Saks jumps outright on buyout news; Tesla paper flat; Group 1 trades; Vantage Drilling up

By Rebecca Melvin

New York, July 29 - Saks Inc.'s convertibles gained about 10 points on an outright basis and remained around parity after the New York-based retailer agreed to be bought by Hudson's Bay Co. for $16.00 per share in cash, representing a 5% premium to the company's Friday closing price.

The Saks transaction was expected to close before the end of the year, which means it will involve a slight bump up in the conversion rate if it occurs before the bonds mature on Dec. 1.

Elsewhere, convertibles were on the quiet side and mostly in line on a dollar-neutral basis, a New York-based trader said of Monday's session.

Tesla Motors Inc.'s convertibles continued to ride higher on an outright basis, but were unchanged dollar neutral, as the underlying shares jumped another $5.00.

Group 1 Automotive Inc. traded up 1 point to 1.5 points on an outright basis with the underlying shares up $1.26. The Houston-based automobile dealer reported stellar second-quarter earnings and revenue last week.

Stone Energy Corp., the Lafayette, La.-based oil and natural gas company, saw its 1.75% convertibles due 2017 traded at 95 on Monday.

Some of this month's new deals were better Monday. American Realty Capital Properties Inc.'s 3% convertibles due 2018 traded up nearly a point to about par Monday with the underlying shares of the New York-based real estate investment company adding 1.6%.

The newest Ares Capital Corp. convertibles, which priced July 15 with a 4.375% coupon, had come in initially but were back up, a New York-based analyst said.

Starwood Property Trust Inc., which priced $400 million of 4% convertibles early this month, saw the paper climb 5 points to 105.375 bid, 105.875 versus an underlying share of $25.42 by Monday; the analyst said.

Vantage Drilling Co., which priced $100 million of 30-year convertibles on July 11 that had not been heard in trade in the early days after its debut, saw the notes at 105.125 bid, 106.125 offered versus an underlying share price of $1.77 on Monday, according to a syndicate source. The Vantage shares have dropped 9.5% from $1.95 since the convertible bonds were issued.

Equities slipped to start the week, which will include a two-day meeting of the Federal Open Market Committee and the July jobs report. The S&P 500 stock index closed down 6.21 points, or 0.4%, to 1,685.44; the Dow Jones industrial average slipped 35.79 points, or 0.23%, to 15,523.04; and the Nasdaq stock market dipped 14.02 points, or 0.4%, to 3,599.14

Saks takeout sparks trade

Saks' 7.5% convertibles, which mature Dec. 1, 2013, were trading actively and seen at 286.25 versus an underlying share price of $15.85 in midafternoon trading, which was right around parity, a New York-based analyst said.

A second source said the paper was trading at 287.25, which was up 10 points from a quote at 277.21 before the takeover news.

In midafternoon, shares of the New York-based luxury retailer were up about 3.6% at $15.86. But they closed higher, up 64 cents, or 4.2%, at $15.95. The bonds trade on a high delta of 100%.

"The bonds are short-dated and deep in the money, and I would guess that they trade like the equity," a New York-based analyst said.

Saks agreed to be taken over by Hudson's Bay for $16.00 per share, or $2.9 billion including debt, according to a news release. Hudson's Bay chief executive Richard Baker said the goal of the transaction is to bring Saks' luxury brand into Canada. The company plans to open up in Canada seven Saks Fifth Avenue stores and 25 Off Fifth outlet stores.

"There was good two-way flow and the bonds are trading at about parity," a second New York-based analyst said of the Saks bonds.

Depending on certain assumptions, the trading action on the bonds will be based on the make-whole table in the takeover protection provision, the analyst said. "It could be a good trade for some people."

There is only about $91 million of the Saks convertible bonds outstanding. Saks called its 2% convertibles, of which there was about $230 million outstanding, in March.

The 7.5% convertibles have traded close to parity for weeks, the analyst said, calling the market parity minus 0.25 point to 0.25 point plus parity prior to the takeover news.

The first analyst said, "The stock jumped and so did the convert."

Tesla unchanged dollar neutral

Tesla's 1.5% convertibles due 2018, which priced on May 16, traded up about 3 points on an outright basis to 129.75 bid, 130 offered versus an underlying share price of $129.39, according to a New York-based trader. That compared to the bonds at 125.8 on Friday.

Shares of the Palo Alto, Calif.-based electric car maker rose by $5.23, or 4%, to $134.62 on Monday, which was on top of a $5.32, or 4.3%, rise on Friday.

"On a dollar-neutral basis, they were about unchanged," the trader said.

Tesla is expected to release earnings in the middle of August. It has also been the subject of buyout speculation.

The bonds are already in the money given their initial conversion price of $124.52.

Group 1 adds with shares

Group 1's 2.25% convertibles due 2036 traded up to 127 and 127.5 on Monday with the underlying shares up $1.26, or 1.8%, at $72.39.

There is $182.7 million outstanding of the 2.25% convertibles. Group 1 also has $115 million outstanding of its 3% convertibles due 2015, but they were not heard in trade.

Last week, Group 1 said its net income for the second quarter was up nearly 22% to $1.52 per share. That compared to $1.25 per share in the second quarter of 2012.

Revenue rose 23% to $2.3 billion, which was a record high for the company. Both the earnings and revenue were higher than analysts' estimates.

Strong performance across its business with higher retail new vehicle sales and better revenue from its finance and insurance businesses fueled the improvement.

Mentioned in this article:

American Realty Capital Properties Inc. Nasdaq: ARCP

Ares Capital Corp. Nasdaq: ARCC

Group 1 Automotive Inc. NYSE: GPI

Saks Inc. NYSE: SKS

Starwood Property Trust Inc. Nasdaq: STWD

Stone Energy Corp. NYSE: SGY

Tesla Motor Inc. Nasdaq: TSLA

Vantage Drilling Co. NYSE: VTG

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.