Liberty adds outright on debut; Exide collapses; James River down; Colony Financial on tap

By Rebecca Melvin

New York, April 4 - Liberty Interactive Corp.'s newly priced 0.75% exchangeable debentures traded up 1.375 points to 1.75 points outright on their debut in the secondary market Thursday after being significantly upsized and pricing at the cheap end of revised coupon talk.

The $850 million Liberty deal - which was upsized from $550 million - was seen in the gray market ahead of final terms being fixed at only 100 to 100.25 and it was also heard trading below par in the gray.

On swap, the new debentures exchangeable into Time Warner Cable Inc. and Time Warner Inc. are set against a blended price of the two stocks.

Many holders of the existing Liberty 3.125% exchangeables switched into the new paper, and much but not all of the older issue was retired, a syndicate source said.

Elsewhere, Exide Technologies' convertible, a small deal due in September, was smacked down on the heels of a sudden plunge in the underlying shares of the Milton, Ga.-based battery maker and recycler. Exide shares slid nearly 50% on word that the company has hired a financial adviser.

James River Coal Co.'s 3.125% convertibles due 2018 traded down 2 to 3 points to 18 despite a bounce in the underlying shares of the Richmond, Va.-based coal maker by about 10% during the session. The bounce did not recover nearly all of the slide of the last two weeks that left those shares down about 30%. James River's 4.5% convertibles due 2015 were not heard in trade.

In the primary market, Colony Financial Inc. launched an offering of $150 million of 10-year convertible senior notes after the market close that was seen pricing ahead of the market open Friday.

The registered, off-the-shelf Colony deal was talked to yield 4.75% to 5.25% with an initial conversion premium of 10% to 15%, according to a syndicate source.

Overall, valuations in the convertible bond market were seen as "relatively stable," a situation that has been true for the last week or so despite that fact that trading has been light.

"There has not been any material change in valuations," a New York-based trader said. "But it has been slow."

Behind the inactivity is the absence of much new issuance and also rising geo-political risk as well as mixed economic data that has dampened risk-taking enthusiasm, he said.

"But no one is selling; people are staying invested," the trader said, despite many anticipating a pullback in markets that is overdue.

"It's been quiet and new issuance has slowed. Other than Liberty this week and the other mandatory for Intelsat, which has a two-week roadshow and is going to be awhile, there isn't a calendar," he said.

As for economic data, traders will be watching the Labor Department's March jobs report due out on Friday following a weak ISM number and a disappointing unemployment numbers earlier this week, the trader said.

Liberty notches nice debut

Liberty's newly priced 0.75% exchangeable debentures closed Thursday at 101.375 bid, 101.75 offered. On a hedged basis, the debenture is set against a blended price of Time Warner Cable and Time Warner shares.

The Time Warner Cable shares closed higher by 0.9%, and the Time Warner shares were up 0.3% on the day.

Trading was active due to Liberty's relatively large deal size, but many traders queried "hadn't traded a single bond."

The existing Liberty exchangeables were little changed at an outright price of about 164. They were trading at parity to a little less than parity by 0.25 point to 0.125 point between late Wednesday and early Thursday, a New York-based trader said.

"They took the existing ones out at parity, and there was swapping of the old for the new," the trader said.

A syndicate source said that many existing bondholders moved into the new paper, which was attractive to them for its more balanced profile, the dividend pass through, and the structure, which is simpler because it is exchangeable only into two shares, instead of three like the old ones.

The older Liberty bonds were exchangeable into Time Warner Cable, Time Warner and AOL. The basket of shares evolved over time as the company spun off those businesses.

"It is a cleaner structure," a syndicate source said of the new paper.

Much of the older issue was retired with proceeds of the new deal. The older issue had lost optionality and had little to no premium.

But proceeds of the new deal didn't add up fully to the old one, so the company will need to raise some incremental proceeds to call those bonds in full as it intends to do.

The deal priced at the cheap end of revised talk for a yield of 0.5% to 0.75% and a fixed initial exchange premium of 10%. But pricing was at the rich end of initial talk for a 0.75% to 1% yield and a 10% exchange premium.

Joint bookrunners for the Rule 144A sale were BNP Paribas Securities Corp. (bill and deliver), BofA Merrill Lynch, Credit Suisse Securities (USA) LLC, Wells Fargo Securities LLC, Barclays and Morgan Stanley & Co. LLC.

The debentures are non-callable until April 5, 2018 and then are provisionally callable until April 5, 2023 subject to a 120% price hurdle.

There is a put on March 30, 2023.

There is dividend protection. Sixty-seven percent of the reference shares per debenture will be Time Warner Cable stock and 33% will be Time Warner stock.

Englewood, Colo.-based Liberty Interactive owns interests in electronic retailing, media, communications and entertainment businesses.

Exide crashes

Exide's floating-rate convertibles due September 2013 slipped about a point to 94 and then tanked to 50 bid, 75 offered on Thursday. There was a sale at 64 in the afternoon, a New York-based trader said.

Exide shares were trading unchanged much of the day until they fell off a cliff right after 2 p.m. ET. Then in 10 minutes, they lost 50%, sinking to $1.48 from $2.40 in that period, a New York-based trader said.

The end of the session left the Exide shares down $1.24, or 48%, at $1.37.

The catalyst for the plunge was word that the company has hired a financial adviser, sources said. Lazard is advising Exide on financial alternatives.

"That will be its second trip into bankruptcy," a Connecticut-based trader said.

A second source said the convertibles are subordinated to the senior straight debt and a bankruptcy "will not be pretty."

Colony Financial to price

Colony Financial, a Santa Monica, Calif.-based real estate investment trust, plans to bring a $150 million convertible early Friday, the proceeds of which will be used to acquire interest-bearing short-term investments, including U.S. Treasuries, which are target assets in line with the company's investment strategies, and for working capital and general corporate purposes.

The registered deal has a $22.5 million greenshoe and was being sold via Goldman Sachs & Co., BofA Merrill Lynch, Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC.

The notes are non-callable for seven years and then are provisionally callable if the underlying shares rise to at least 130% of the conversion price. There are no puts.

Mentioned in this article:

Colony Financial Inc. Nasdaq: CLNY

Exide Technologies Nasdaq: XIDE

James River Coal Co. Nasdaq: JRCC

Liberty Interactive Corp. Nasdaq: LINTA

Time Warner Cable Inc. NYSE: TWC

Time Warner Inc. NYSE: TWX

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