. Analysts had forecast revenue of $2.24 billion for the most recent quarter.

Mentioned in this article:

DTE Energy Co. NYSE: DTE

Granite Construction Inc. NYSE: GVA

NXP Semiconductors NV Nasdaq: NXPI

Wayfair Inc. NYSE: GVA

Winnebago Industries Inc. NYSE: WGO

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