Weatherford offers $1 billion notes; Softbank/Alibaba deal looks cheap; secondary heavy

By Rebecca Melvin

New York, June 1 – Weatherford International plc launched an offering of five-year exchangeable senior notes after the market close on Wednesday for pricing early Thursday.

Weatherford’s common shares tanked in after-hours trading on the New York Stock Exchange, falling more than 11% on the heels of the news before recovering some to trade down only 6%.

The notes are being talked at a 5.625% to 5.875% coupon and 37.5% to 40% initial exchange premium.

Last September, the international oilfield services company launched and subsequently pulled a $1 billion mandatory deal that was talked at a 6.25% to 6.75% dividend and 22.5% to 27.5% premium. The reason cited for pulling that deal was that although investor interest was strong, the company was unwilling to sell securities at pricing that did not reflect the value of Weatherford.

Also in the primary market, Softbank Group Corp.’s planned $5 billion of mandatory exchangeables into Alibaba Group Holding Ltd. valued cheaply and were expected to “do fine” in the market after pricing late Wednesday, a New York-based trader said.

The Alibaba mandatory looked about 3% cheap, using a credit spread of 125 basis points over Libor and a 33% to 30% vol., the trader said.

There should be plenty of crossover demand, and it should do fine, the trader said. “It models cheap enough and gives guys exposure to a big, widely held tech name.”

Nevertheless, its ultra-large size and technicalities related to the structure as a mandatory and an exchangeable are strikes against it.

A second market source noted, “This is trouble for closet indexers who may not want so much exposure to Alibaba, China and a mandatory.”

Softbank, which is executing the deal via a new trust known as Mandatory Exchangeable Trust, is planning to price the three-year paper with a 5.25% to 5.75% yield and 17.5% to 22.5% an initial exchange premium.

Back in the secondary market, convertible paper was generally “better for sale,” meaning that there were more offers to sell issues than bids to buy. Volume was light.

“Things are very heavy,” a trader said.

Aegean Marine Petroleum Network Inc.’s convertibles were indicated down a couple of points at 79.9 at the close, from 82.76 previously. The 4% Aegean Marine bonds traded all over the place during the session, rising a couple of points to 84 and moving back down to unchanged before ending a bit lower against the underlying shares, which closed down 42 cents, or 6.3% to $6.24.

Weatherford to price

Weatherford International Ltd., a subsidiary of Weatherford International plc, is planning to price $1 billion of five-year exchangeable senior notes in a registered, off-the-shelf deal. The deal includes a $150 million greenshoe.

Someone close to the deal said there was heavy subscription from the outright community.

The notes are non-callable, with no puts, and they mature July 1, 2021. They have takeover and dividend protection, and net share settlement.

They are being issued by Weatherford Bermuda, and guaranteed by Weatherford International plc, or Weatherford Ireland and Weatherford International LLC, or Weatherford Delaware. The shares underlying the notes are Weatherford Ireland, listed on the New York Stock Exchange under ticker “WFT.”

Joint bookrunners are RBC Capital Markets LLC (left lead) and Citigroup Global Markets Inc. RBC is acting as sole structuring adviser.

Proceeds are being used to fund all or a portion of tender offers to purchase certain of its 6.25% senior notes due 2017, 6% senior notes due 2018, 9.625% senior notes due 2019 and 5.125% senior notes due 2020.

Proceeds not used to fund the tenders will be used to repay or retire other outstanding debt, including amounts under Weatherford Bermuda’s revolving credit facility.

Softbank/Alibaba on tap

The Softbank/Alibaba mandatory was predicted to price and trade well in the convertibles market amid heavy participation from crossover investors.

Under a collateral agreement, a wholly owned subsidiary of Japan’s Softbank Group Corp. called West Raptor Holdings, LLC will initially pledge a number of ordinary shares underlying the maximum number of American Depositary Shares deliverable upon maturity of the exchangeables under the forward purchase agreement.

Mandatory Exchangeable Trust, a newly formed, independent trust, plans to price $5 billion of mandatory securities exchangeable into Alibaba stock after the market close on Wednesday that were being talked to yield 5.25% to 5.75% with an initial exchange premium of 17.5% to 22.5%, according to market sources.

Based in Hangzhou, China, Alibaba is an online and mobile commerce company in the People’s Republic of China and internationally.

The Rule 144A exchangeable was being sold via joint bookrunners Morgan Stanley & Co. LLC and Deutsche Bank Securities Inc.

Mentioned in this article:

Aegean Marine Petroleum Network Inc. NYSE: ANW

Alibaba Group Holding Ltd. Nasdaq: BABA

Softbank Group Corp. Japan: 9984

Weatherford International plc NYSE: WFT

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