Wright Medical trades up in the gray; old Wright Medical adds; secondary market softer

By Rebecca Melvin

New York, Feb. 9 – Wright Medical Group Inc.’s planned $400 million of five-year convertible senior notes was higher in the gray market on Monday ahead of final terms seen being fixed after the close, market sources said.

The planned Wright Medical convertible was seen in the gray market at 101.25 bid, 101.75 offered and as high as 102, one trader said. There was talk of the issue being upsized to $550 million, but that could not be confirmed.

One trader said he thought the deal would come on the rich side of talked terms, which was for a 2% to 2.5% coupon and a 17.5% to 22.5% initial conversion premium.

Wright Medical’s existing 2% convertibles due 2017 were mostly quiet during the session, but they traded higher toward the end of the day amid talk that the company will pay an additional point or two to redeem the notes. About $250 million of the proceeds from the new issue will be used to buy back most of the older deal, a New York-based trader said.

A second new deal launched in Monday’s session for pricing on Wednesday was Global Eagle Entertainment Inc.’s $75 million of 20-year convertible senior notes.

Shares of the California-based in-flight video content and e-commerce provider plunged 14% on the heels of the news.

Elsewhere, the convertibles market was mostly soft, a New York-based trader said.

Market players were still digesting Microchip Technology Inc.’s large, $1.5 billion of 1.625% convertibles, which debuted in the market on Friday. That, combined with Monday’s imminent deals and potentially more issuance given that earnings season is just about through, created a drag on paper, the trader said.

The new Microchip convertible traded late in Monday’s session at 98.7, which was down about 0.6 point from Friday, according to Trace data. Shares of the Chandler, Ariz.-based semiconductor maker were down 76 cents, or 1.6%, at $47.88 at the close.

Red Hat Inc. was also seen down 0.7 point at 114.6, according to Trace data. Shares of the Raleigh, N.C.-based open-source software provider fluctuated, but ended little changed, or down 7 cents at $64.90.

Jarden Corp.’s convertibles were mentioned as being more active than usual. They were not much changed early in the session but slipped with shares that ended 1% lower.

The Jarden 1.5% convertibles due 2019 traded late in the day at 134.80, according to Trace data. They had been seen in early action at 135.5. The Jarden 1.875% convertibles due 2018 changed hands at 159.80 late in the session. That paper was at 161.125 early on, a market source said.

Jarden’s shares closed at $48.74 on Monday.

Also Cemex SAB de CV’s convertibles were active on Monday, as has been the case in recent sessions, and still mostly in recovery mode following positive earnings reported on Thursday.

Wright Medical looks cheap

Using a credit spread of about 500 basis points over Libor and a 25% vol., the planned Wright Medical convertibles looked “pretty cheap,” a New York-based trader said.

Using 500 bps and a higher vol. of 27%, which was the underwriters’ assumption, the deal still looked “pretty cheap,” the trader said.

The planned bonds of the Arlington, Tenn.-based orthopedic medical device company were at 101.25 bid, 101.75 offered in the gray market ahead of final terms being fixed.

“I think it’s going to price on the rich side,” the trader said.

The existing Wright Medical 2% convertibles, of which there are about $300 million outstanding face value, are going to be mostly bought back with proceeds of the new deal. The older bonds traded at 115.5 versus an underlying share price of $25.05 late in the day.

That was about 0.25 point higher, a trader said. “The company is going to pay 1 to 2 points on the olds.”

After using $250 million of proceeds to buy back the bonds, there will still be about $80 million outstanding.

Wright Medical shares ended up 45 cents, or 1.8%, at $25.20 on Monday.

The new offering of $400 million of five-year convertible senior notes – which was expected to be upsized – was talked to yield 2% to 2.5% with an initial conversion premium of 17.5% to 22.5%.

The Rule 144A deal has a $60 million greenshoe and was being sold via joint bookrunners J.P. Morgan Securities LLC and Wells Fargo Securities LLC.

The notes are subject to modification upon completion of the company’s pending merger with Tornier NV. After the merger, which is pending regulatory approval and expected to close in the first half of this year, the company will be known as Wright Medical Group NV.

The new notes are non-callable with no puts, except a takeover put. There is dividend protection for any dividend paid. There is also contingent conversion if shares exceed 130% of the initial conversion price.

In connection with the pricing of the notes, the company plans to enter into convertible note hedge and warrant transactions, or a call spread, which will boost the initial conversion premium from the company’s perspective. The strike on the warrants will be about $40 per share.

Proceeds will be used to repay about $250 million of debt as well as for general corporate purposes, including possible acquisitions, and to pay the net cost of the call spread.

Global Eagle to price

Global Eagle plans to price $75 million of 20-year convertible senior notes after the market close on Wednesday that were talked to yield 2.5% to 3% with an initial conversion premium of 30% to 35%, according to a syndicate source.

The Rule 144A deal has a $7.5 million greenshoe and was being sold via joint bookrunners Piper Jaffray & Co. and Macquarie Capital (USA) Inc.

Concurrently with the note offering, certain stockholders plan to sell 8.3 million shares of common stock in an underwritten public offering. The offered shares are being sold by certain members of the board of directors, and the shares represent only a portion of their shareholdings. There is a greenshoe for up to 1,245,000 additional shares.

The convertible and share transactions are not contingent upon one another.

The convertibles are non-callable for four years and then are provisionally callable in years four through seven if shares exceed 130% of the conversion price for 20 out of 30 trading days. After year seven, the convertibles are freely callable. There are investor puts at years seven, 10 and 15.

Proceeds from the notes are earmarked for working capital and general corporate purposes, including possible acquisitions, ongoing and future capital investments in new product development and technologies, and costs associated with expanding its customer base in new and emerging markets.

Westlake Village, Calif.-based Global Eagle provides in-flight video content, e-commerce and information services for airlines.

Cemex edges up further

The Cemex 3.25% convertibles due 2016 traded at 117.625 late Monday, which was up 1.6 points, according to Trace data.

The Cemex 3.75% convertibles due 2018 traded near the end of the session at 122.168, which was up nearly 0.5 point.

But the Cemex 4.875% convertibles due 2015 were at 100.5, which was down 0.5 point.

“There have been a lot of people checking on it,” a trader said of the Cemex bonds.

Cemex shares rose 17 cents, or 1.7%, to $10.07 on Monday. Since their Wednesday close, the Cemex shares are up almost 15%.

The company reported positive earnings on Thursday. Fourth-quarter operating earnings were $443 million, which was up 31% from the year-earlier quarter. Revenue fell 1.8% to $3.8 billion for the quarter, compared to analysts’ estimates of $3.93 billion for the quarter.

But chief executive Fernando A. Gonzalez said, “Our operating EBITDA on a like-to-like basis grew by 16% during the fourth quarter of 2014 and by 6% for the full year 2014 versus the comparable periods in 2013.”

Mentioned in this article:

Cemex SAB de CV NYSE: CX

Global Eagle Entertainment Inc. NYSE: ENT

Jarden Corp. NYSE: JAH

Microchip Technology Inc. Nasdaq: MCHP

Red Hat Inc. NYSE: RHT

Wright Medical Group Inc. Nasdaq: WMGI

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