Hutchinson jumps on tender, exchange offer; Playboy indicated higher on pact to go private

By Rebecca Melvin

New York, Jan. 10 - Hutchinson Technology Inc.'s 3.5% convertibles jumped 4 or 5 points Monday after the supplier of suspension assemblies for disk drives announced the start of a tender and exchange offer for up to $75.29 million of its 3.25% convertible subordinated notes due 2026 - an amount that is less than half the amount outstanding.

Hutchinson holders may want to tender for the cash, market sources said, but they have to be willing to accept an exchange for 8.5% convertibles, if the cash portion of the offer is oversubscribed.

Playboy Enterprises Inc.'s convertible were indicated higher at 99 bid, 99.5 offered, which was up about 2 points or more, but they weren't seen in action, after the Chicago-based media and lifestyle company said it has agreed to be taken private for a $6.50 per share cash deal, which represented an 18% premium to the closing price of shares on Friday.

Because the buyout entity includes founder Hugh Hefner, who owns about 70% of the company's voting shares and 28% of the nonvoting stock, there was some question whether acceleration would kick in as per a fundamental change. Typically the takeover protection feature of a convertible triggers an early redemption.

Overall, trading in the convertible bond market was diffused and felt pretty quiet to convertible bond players.

"There were bits and pieces in trade, but much of it was small," a New York-based sellside trader said, who added that after the market close, many prints were going up, but there weren't any notable names or amounts. Trading was diffused, he said.

During the session, Alpha Natural Resources Inc. wasn't seen in trade after Howard Weil Inc. downgraded shares of the Abingdon, Va.-based coal producer to "market perform" from "market outperform."

The Alpha Natural convertibles trade at about 140, and with a premium below 20%, "it's basically a bet on the stock," a Connecticut-based sellside analyst said of the bond.

After the market close, Alcoa Inc. unofficially kicked off earnings season with its quarterly results, which beat analysts' expectations.

In the primary market, Nielsen Holdings BV launched an offering of $250 million of three-year mandatory convertible subordinated bonds that was seen pricing next week.

Hutchinson jumps

Hutchinson's 3.5% convertibles due 2026 traded Monday up 4 or 5 points to as high as 82.875. But most trades took place in the 81.5 bid, 81 offered range, sources said.

One source said that level was still several points below the nominal value of the deal, perhaps because the offer is for only about $75 million of the issue, which is less than half the $197.5 million of those convertibles outstanding.

The price "probably reflects a combined value based on the cash price, the value of the new convert and the proration," a New York-based sellside trader said.

The fact that there will now be two smaller bond issues and thereby less liquidity may encourage holders to want to tender for cash even if the new convertible values higher, another sellsider said.

There was another factor regarding the offer that made it a little less straight forward than most: the existing notes can be exchanged for new series 8.5% convertibles if the notes tendered exceed $40 million.

Holders can also tender their bonds for a cash payment of $850 provided that the cash required to purchase of the old notes tendered exceeds $30 million, or a combination of the two options can be elected.

"You have to be prepared to accept the exchange if the cash portion is oversubscribed," he said.

A registration statement relating to the new notes has been filed with regulators but hasn't become effective. The new notes may not be tendered or exchanged prior to the time the registration statement becomes effective.

The purpose of the tender is to improve the company's financial flexibility by extending the first put date of a portion of the company's convertible debt and to reduce the company's overall debt by retiring some of the old notes.

The tender/exchange expires Feb. 8. Citadel Securities LLC has been retained to act as a dealer manager in connection with the tender/exchange offer.

Playboy indicated higher

Playboy's 3% convertible notes due 2025 were indicated higher at 99 bid, 99.5 offered, sources said. Previously the 3% convertibles were at 96.75 bid, 97 offered.

Playboy shares jumped 89 cents, or 17%, to $6.09 on Monday.

The put on the Playboy 3% convertibles is March 15, 2012.

"Playboy had been in play for awhile, so it's not a surprise there," a New York-based sellside trader said.

Playboy has agreed to be taken private for $6.15 per share, which represented an 18% premium over the company's class B shares closing price on Jan. 7. The company's agreement is with Icon Acquisition Holdings LP, a limited partnership controlled by Hefner. Icon has received commitments from Rizvi Traverse Management and Jefferies & Co. to finance the transaction.

Nielsen to price next week

The Nielsen mandatory was talked to yield 6.25% to 6.75% with an initial conversion premium of 15% to 20%, according to a preliminary filing Monday.

Timing of the convertibles and a concurrent initial public offering was seen next week, according to market sources. The mandatories are contingent on the IPO being completed, but the IPO isn't contingent on the mandatories being completed.

The mandatories have a $50 par, and the $1.725 billion of common stock, which will be listed on the New York Stock Exchange under the ticker symbol NLSN, was seen pricing a $21.00 per share.

The mandatories have a $37.5 million greenshoe.

Underwriters involved in the deal include JPMorgan, as left lead bookrunner, Morgan Stanley, Credit Suisse, Deutsche Bank, Goldman Sachs, Citigroup, with Bank of America Merrill Lynch, William Blair, Guggenheim Securities, RBS Securities, Wells Fargo, Blaylock Robert Van, HSBC, Loop Capital Markets, Mizuho Securities USA, Ramirez & Co., and Williams Capital Group LP.

Proceeds are earmarked to pay down debt.

Nielsen is a global information and measurement company incorporated in the Netherlands with its principal executive offices located in New York City.

Mentioned in this article:

Alcoa Inc. NYSE: AA

Alpha Natural Resources Inc. NYSE: ANR

Hutchinson Technology Inc. Nasdaq: HTCH

Nielsen Holdings BV NYSE: NLSN

Playboy Enterprises Inc. NYSE: PLA

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