Alcoa seen at par in the gray market; TiVo’s new deal looks fair;’ Endo bids for Auxilium

By Rebecca Melvin

New York, Sept. 16 – Two planned deals pricing after the market close, including Alcoa Inc.’s $1.25 billion of mandatories and TiVo Inc.’s $200 million of seven-year convertibles, were pretty much the focus of Tuesday’s convertibles session.

There was weakness across the board in the secondary market, but not trading, as market players freed up some space for the day’s new deals and anticipated deals, a New York-based trader said.

“There was weakness, even though not much of an argument can be made that the new issues are cheap relative to the secondary market,” the trader said.

Alcoa’s planned $1.25 billion of three-year mandatory convertible preferreds was said to have repriced toward the cheap end of initial talk, or closer to a 5.5% coupon and 20% initial conversion premium, compared to initial talk of 5% to 5.5% coupon and 20% to 25% premium; but revised talk couldn’t be confirmed with syndicate sources.

The Alcoa mandatories were seen in the gray market at their issue price of $50.00.

The new TiVo deal looked right around fair value or a tad higher, two sources said. But there was no gray market in the new TiVo deal.

“It sounds like they should come at the cheap end or the mids,” an East Coast-based buysider said of the new TiVo.

The older TiVo 4% convertibles due 2016 were seen lower in trade. “The olds are ‘in’ 1.5 points,” a Connecticut-based trader said.

Elsewhere, some of the weak names included some long-only issues that have been typically rich, including Newmont Mining Corp., Citrix Systems Inc. and Alumina, a trader said.

“They have been historically overvalued and are finally coming in,” he said.

Tesla Motors Inc.’s newer A and B tranches “were a little lower for choice as people were making room,” the trader said.

But Twitter Inc.’s convertible bonds, which debuted in the market on Friday, found their footing and were up by about 0.25 point on the day after having come in since issue.

“They are starting to hold,” a trader said.

After the market close, market players took note of news that Endo International plc proposes to acquire all the outstanding shares of Auxilium Pharmaceuticals Inc. for a per share amount of $28.10 in cash and stock.

Endo’s proposal represents a premium of 31% to Auxilium’s closing share price Tuesday.

Auxilium has 1.5% convertibles due 2018 that have dropped with shares in recent months due to lowered expectations for the Malvern, Pa.-based specialty pharmaceutical company.

Alcoa to price mandatories

Alcoa’s planned $1.25 billion of three-year mandatory convertible preferred shares were seen trading in the gray market at their $50.00 per share liquidation preference.

The deal was seen repricing at the cheap end or a little beyond the cheap end of initial talk for a 5% to 5.5% coupon and 20% to 25% premium, according to an East Coast-based buysider.

The deal for the New York-based aluminum producer was being sold via Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC.

Proceeds will be used to finance the previously announced proposed acquisition of the Firth Rixson business and to pay related fees. Completion of the offering is not contingent on the acquisition.

TiVo to price

Using a credit spread of 350 basis points over Libor and 20% vol., the new TiVo convertibles looked worth 100.20 at the midpoint of talk, according to a Connecticut-based trader.

A second trader saw the deal looking fair value or better using a credit spread of 300 bps over Libor and 27% vol. at the midpoint of talk.

The new TiVo convertibles were talked at a 1.75% to 2.25% coupon and 30% to 35% initial conversion premium.

TiVo, the California-based provider of technology and services for digital video recorders, plans to price $200 million of five-year convertible senior notes after the market close Tuesday.

The Rule 144A deal has a $30 million greenshoe and was being sold via bookrunners Barclays and Deutsche Bank Securities Inc.

Proceeds are earmarked for general corporate purposes, including share repurchases, including the immediate repurchase of up to $50 million shares of common stock, and to fund net cost of a call spread.

Concurrently with the deal, the company plans to enter into convertible note hedge and warrant transactions, or a call spread, which boosts the initial conversion premium from the issuer’s perspective.

The bonds are non-callable for life with no puts. There is takeover and dividend protection, and settlement will be made in cash and shares.

Mentioned in this article:

Alcoa Inc. NYSE: AA

Auxilium Pharmaceuticals Inc. Nasdaq: AUXL

Citrix Systems Inc. Nasdaq: CTXS

Endo International plc Nasdaq: ENDP

Newmont Mining Corp. NYSE: NEM

Tesla Motors Inc. Nasdaq: TSLA

TiVo Inc. Nasdaq: TIVO

Twitter Inc. Nasdaq: TWTR

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