By Rebecca Melvin
New York, May 13 - L-3 Communications Holdings Inc. was the name of the day Tuesday, trading down in heavy volume, after word that the New York-based aerospace and security contractor is going to call its 3% convertibles due 2035.
The L-3 3% convertibles traded down to about 2 points below parity, sources said.
Elsewhere, Dealertrack Technologies Inc.'s convertibles traded down about 11 points outright amid a 12% drop in the underlying shares after the Lake Success, N.Y.-based auto retail software service company reported earnings that missed estimates. But on a dollar-neutral basis, the Dealertrack bonds expanded slightly.
"The majority of the day's dealings was LLL," a New York-based trader said of L-3 Communications. Otherwise, the trading day was uninteresting, "with the same boring names such as WellPoint and Salesforce," he said, referring to WellPoint Inc. and Salesforce.com Inc.
Market players were also on the lookout for new deals, and after the market close, Spirit Realty Capital Inc. launched a $550 million offering of convertible senior notes in two series, including $350 million of five-year notes and $200 million of seven-year notes.
There was also a bit of primary market activity internationally. London-based Primary Health Properties plc priced £75 million of five-year convertible bonds to yield 4.25% with an initial conversion premium of 16%. And in Canada, Canexus Corp. priced C$75 million of 7.5-year convertible debentures on a bought-deal basis to yield 6.5% with an initial conversion premium of 37%.
Also going up on the calendar was a deal from Luxembourg-based Gagfah SA, a residential real estate company, which plans to price €325 million of five-year convertibles at a coupon of between 0.75% and 1.5% and an initial conversion premium of between 30% and 35%.
L-3 Communications down
L-3 Communications' 3% convertibles traded late in the session at 131 to 132. L-3 stock was up $5.21, or 4.5%, to $121.06 on Tuesday.
The bonds traded at about 2 points below parity, which was down from 0.625 point over parity previously, market sources said.
"The LLL 3% is getting crushed on them being called," a New York-based trader said.
More than $40 million of the bonds traded, according to Trace data, which represented heavy flow in the convertible issue of which there was $689.4 million of paper outstanding as of March 28.
As word spread that L-3 was planning to issue $1 billion of straight debt to redeem the convertibles, many holders put their bonds up for sale. But the call was not officially announced until just before the market close.
There was speculation during the session over whether the company would buy back to bonds for cash and stock or cash only. But in its announcement late in the session, the company said it is calling all of its outstanding 3% convertibles in cash at par plus accrued interest.
Holders can convert the bonds at any time prior to the close of business on May 30, but those who convert will not be entitled to accrued interest.
The current conversion rate is 11.2259 shares of stock per bond, which is equal to a conversion price of $89.08 per share. The company's stock closed at $121.06.
One trader said he thought the call would be cash, given that the company was issuing $1 billion in straight notes.
The company said it plans to issue senior notes due 2017 and 2024 with BofA Merrill Lynch, Barclays, SunTrust Robinson Humphrey Inc., Deutsche Bank Securities Inc., Mitsubishi UFJ Securities (USA), Inc., Scotia Capital (USA) Inc., U.S. Bancorp Investments, Inc. and Wells Fargo Securities, LLC as the joint bookunners.
Remaining proceeds from the new notes will be used for general corporate purposes.
L-3 is a New York-based contractor in command, control, communications, intelligence, surveillance and reconnaissance systems, aircraft modernization and maintenance and government services. It is also a provider of electronic systems used on military and commercial platforms.
"It's a good credit; eventually they call them. All the wishing and praying won't change that," a New York-based trader.
DealerTrack swoons
Dealertrack's 1.5% convertibles due 2017 were quoted at 123.875 bid, 124.375 offered versus an underlying share price of $39.05, a New York-based trader said at late morning.
That represented an expansion on a dollar-neutral basis of about 0.25 point, the trader said.
The two-year old, $200 million issue dropped 11 points outright, while shares fell $5.34, or 12%, to $39.04. Later the shares recovered some ground to end down $3.36, or 7.6%, to $41.02.
DealerTrack reported first-quarter earnings that missed estimates, but it raised its revenue forecast.
Dealertrack reported earnings of 23 cents a share, missing the consensus estimate by 7 cents. But revenue grew 45.6% from the year-ago quarter to $158.8 million, which was above expectations for revenue of $155.7 million for the quarter.
Looking ahead, Dealertrack expects full-year revenue of $814 million to $826 million, up from its previous guidance of $800 million to $816 million.
Spirit Realty to price
Spirit Realty plans to price $550 million of convertible senior notes in two series after the market close Wednesday.
The five-year tranche for $350 million was being talked at a coupon of 2.875% to 3.375% with a 17.5% to 22.5% initial conversion premium.
The seven-year tranche for $200 million was being talked at a 3.75% to 4.25% coupon and a 17.5% to 22.5% premium.
Spirit Realty also plans to price 23 million shares of common stock.
The notes maturing May 19, 2019 have an over-allotment option for $52.5 million, and the notes maturing May 15, 2021 has an over-allotment option for $30 million.
Joint bookrunners of the registered, off-the-shelf convertibles deal are Morgan Stanley, J.P. Morgan Securities LLC and RBC Capital Markets.
Proceeds will be used to defease some of the company's mortgage debt, to repay an outstanding balance under its revolving credit facility, to fund potential further acquisitions and for general corporate purposes.
Scottsdale, Ariz.-based Spirit is a real estate investment trust focused on primarily commercial properties.
Mentioned in this article:
| Canexus Corp. | Toronto: | CUS
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| Dealertrack Technologies Inc. | Nasdaq: TRAK
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| Gagfah SA | Xetra: GFJ
|
| L-3 Communications Holdings Inc. | NYSE: LLL
|
| Primary Health Properties plc | London: PHP
|
| Spirit Realty Capital Inc. | NYSE: SRC
|
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