New Starwood slips on debut; older Starwood adds; Micron lower on swap; newest Tesla lower

By Rebecca Melvin

New York, March 24 – Starwood Property Trust Inc. priced an overnight issue of 4.375% six-year convertibles, which was upsized to $250 million from $200 million and traded at par and slightly below par upon release for secondary market dealings on Friday, market sources said.

“Starwood was a pretty big focus,” a New York-based trader said of Friday’s session. But the pricing meant that response to the new issue was tepid.

The fact that it was being offered at the issue price despite higher shares meant that “people are not looking to buy more of Starwood’s paper,” a trader said.

Starwood’s older 4.55% convertible due 2018, of which about $230 million of the $600 million outstanding is being repurchased with proceeds of the new deal, were trading actively and a little higher.

The older Starwood bonds traded as high as 109 and later at 108.125, which was up from 107.7 on Thursday. The common stock of the Greenwich, Conn.-based real estate investment company was up 20 cents, or 0.9%, at $22.73 in early trading.

Elsewhere, Micron Technology Inc.’s 3% bonds jumped on an outright basis, but were lower on swap, after the Boise, Idaho-based semiconductor company reported second-quarter earnings that were better than expected.

Micron’s 3% convertibles due 2043 traded up 6 points to 111.5 on an outright basis, according to Trace data, and were last around 110 against shares that were up about $2.25, or 8.5%, at $28.72, a trader said.

The bond was “lower by a point and change,” the trader said, citing the fact that the bond was rich relative to its capital structure and other convertibles in the space.

The newest Tesla Inc. convertible was a focus of trade all week, and though the issue improved some from initial heaviness, it still remained a little lower than issue price on Friday. The 2.375% Tesla bond is still 0.25 point to 0.375 point lower than issue price, a New York-based sellsider said. Meanwhile, Tesla shares gained $8.38, or 3.3%, to $263.16 on Friday.

Overall, trading in U.S. convertibles was light this past week as market players watched Washington to see what the outcome of a Congressional vote on the Republican’s health care bill would be. Late Friday, Republican leaders canceled the vote and pulled the bill because there was no consensus to be able to pass it. The vote was originally slated for late Thursday but postponed to Friday and is now postponed indefinitely.

In the broader markets on Friday, the major stock markets ended narrowly mixed. The Nasdaq stock market ended up 11 points, or 0.2%, at 5,828.74, while the Dow Jones industrial average closed down 60 points, or 0.3%, to 20,596.72 and the S&P 500 stock index closed down 2 points to 2,343.98.

Market players were poised all week to see the outcome of a Congressional vote on the bill. The market was predicted to sell off if the bill did not pass.

New Starwood slips on debut

Starwood Property, the Greenwich, Conn.-based real estate investment company, priced six-year convertible senior notes in an overnight deal to yield 4.375% and with an initial conversion premium of 15%.

The new paper struggled to hang on to its par issue price after being released for secondary market trading on Friday.

The 4.375% convertibles due 2023 traded at 100 out of the chute and then slipped to 99.875 and 99.3, according to Trace data.

The Starwood common shares were about 0.9% higher in the early going and closed up by 0.5%, or 11 cents, at $22.59.

The older Starwood 4.55% convertible added in trade on Friday since a portion of that issue is going to be repurchased with proceeds of the new deal.

The Starwood 4.55% convertibles due 2018 traded up to 109 and also at 107.7 and 108.125, which represented a slight rise from the previous level.

The new registered, off-the-shelf deal was upsized from an initially talked $200 million deal size, and pricing came at terms that were fixed upon deal launch.

Goldman Sachs & Co. was the bookrunner.

The notes, which mature April 1, 2023, are non-callable with no puts. They are contingently convertible after Oct. 1, 2022 if shares rise to 110% of the conversion price. There is takeover protection and net-share settlement.

Proceeds will be used to repurchase about $230 million of Starwood’s existing 4.55% convertible senior notes due 2018, of which there is about $600 million outstanding. Any remaining proceeds will be used to fund potential future acquisitions and for general corporate purposes.

Micron 3s ‘come in’ on swap

Micron’s 3% convertibles due 2043 traded up 6 points to 111.5 in the early going on Friday, against shares that were up about $2.25, or 8.5%, at $28.72.

The paper was seen at 110 later Friday, which was up from about 105.5 on Wednesday.

Micron has other convertible issues that don’t trade actively.

The 3% bond jumped on an outright basis but didn’t keep up with the underlying shares on a swap basis. The notes were seen lower by more than a point on swap.

The bond is rich compared to the rest of Micron’s capital structure, and “long onlys were taking profits,” a trader said, regarding what was behind the weakness.

The weakness seen in the rich bond was not affecting other names or issues in the technology sector, a trader said.

“This is its own animal. It’s a rich, tech bond,” the trader said, deeming the move as “nothing big.”

“It’s active,” he said of the Micron 3% bond, but “it’s mostly noise,” or basically rebalancing, he said.

Micron posted fiscal second-quarter earnings of $1.03 billion, or 90 cents per share, which was better compared to 86 cents per share expected by analysts. Micron revenue rose 58% to $4.65 billion, which met expectations. Strong demand and higher prices boosted revenue.

“Strong demand and limited industry supply for NAND and DRAM solutions, combined with significant progress on our cost reduction plan, produced excellent results for our second quarter,” Micron CEO Mark Durcan said in a release.

Mentioned in this article:

Micron Technology Inc. NYSE: MU

Starwood Property Trust Inc. Nasdaq: STWD

Tesla Inc. Nasdaq: TSLA

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