Liberty Interactive/Charter exchangeable looks cheap; Vipshop retraces outright gains

By Rebecca Melvin

New York, Aug. 17 – Liberty Interactive LLC’s planned $500 million of debentures exchangeable for Charter Communications Inc. looked cheap to investors on Wednesday ahead of final terms that were expected to be fixed after the market close, a market source said.

The Liberty/Charter debentures, talked with a 1.75% to 2.25% coupon and a 27.5% to 32.5% exchange premium, were seen in the gray market at 102.5, the source said.

The Rule 144A deal has a $75 million greenshoe and was being sold via bookrunners BNP Paribas Securities Corp., Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc.

Meanwhile, in the secondary market, U.S. convertibles essentially followed stocks during the session, which were fractionally lower in the early going for a second day after the three major U.S indices notched record highs on Monday. But after the Federal Reserve released the minutes from its July meeting Wednesday afternoon, stocks ticked higher.

The minutes from the Federal Open Market Committee meeting showed that there are officials who want to implement another rate rise quickly while the majority want to wait for more information. The Fed last raised rates in December by 0.25% for a target rate of 0.25% to 0.5%.

According to the Fed minutes, the members judged that information received since the committee met in June indicated that the labor market had strengthened and that economic activity had been expanding at a moderate rate. They expected that with gradual adjustments in the stance of monetary policy, economic activity would continue to expand at a moderate pace and labor market indicators would strengthen.

Vipshop Holdings Ltd.’s 1.5% convertibles were the most actively traded issue, according to Trace data early Wednesday. But the paper was trading lower in tandem with the underlying American Depositary Shares of the China internet company. Nevertheless, the bonds were essentially unchanged on a dollar-neutral, or swap, basis, compared to Tuesday when the ADS spiked higher following better-than-expected quarterly earnings.

The Vipshop bonds changed hands at 107.9 compared to 108.5 to 109.5 on Tuesday. Vipshop ADS were $16.04.

Also in the China-internet space, Sina Corp. made an appearance in U.S. convertibles trade, with the Sina 1% convertibles due 2018 trading at 99.3, which was lower by less than 0.125 point, and holding up better than the underlying ADS of the Shanghai-based social media company, which were down about 3% at $69.60. The Sina bonds had traded in the low 90s in early July.

Elsewhere, newer issues continued to trade. DISH Network Corp.’s 3.375% convertibles were off with the generally dour market tone, trading at 106.27, or down 0.75 point. DISH shares were down 85 cents, or 1.6%, at $51.31.

Two Tesla Motors Inc. convertibles were in trade but were weighed down slightly by the underlying common shares of the California-based electric car maker, which have moved lower all this week.

The Tesla 1.25% convertibles due 2021 traded at 87.75, and the Tesla 0.25% convertibles due 2019 traded at 91.875.

Meanwhile, two convertibles of WebMD Health Corp. traded as the common shares of WebMD that underlie the bonds dropped 29 cents, or 0.6%, to $51.50.

WebMD’s 1.5% convertibles due 2020 traded at 117.89, or down 0.5 point, and WebMD’s 2.5% convertibles due 2018 traded at 105.1, which was off 0.1 point.

Liberty Interactive eyed

The Liberty/Charter debentures were seen in the gray market ahead of final terms being set at 102.5, according to a market source.

The deal was talked with a 1.75% to 2.25% coupon and a 27.5% to 32.5% exchange premium. The Rule 144A deal has a $75 million greenshoe and was being sold via active bookrunners BNP Paribas Securities, Credit Suisse Securities and Deutsche Bank Securities.

Pricing was slated to occur after the market close on Wednesday.

The exchangeable is non-callable until Oct. 5, 2023 and freely callable thereafter. There is a put on Oct. 5, 2023.

Dividend protection is in the form of a pass through, and upon an exchange of debentures, the company may deliver Charter Communications stock, cash or a combination of stock and cash.

Proceeds will be used to repay up to $450 million outstanding under a margin loan facility recently entered into by its wholly owned special purpose subsidiary LV Bridge, LLC; to repurchase its outstanding 0.75% exchangeable senior debentures due 2043 and to satisfy its exchange obligation in cash for holders that tender the 2043 debentures. Any remaining net proceeds will be used for general corporate purposes, including to pay interest on the debentures.

The debentures, as well as the associated cash proceeds, will be attributed to the Liberty Ventures Group.

Liberty Interactive LLC is a subsidiary of Liberty Interactive Corp., a media and communications company based in Englewood, Colo.

On Friday, Liberty Media Corp. priced $444.6 million of senior debentures exchangeable for common shares of Time Warner Inc., to yield 2.25% with an initial exchange premium of 30%.

Mentioned in this article:

Charter Communications Corp. Nasdaq: CHTR

DISH Network Inc. Nasdaq: DISH

Liberty Interactive Corp. Nasdaq: QVCA

Liberty Media Corp. Nasdaq: LMCA

Sina Corp. Nasdaq: SINA

Tesla Motors Inc. Nasdaq: TSLA

Time Warner Inc. NYSE: TWX

Vipshop Holdings Ltd. Nasdaq: VIPS

WebMD Health Corp. Nasdaq: WBMD

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