Salesforce slips below par; Iconix improves dollar neutral; iStar adds; Meadowbrook quiet

By Rebecca Melvin

New York, March 13 - Four new deals totaling $1.61 billion in new paper debuted in the convertible bond market on Wednesday with mixed results.

Salesforce.com Inc.'s newly priced 0.25% convertibles broke below par in the secondary market after the $1 billion of five-year convertibles priced on the cheap end of talk late Tuesday.

The new Salesforce paper traded as low as 99.25 bid, 99.75 offered and then toggled the flat line but closed at 99.625 bid, 99.875 offered, according to syndicate sources. The underlying shares traded in a tight range above and below the flat line, ending in positive territory by just 7 cents.

Iconix Brand Group Inc.'s newly priced 1.5% convertibles traded up about 1.75 points to 2 points on a dollar-neutral basis, closing at 103.75 bid, 104.25 offered with the underlying share up 4.2% on the day after the upsized $350 million of five-year convertibles priced late Tuesday at the midpoint of coupon talk and at the tight end of premium talk.

"The stock performed very, very well," a New York-based trader said of Iconix.

iStar Financial Inc.'s newly priced 4.5% perpetual convertible preferreds ended higher at 51 bid, 51.5 offered in quiet trade with the underlying shares closing up 17 cents, or 0.7%. The New York-based commercial real estate lender priced an upsized $175 million of the preferreds at the price points that were fixed at launch.

Meadowbrook Insurance Group Inc.'s newly priced 5% convertibles due 2020 were not heard in trade on their debut in the secondary market after the upsized $85 million of seven-year convertible senior notes priced on the cheap end of talk after the market close Tuesday. Syndicate sources declined to comment, although one said it did "perfectly well."

Elsewhere, there was some evidence of selling in existing names in the convertibles universe as players made room in their portfolios for the new paper. Medtronic Inc.'s very short-dated, 1.625% convertibles, which are viewed as a cash surrogate, were under a bit of pressure as market players "raised capital," a New York-based trader said. But he said the Medtronic convertibles were down by only a few pennies.

Home Inns & Hotels Management Inc.'s convertibles traded lower by about 0.25 point on a delta-neutral basis with the stock down 2% during the session a day after the Shanghai-based hotel chain missed earnings estimates by a penny but beat estimates on revenue, which was 13% higher for the quarter ended Dec. 31, compared to the year-earlier period. Shares ended lower by 2.8%

In economic data, February retail sales rose 1.1% to a seasonally adjusted $421.4 billion, the Commerce Department said Wednesday. That was better than expected and helped equities. But stripping out gasoline sales and other so-called non-core sales meant a rise was about 0.4%. Equity markets responded well. They had started out moderately lower following declines in Europe and Asia overnight but ended better on the day.

The Dow Jones industrial average notched its ninth straight gain, adding just 5.22 points to 14.455.28, the S&P 500 stock index gained 2.04 points to 1,554.52; and the Nasdaq stock market was up 2.80 points to 3,245.12.

Salesforce slips below par

Salesforce's newly priced 0.25% convertibles due 2018 traded extensively in the 99.75 to 100.125 range, with low prints in the 99.25 bid, 99.75 offered range, and they closed at 99.625 offered, 99.875 offered, according to a syndicate source.

The deal traded actively but not as actively as might have been expected given that it was a $1 billion deal.

"You would think it would be more active. But if you sold, you're locking in a loss," the source said.

Shares of the San Francisco-based cloud computing company were little changed, ending the session down 12 cents at $180.91.

Salesforce priced $1 billion of the five-year convertible senior notes after the market close on Tuesday at par to yield 0.25% with an initial conversion premium of 47%, which was the cheap end of talked terms.

The Rule 144A offering was sold via joint bookrunners Morgan Stanley & Co. LLC and BofA Merrill Lynch. Co-managers were Goldman Sachs & Co. and Wells Fargo Securities LLC.

The bonds are non-callable, and proceeds will be used for general corporate purposes, including acquisitions and investments in complementary businesses, working capital and capital expenditures.

In addition, proceeds were used to pay the cost of convertible note hedge transactions entered into in connection with the offering. The strike price of the warrant transactions will initially be about $361.58 per share.

Iconix adds dollar neutral

Iconix's newly priced 1.5% convertibles traded up to 104 bid, 104.5 offered and were seen ending the session at 103.75 bid, 104.125 offered versus the $24.31 close for the underlying shares.

The notes were higher by 1.75 points to 2 points on a dollar-neutral basis and were seen trading on a 60% to 65% delta, according to a syndicate source.

The Rule 144A Iconix deal was initially seen at $325 million in size and was upsized to $350 million; the $50 million greenshoe was unchanged.

Barclays was the bookrunner.

The bonds are non-callable with no puts.

Proceeds are earmarked to fund the repurchase of common stock concurrently with the offering and to fund the cost of a call spread and for general corporate purposes, including acquisitions and share repurchase programs.

New York-based Iconix is a consumer brands marketing company.

New iStar adds

iStar Financial's newly priced 4.5% perpetual convertible preferreds traded up to 51 bid, 51.5 offered from a 50 par on their debut in the secondary market.

That translates to 102 bid, 103 offered if equated to a 100 par bond, a syndicate source pointed out. But the perpetual preferreds were allocated predominantly to outright investors and didn't trade actively, the source added.

iStar shares added 7 cents to $10.73 in trade.

iStar's older 3% convertible senior notes due 2016, of which $175 million were priced in November, weren't heard in trade.

The convertibles priced with an initial conversion premium of 20%. The registered, off-the shelf series J preferreds was initially talked at $150 million in size with a $22.5 million greenshoe.

Barclays, BofA Merrill Lynch and J.P. Morgan Securities LLC were the joint bookrunners for the deal.

The preferreds are non-callable until March 15, 2018.

The New York-based commercial real estate lender plans to use the proceeds for new investment activities and for general corporate purposes.

Meadowbrook upsizes

Meadowbrook's newly priced 5% convertibles due 2020 were upsized to $85 million from $75 million in size. Nevertheless, given the small size, they weren't heard in trade.

Shares of the Southfield, Mich.-based specialty commercial insurance underwriter added 17 cents, or 2.5%, to $6.85.

Pricing for the Rule 144A deal came at the cheap end of talk, which was for a 4.5% to 5% coupon and 37.5% to 42.5% premium.

JPMorgan was the bookrunner, with co-managers FBR Capital Markets & Co. and RBS Securities Inc. The greenshoe was upsized to $15 million from $11.25 million.

The notes are non-callable for seven years with no puts, and proceeds will be used primarily to make capital contributions to the company's subsidiaries to support their operations and financial strength, with the balance going to repay debt and to purchase a call spread to mitigate potential dilution of shares upon conversion of the bonds.

Home Inns slips on hedge

Home Inns' 2% convertibles due 2015 traded at 90.297 versus an underlying share price of $30.00 on Wednesday.

On a 50% delta hedge, the paper was lower by about 0.25 point compared to the convertible's high price from Tuesday, according to a New York-based trader.

Mentioned in this article:

Home Inns & Hotels Management Inc. Nasdaq: HMIN

Iconix Brand Group Inc. Nasdaq: ICON

iStar Financial Inc. NYSE: SFI

Meadowbrook Insurance Group Inc. NYSE: MIG

Medtronic Inc. NYSE: MDT

Salesforce.com Inc. NYSE: CRM

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