Blackhawk active, edges up again on swap; Yahoo! trades in line after long-awaited deal

By Rebecca Melvin

New York, July 25 – Blackhawk Network Holdings Inc.’s convertibles edged up again in active trade on Monday, expanding another 0.375 point on a dollar-neutral, or hedged, basis, after the Pleasanton, Calif.-based payment services company’s $460 million of senior notes debuted in the secondary market on Friday.

“It was just a continuation of trading from Friday, a New York-based trader said of the new Blackhawk bond, which expanded 2 points in its debut.

Elsewhere, Yahoo! Inc.’s 0% convertible senior notes due 2018 were little changed on both Monday and Friday after word that Verizon Communications Inc. has agreed to buy Yahoo!’s operating business for $4.83 billion in cash.

“Yahoo! traded in line, post news, which was surprising to me,” a New York-based trader said. He said he had expected the bonds to contract on a dollar-neutral, or hedged, basis on the Verizon deal news because it meant that there was no more catalyst potential to move the stock and it was evident that bondholders will not get a kiss or any kind of inducement to keep the bonds outstanding.” The Yahoo! 0% convertibles due 2018 were seen at 99.75 bid, 100.25 offered at the market close.

There was a little lower pricing in the oil patch as crude oil prices slipped. The Weatherford International Ltd. convertibles were a point lower at 113.25. Shares of the international oilfield services company were down 12 cents, or 2%, at $5.70; and Whiting Petroleum Corp.’s 1.25% convertibles due 2020 changed hands lower by 1.65 points to 78.5, according to Trace data. That was against the Denver-based oil and gas company’s common stock, which was down 50 cents, or 6%, at $7.67.

The Verizon deal was seen giving Yahoo! the mobile platform that the internet site needs, Yahoo! chief executive Marissa Meyer said.

Tesla Motors Inc.’s convertibles were choppy in trade, mainly due to light volume, a trader said. The Tesla 0.25% convertibles were initially higher by about 0.75 point on the day in early action, but it later came back in to trade better by only 0.375 point. The stocks of both Tesla and SolarCity Corp. were higher on Monday amid no particular news, a trader said.

Otherwise, there were no notable themes or names in trade on Monday as traders begin to eye upcoming earnings reports coming up on the calendar. llumina Inc.’s 0% convertibles due 2019 traded a few times around par and appeared to be about in line with the pricing of the stock underlying the bonds ahead of that company’s earnings report expected on Tuesday.

In the broader markets, equities were mostly lower. The Dow Jones industrial average fell 77.79 points, or 0.4%, to 18.493.06; the S&P 500 stock index lost 6.55 points, or 0.3%, to 2,168.483; but the Nasdaq Composite stock market was essentially unchanged, or down 2.53 points, to 5,097.63.

Blackhawk extends gains

The Blackhawk 1.5% convertibles due 2022 were trading around 104 versus an underlying common stock price of $37.05, a New York-based trader said.

Blackhawk shares were up about 59 cents, or 1.6%, at $37.10.

The Blackhawk convertibles expanded about 2 points on swap on Friday and were seen near the market close on that day at 103 bid, 103.5 offered versus an underlying share price of $36.40.

“HAWK is still a focus,” the trader said on Monday.

The Blackhawk follow-through trading was about the only notable trading action in the convertibles market early Monday, two New York-based traders said.

The upsized Rule 144A deal priced at the rich end and beyond the rich end of talked terms late Thursday.

There is a good amount of outright demand, as well as hedged participation.

Joint bookrunners are BofA Merrill Lynch, Wells Fargo Securities LLC, SunTrust Robinson Humphrey Inc. and MUFG.

Senior co-managers are BMO Capital Markets and PNC Capital Markets LLC, and co-managers are Barclays, Raymond James, Fifth Third Securities and BNP Paribas Securities Corp.

The notes are non-callable with no puts and have full dividend protection via conversion ratio adjustment and change-of-control protection.

Pleasanton, Calif.-based Blackhawk is a prepaid, gift card and payments services company.

Yahoo! trades in line

Yahoo!’s convertibles were seen little changed at 99.75 bid, 100.25 offered on Monday as market players reacted to the news that Verizon is buying Yahoo!’s operating business.

“It’s not overly exciting, nor overly risky. It’s no man’s land, so no one is going to do much with it,” a New York-based trader said of the Yahoo! convertibles, which will be redeemed at par.

“You’re going to get par, so anything under par is kind of bought right now,” he said.

The Yahoo! paper, which is neither too cheap nor too rich, had traded below par around 99.375 as well. The paper will remain obligations of Yahoo! after the sale.

Yahoo! may start a consent solicitation to amend the terms of the convertibles or tender for the securities, according to an 8-K filing with the Securities and Exchange Commission.

If Yahoo! is unable to amend the convertible indenture and a court determines that the transaction is a sale or transfer of substantially all of Yahoo!’s properties and assets, then Verizon will assume the convertibles, but the purchase price for the assets will be reduced by the amount of the convertibles and an escrow account will be created to cover all payments on the convertibles. Yahoo! will also provide any shares needed to settle conversions.

Yahoo! added that it intends to return substantially all of its net cash to shareholders. Details will be announced later.

As of March 31, there was $1.4 billion of the convertible outstanding, according to Yahoo!’s most recent 10-Q filing with the SEC.

Yahoo! is a Sunnyvale, Calif., digital information company.

Mentioned in this article:

Blackhawk Network Holdings Inc. Nasdaq: HAWK

Illumina Inc. Nasdaq: ILMN

Tesla Motors Inc. Nasdaq: TSLA

SolarCity Corp. Nasdaq: SCTY

Weatherford International Ltd. NYSE: WFT

Whiting Petroleum Corp. NYSE: WLL

Yahoo! Inc. Nasaq: YHOO

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