Morning Commentary: Market players size up planned Liberty Media/Sirius exchangeables

By Rebecca Melvin

New York, Nov. 21 – Market players were running models on Liberty Media Corp.’s $400 million of 30-year senior notes exchangeable into shares of Sirius XM Holdings Inc. with a few different assumptions.

But the Liberty/Sirius overnight deal, announced ahead of the market open on Thursday and set to price after the close, looked cheap regardless of the inputs cited.

Using a credit spread of 275 basis points over Libor and 28.75% vol., the deal modeled to be worth 104.24, a New York-based trader said.

Using a credit spread of 275 bps over and a lower vol. of 22% made the deal worth 103.3 at the midpoint of the talked price range of 2.5% to 2.75% coupon and 27.5% to 30% initial conversion premium, a New York-based market source said.

Some thought the credit should be a little wider, at 300 bps over, which made the deal worth about 102.5, the source said.

Liberty Media is an Englewood, Colo.-based media, communications and entertainment company. Sirius is a New York-based broadcasting company that provides satellite radio and online radio services.

J.P. Morgan Securities LLC and BNP Paribas Securities Corp. are active bookrunners of the Rule 144A transaction, which has a $60 million greenshoe.

The proceeds are earmarked for general corporate purposes, including potential mergers or acquisitions, interest payments on debentures offered and repayment of borrowings outstanding under its margin loan secured by shares of Sirius XM.

The notes are non-callable until Dec. 1, 2024, and there is a put at year five.

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