Hertz comes 'in' a little on swap with better Dollar Thrifty bid; Level 3, Volcano on tap

By Rebecca Melvin

New York, Sept. 13 - The convertible bond market was firmer Monday and activity picked up some from the summer vacation period, but trading was certainly not close to full tilt, market participants said.

Hertz Global Holdings Inc. was an active name after news that the Park Ridge, N.J.-based rental car company agreed to a sweetened offer for Dollar Thrifty Automotive Group Inc.

Transocean Ltd. saw more than the usual amount of volume, with the three sister convertibles occupying the top three slots of the most active list, and with the Transocean 1.5% series B convertibles jumping 2.25 points at 97.5.

"Rig moved up a decent amount," a New York-based sellside trader said.

Amgen Inc. was a name in trade after the Thousand Oaks, Calif.-based biotechnology giant launched a $1.5 billion straight bond offering, and Symantec Corp., the Mountain View, Calif.-based computer security company, was also in trade as that company also planned to sell bonds.

When asked about Amgen pricing, one trader said, "Amgen really can't trade any tighter."

Regarding Symantec, a sellsider reported a trade in the Symantec 0.75% convertible due 2011, or the A paper, at 102 versus a share price of $15.00. Later, Trace reported the bonds at 101.75.

There were also multiple prints in Incyte Corp. after the Wilmington, Del.-based biopharmaceutical company reached a deal with the Food and Drug Administration on a late-stage study of a potential blood cancer treatment.

Incyte's 4.75% convertibles due 2015 traded at 184 versus a share price of $14.40, a New York-based sellside desk analyst said.

Overall, the convertibles market saw better pricing, but trading was characterized as ho hum.

"It was all the low delta stuff; there was nothing of interest," a New York-based sellside trader said.

A New York-based analyst said that only a pick up in secondary and tertiary names in trade, in good volume, and unrelated to name specific events, would mark a significant change in the convertibles market from the lackluster trade that it's seen.

In the U.S. primary market, Level 3 Communications Inc., a known convertibles issuer, launched an offering of $175 million of six-year convertible senior notes, and Volcano Corp. launched an offering of $100 million of five-year convertibles. Both deals were seen pricing after the market close on Tuesday.

Hertz lower on swap

Hertz Global Holdings' 5.25% convertibles due 2014 gained outright on Monday but were lower on a hedged basis, sources said.

The Hertz 5.25% convertibles traded Monday at 149.975 versus a share price of $10.83, which compared to Friday when the bonds settled at $140.932 versus a share price of $10.00.

Given a theoretical delta of 92%, the bonds tightened, or came in, about 0.125 point, a New York-based sellside analyst said.

"The paper is deep in the money; it was tighter on swap," the analyst said.

But how the bonds really did on hedge depended on the actual deltas of individual investors, the analyst said.

"The confirmed bid caps the upside potential," he said regarding the impact of the merger between the companies.

A second sellsider, who reported a trade at 147 versus a share price of $10.60, said the convertibles were lower on swap by about a point.

A third source called the bonds "up a little," by about 0.25 point.

Shares of the rental car company jumped 79 cents, or 8%, to $10.84 in ultra-heavy volume.

News broke over the weekend that the car rental company raised its bid for Dollar Thrifty to about $1.43 billion from $1.24 billion in an effort to out do rival Avis Budget Group Inc., which is also interested in acquiring the company.

Dollar Thrifty's board has accepted Hertz' sweetened new $50-per-share offer, up from the $41.00 per share it offered in April, and amended the companies' merger agreement.

Under the new deal, Hertz is raising the cash portion of its offer by $10.80 per share. Other items in the merger agreement include a $44.6 million reverse break-up fee.

Level 3 plans $175 million deal

Level 3's planned offering of six-year convertible senior notes was talked to yield 6.25% to 6.75% with an initial conversion premium of 22.5% to 27.5%.

Bank of America Merrill Lynch is the bookrunner of the registered deal, with Citigroup Global Markets Inc. the lead manager. Co-managers are Deutsche Bank Securities Inc. and Morgan Stanley & Co. Inc.

There is a greenshoe for a further $26.25 million.

The convertibles will be non-callable for three years and then provisionally callable if the stock exceeds 150% of the conversion price.

Proceeds are for general corporate purposes, including working capital, capital expenditures and potential repurchase or redemption of its 5.25% convertible senior notes due 2011 and other existing debt from time to time.

Broomfield, Colo.-based Level 3 is an internet backbone services provider.

Volcano plans $100 million deal

Volcano's five-year convertible senior notes were talked to yield 3% to 3.5% with an initial conversion premium of 22.5% to 27.5%.

The notes will be non-callable for life with no puts.

The registered, off-the-shelf deal is being sold via bookrunner J.P. Morgan Securities LLC.

There is a greenshoe of $15 million.

Concurrently Volcano plans to enter into convertible bond hedge and warrant transactions with affiliates of the underwriter.

Proceeds may also be used to expand Volcano's manufacturing capabilities and invest in complementary products, technologies or businesses. The balance of the net proceeds is expected to be used for working capital and general corporate purposes.

Volcano is a Rancho Cordova, Calif.-based maker of intravascular ultrasound and functional measurement products for vascular and structural heart disease.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Hertz Global Holdings Inc. NYSE: HTZ

Incyte Corp. Nasdaq: INCY

Level 3 Communications Inc. Nasdaq: LVLT

Symantec Corp. Nasdaq: SYMC

Transocean Ltd. NYSE: RIG

Volcano Corp. Nasdaq: VOLC

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