New Spirit Realty bonds around par; planned TAL Education in focus; NQ Mobile plunges

By Rebecca Melvin

New York, May 15 - Spirit Realty Capital Inc.'s two new convertible bonds, including a $350 million tranche of five-year notes and an upsized $300 million of seven-year notes, were the main focus of trade in the convertibles market on Thursday.

Both of the new series traded up to about the 101 mark before coming in to around par and then closing around 100.5 for both, syndicate sources said.

The Spirit Realty trading action accounted for more than half of Thursday's total volume, or more than $300 million of bonds out of about $520 million traded, according to Trace data.

Trace data volume is representative of the day's trading action but doesn't account for all of it.

Also in the primary market, TAL Education Group's planned $200 million deal of five-year convertible notes was getting a look ahead of final terms expected to be set after the market close.

The TAL bonds were talked at a coupon of 2.25% to 2.75% and a premium of 27.5% to 32.25% and were seen about 3 points cheap at the midpoint of talk, using a credit spread of 750 basis points over Libor, a 35% vol. and negative 0.5% borrow, according to one Connecticut-based trader.

NQ Mobile Inc.'s 4% convertible notes due 2018 plunged to near 50 from about 70 after the Beijing-based mobile software company said it would again delay the release of its annual report.

Amarin Corp. plc's 3.5% convertibles due 2032 were propelled into trade after the Dublin-based drug developer said it has agreed to exchange the majority of the existing $150 million of notes for new notes with the same coupon, a longer term and much lower initial conversion price.

In the broader markets, equities fell sharply and U.S. Treasuries gained, pushing the rate on the 10-year Treasury to a six-month low during the session.

The CBOE volatility index rose a point, or 9%, to 13.17.

The Dow Jones industrial average fell 167.16 points, or 1%, to 16,443.12, on top of a 101-point drop on Wednesday. The S&P 500 stock index fell 17.68 points, or nearly 1%, to 1,870.85, and the Nasdaq Stock market fell 31.33 points, or 0.8%, to 4,069.29.

New Spirit Realty edges par

Spirit Realty's new 2.875% notes due 2019 traded late in the session at 100 and were closed at 100.5, according to a syndicate source.

Spirit Realty's 3.75% notes due 2021 traded late in the session at 100.125 and also closed at 100.5, which was lower from about 101 early, the syndicate source said.

"They came in a little with the shares," a second syndicate source said around 11 a.m. ET.

Trading volume in the two bonds was very heavy and dwarfed other trading action in the convertibles market.

Shares of the Scottsdale, Ariz.-based retail REIT bounced around in positive territory, ending the session up 55 cents, or 4%, at $11.24. Intraday the stock had slipped to $10.71.

"There's a ton of demand for this type of paper. But I'll never understand a REIT deal where you're buying a bond and paying a premium when the stock still pays a higher yield than the bonds," a market source said.

"They modeled cheap though, and the company is paying off higher-yielding debt, so in that respect, it's a good deal," the market source said.

Spirit Realty priced an upsized $650 million of convertible senior notes at par in five- and seven-year tranches, which came at the rich end of talked terms, according to a pricing term sheet.

The seven-year tranche was upsized to $300 million from $200 million, while the five-year tranche remained at $350 million in size.

Both tranches have a 22.5% initial conversion premium, which was the rich end of 17.5% to 22.5% talk.

Concurrently Spirit Realty priced 23 million shares of common stock at $10.69 per share, for about $271.2 million of proceeds. There is a greenshoe for up to 3.45 million of additional shares.

Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and RBC Capital Markets Inc. were the joint bookrunners of the registered, off-the-shelf convertibles deal. Co-managers were Robert W. Baird & Co. Inc., Capital One Securities Inc., Raymond James & Associates Inc. and SunTrust Robinson Humphrey Inc.

The notes are non-callable for life with no puts, and they have takeover protection.

Proceeds will be used to defease some of the company's mortgage debt, to repay an outstanding balance under its revolving credit facility, to fund potential further acquisitions and for general corporate purposes.

Traders eye TAL models

TAL Education, a Beijing-based provider of after-school tutoring, launched an offering of $200 million of five-year convertible notes under Rule 144A and Regulation S that were talked to yield 2.25% to 2.75%, with an initial conversion premium of 27.5% to 32.25%.

One trader saw the deal modeling at 103.80 at the midpoint of talk, using a 750 bps credit spread and a 35% vol. That model included a negative 0.5% stock borrow cost.

A second trader said he was using a wider spread of about 1,000 bps over and a 38% vol. to model the notes.

Deutsche Bank Securities Inc., JPMorgan and Morgan Stanley were joint bookrunners of the deal, which has an over-allotment option for up to $30 million of additional notes.

TAL shares plunged $4.94, or 19.6%, to $20.22 during the session in the aftermath of the convertibles launch.

Amarin active

Amarin's 3.5% convertibles due 2032 were seen being quoted in the mid 80s on Thursday, and they also changed hands at 78.8. A previous level on the notes wasn't available, a Connecticut-based trader said.

Amarin and its subsidiary Corsicanto Ltd. said they entered into separate privately negotiated exchange agreements with holders of the notes issued Jan. 9, 2012. In exchange the company will issue $118.73 million of new 3.5% exchangeable senior notes due Jan. 15, 2032.

The 2014 notes will be exchangeable into American Depositary Shares of Amarin at an initial exchange rate of 384.6154 shares per $1,000 principal amount of 2014 notes, which is an initial exchange price of about $2.60 per share. The initial conversion premium on the existing notes is over $8.00.

The notes are non-callable until Jan. 19, 2018 and then are putable at par on Jan. 19, 2019, Jan. 19, 2024 and Jan. 19, 2029.

The notes will be exchangeable if the trading price of Amarin shares is at or above $2.86, or 110% of the exchange price, for the required measurement period. If the issuer exercises the exchange option on or before Jan. 15, 2018, the exchange rate may be increased under the make-whole table.

After settlement on May 20, $31.266 million of the 2013 notes will remain outstanding with terms unchanged.

Dublin-based Amarin develops drugs to treat central nervous system disorders.

Mentioned in this article:

Amarin Corp. plc Nasdaq: AMRN

NQ Mobile Inc. NYSE: NQ

Spirit Realty Capital Inc. NYSE: SRC

TAL Education Group NYSE: ADS: XRS

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