Planned Energy XXI looks slightly cheap; YY deal pulled; market quiet as equities mixed

By Rebecca Melvin

New York, Nov. 18 - Energy XXI (Bermuda) Ltd.'s planned $300 million of five-year convertible notes was getting a once over from market players on Monday after the Hamilton, Bermuda-based oil and natural gas exploration and production company launched the deal early in the session. Sources said the new paper looked slightly cheap.

On the other side of the ledger, however, YY Inc. decided to withdraw its $250 million offering of five-year convertible senior notes that was launched last week.

Overall, the week's first trading session was described as pretty blah. There was some volume trading, a market source said, but a big chunk of it was in EMC Corp., which has been moving from outright investor hands to hedged players ahead of the bond's upcoming maturity Dec. 1. Pricing was steady at a little below parity.

Elsewhere, Rayonier Inc.'s convertibles were not heard to have traded despite a ratings upgrade for the shares of the Jacksonville, Fla.-based timber real estate investment trust to "outperform" from RBC Capital Markets.

JinkoSolar Holding Co. Ltd.'s convertibles were also quiet despite a spike in the underlying shares of the Shanghai-based solar power product manufacturer on positive earnings.

JinkoSolar said third-quarter shipments surged 55%, exceeding estimates, which allowed the Chinese solar company to hike full-year guidance again. Despite the share move, traders queried said they hadn't seen levels early on the JinkoSolar 4% convertibles due 2016.

SINA Corp.'s 1% convertibles due 2018 were not seen to have changed hands on Monday after being left at 101 last week on their debut. Shares of the Shanghai-based online media company shed $2.44, or nearly 3%, to $82.61 on Monday.

Among distressed names, USEC Inc.'s convertibles were said to have traded some at about 20, and AMC Corp.'s convertibles were in the 136 bid, 137 offered context.

Equities ended mixed. The Dow Jones industrial average ended up 14.32 points, or 0.1%, to 15,976.02, but didn't hold on to the 16,000 mark, which it crossed during the session. The S&P 500 stock index slipped 6.65 points, or 0.4%, to 1,791.53, reversing an intraday gain, and the Nasdaq composite index lost 36.90 points, or 0.9%, to 3,949.07.

Energy XXI looks cheap

The new deal from Energy XXI, a Hamilton, Bermuda-based oil and natural gas exploration and production company, was seen slightly cheap at the midpoint of pricing talk, using a credit spread of 575 basis points over Libor and a 37% vol., according to a Connecticut-based trader.

It was seen 0.5 point cheap at the 3% coupon, 50% premium midpoint of talk.

A second source said that he was using a 37% vol. and a 25 bps borrow cost to value the Energy XXI deal.

Energy XXI plans to price $300 million of convertible five-year notes after the market close Monday that were talked to yield 2.75% to 3.25% with an initial conversion premium of 47.5% to 52.5%, according to a syndicate source.

The Rule 144A deal has a greenshoe for up to $45 million of additional notes.

Energy XXI also plans to repurchase up to $100 million shares of common stock.

Barclays, Citigroup Global Markets Inc., and Wells Fargo Securities are the joint bookrunners of the convertible offering.

Proceeds are earmarked for general corporate purposes, which may include working capital, capital expenditures or acquisitions.

The notes are non-callable but have takeover protection and net share settlement.

Energy XXI shares fell 98 cents, or 3.45%, to $27.39 in reaction to news about the deal, which was expected to price after the market close.

YY pulls deal

The cancelation of YY's Rule 144A and Regulation S deal didn't come as a surprise to market players.

"No, we heard it was not going well last week," one market source said, adding that it might have been because the deal came too close on the heels of SINA's $700 million offering of five-year convertibles, which launched the same day on Thursday, and the fact that it was also a Chinese company and the better one of the two, the source said.

YY is a Guangzhou, China-based social media company.

Bookrunners on the YY deal were Citigroup and J.P. Morgan Securities LLC.

EMC sees selling pressure

EMC's 1.75% convertibles due Dec. 1, 2013 were seen last at 149.25, which was down from about 150.

There was some decent volume in EMC, which saw some outright selling into hedged guys. Pricing was under pressure but little moved.

The price was parity less 65 basis points," a trader said, noting that the pricing came in slightly as hedged funds invest in it and then lever up to make a small profit into the maturity date.

"It will stay right about there," a trader said about the pricing.

Shares of the Hopkinton, Mass.-based information storage and services company slipped 9 cents to $23.91.

The EMC 2013 notes were priced in 2006.

Mentioned in this article:

EMC Corp. NYSE: EMC

Energy XXI (Bermuda) Ltd. Nasdaq: EXXI

JinkoSolar Holding Co. Ltd. NYSE: JKS

Rayonier Inc. NYSE: RYN

SINA Corp. Nasdaq: SINA

YY Inc. Nasdaq: YY

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