New Starwood Waypoint adds; Salix jumps outright, flat on hedge; Tower active; Ctrip eyed

By Rebecca Melvin

New York, July 1 – Starwood Waypoint Residential Trust’s newly priced 3% convertibles added on both an outright and hedged basis on their debut in secondary market dealings on Tuesday after the Oakland, Calif.-based real estate investment trust priced an upsized $200 million of the five-year senior notes at the cheap end of talk.

The new Starwood’s convertibles were seen at 100.5 bid, 101.25 offered with the underlying shares up less than a dime in the early going, and the bond deal was deemed a success by market participants.

Salix Pharmaceuticals Ltd.’s convertibles jumped on an outright basis but were flat to slightly lower on a dollar-neutral, or hedged, basis with a surge in the underlying shares after the Raleigh, N.C.-based drug maker announced positive drug trial data.

Tower Group International Ltd.’s 5% convertibles due in September traded at 85 bid, 87 offered as shares bounced higher following a plunge on Monday. Worries over the proposed takeover of the Bermuda-based insurance and reinsurance company by ACP Re Ltd. were moving the securities.

Ctrip.com International Ltd. remained in focus on Tuesday as the underlying shares of the Chinese interest site continued to edge up after a 5% jump on Monday. In all, the Ctrip shares are up about 20% in the last month, a run that has encompassed other China stocks as well. The gain has changed the profile of the Ctrip bonds to lower premium from high premium, making it more attractive to investors seeking balanced paper, a New York-based trader said.

“The fact that this somewhat short-dated paper is now more balanced has woken up a lot of people,” the trader said.

Other convertibles in the same space, including SINA Corp., Qihoo 360 Technology Co. Ltd., Vipshop Holdings Ltd., and E-House (China) Holdings Ltd., were also getting a look.

Elsewhere, the market was quiet and traders anticipated that market action would begin to taper off as Friday’s July 4 holiday loomed nearer.

“You’ve got the U.S. playing soccer today, and Thursday is a half day on the New York Stock Exchange,” a New York-based trader said in support of the idea that the market would be slowing down.

The trader was referring to the World Cup soccer match involving the United States and Belgium scheduled to start at 4 p.m. ET.

Equities climbed, reinitiating their push higher to start the second half after a hiatus on Monday.

Starwood Waypoint adds

Starwood Waypoint’s newly priced 3% convertibles due 2019 traded at 100.75 bid, 101.25 versus an underlying share price of $26.22 during the session, which was called 0.75 point better on a dollar-neutral basis.

Starwood Waypoint ended higher by 15 cents, or 0.6%, at $26.36.

The deal priced at the cheap end of talked terms and “that helped a lot,” a New York-based trader said.

“Investors typically take a look at these [deals] on the ‘mids,’ and yesterday they looked OK at the mids, so when it came on the cheaps, it looked even better,” the trader said.

June brought a large windfall of new deals, and this trader thought that “the glut of issuance” would foster a change in the current trend toward cheaper paper.

“There will be no other 0% coupon deals anytime soon, unless it’s a marquee name,” he said.

Starwood, an Oakland, Calif.-based REIT that acquires, renovates, leases, maintains and manages single-family homes, priced an upsized $200 million of the five-year convertible senior notes with a 3% coupon and an initial conversion premium of 27.5%. Originally the deal was planned for $150 million and talked to yield 2.5% to 3% with an initial conversion premium of 27.5% to 32.5%.

J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and BofA Merrill Lynch were the joint bookrunners for the Rule 144A deal.

There is a $30 million, augmented from the initial $22.5 million, greenshoe.

The notes are non-callable with no puts and have standard takeover protection.

Proceeds are expected to be used to acquire additional homes and distressed and non-performing residential mortgage loans, to repurchase common shares and for general business purposes.

Salix flat to lower on hedge

The Salix 1.5% convertibles due 2019 were quoted at 213.75 bid, 214.25 offered with the underlying shares at $136.25, a New York-based trader said. That was “essentially in line dollar neutral, or maybe a touch lower, depending on delta coming into the day,” the trader said.

There was a lot of flow in the Salix convertible, a second trader said.

The Salix convertibles were atop the Trace volume chart after the drug company announced the successful outcome of a phase 3 trial to evaluate the efficacy and safety of repeat treatment with rifaximin 550 mg TID (three times daily) for 14 days as a treatment for irritable bowel syndrome with diarrhea.

In the study, a statistically significant greater proportion of rifaximin-treated subjects responded to repeat treatment as assessed by the composite primary endpoint of IBS-related symptoms.

On the heels of the news Cantor raised its price target on Salix to $121.00 from $115.

Salix shares rose $16.67, or 13.5%, to $140.02.

Tower Group active

Tower Group’s 5% convertibles, which mature in September, were seen at 85 bid, 87 offered and traded at 85.25 during the session, sources said.

Tower shares bounced 10% to $2.00 following an 11% slide on Monday. But they pared some of that gain, to end up 15 cents, or 8%, at $1.95.

The Tower convertibles were down from the 90 to 91 range previously.

A Connecticut-based trader said, “The risk reward is really hard. If this deal doesn’t go through, the bonds probably go down 40 points or more.”

Tower agreed to be acquired by ACP Re in January. One concern is over the possibility of an insolvency event as defined under the merger agreement that might enable ACP to cancel the deal or negotiate another price reduction.

Ctrip looks more attractive

Ctrip’s 1.25% convertibles were seen at 110.5 bid, 111 offered on Tuesday with the underlying shares of the Shanghai-based travel services provider at $65.00, a New York-based trader said.

The bonds have been pretty illiquid but are beginning to attract interest in light of an outsized run in the underlying shares and other Chinese corporate stocks, the trader said.

“The bonds barely trade, and guys have been skeptical of the credit, but buyers came out yesterday and it was aggressively bid,” the trader said.

Over the last month, the stock has gone to $65.00 from $45.00.

The premium has gone down to less than 35% from about 90%, he said, and is appealing to those who favor balanced issues.

It was unclear if the bonds expanded, contracted or were flat on a dollar-neutral basis. But “it’s interesting in terms of price discovery, if nothing else,” he said.

Meanwhile, SINA’s convertibles traded at 92.25 on Monday and were seen wrapped around 92.25 on Tuesday.

“Sentiment comes and goes. It was very negative at the end of last year and beginning of this year, but now with the stocks running, it is more positive,” he said.

Mentioned in this article:

Ctrip.com International Ltd. Nasdaq: CTRP

Salix Pharmaceuticals Ltd. Nasdaq: SLXP

Starwood Waypoint Residential Trust Nasdaq: SWAY

Tower Group International Ltd. Nasdaq: TWGP

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