Twitter’s upsized $1.8 billion deal slips to 99ish on debut; REITs dip; Liberty Media down

By Rebecca Melvin

New York, Sept. 12 – Twitter Inc.’s newly priced convertible bonds traded down about a point on their debut in the secondary market on Friday after the San Francisco-based social media company priced an upsized $1.8 billion of five- and seven-year notes at the midpoint of talk, market sources said.

The combined Twitter tranches were upsized to $1.8 billion from $1.3 billion, and “they traded down under their own weight,” a New York-based trader said.

Despite the weak debut, the Twitter deal was seen as a positive development for the convert space in that it was likely to attract other solid issuers, especially Twitter’s peer group, to consider raising funds with the instrument. At the same time, more new issuance was seen as potentially putting continued pressure on the secondary market.

Many convertibles, including investment-grade issues, were notably heavy this past week as market players sold paper deemed to be expensive ahead of new, big deals rumored to be launching, market players said.

The weakness was part of an ongoing trend in recent weeks, and it was exacerbated by this week’s rate move.

On Friday, rate-sensitive names, particularly longer-dated issues, took a hit as rates widened. The yield on 10-year Treasuries widened to about 2.61% by the end of the session.

“REITS are getting crushed,” a New York-based sellsider said of the real-estate-investment trust sector.

Both Prologis Inc. and Extra Space Storage Inc. were down on an outright and dollar-neutral, or hedged, basis. But DDR. Corp. was seen a bit better on hedge. Shares of the three REITs were sharply lower.

Another notable loser was the rather long-dated Liberty Media Corp.’s 1.375% convertible due 2023. Those bonds traded at 100.625 versus a share price of $48.76 in the early going, which was down another 0.5 point on the day, and down about 2.5 points for the week, a New York-based trader said.

“It’s been a real blood bath in that one,” a Connecticut-based trader said of rate-sensitive Liberty Media convertibles.

“It’s an interesting market,” a sellsider said. “It feels like a toppy market.”

New Twitter lower on debut

Twitter 0.25% A tranche was trading 98.75 bid, 99 offered versus an underlying share price of $52.60 in the early going Friday.

Twitter’s 1% B tranche was trading a little higher at 99.0625 bid, 99.375 offered versus the same share price, a Connecticut-based trader said.

A second trader said the Twitter Bs were 99 bid, 99.25 offered.

At the end of the day, the As were seen to have changed hands at 98.625 against a share price of $52.64, which was Thursday’s close.

Shares ended Friday down 53 cents, or 1%, at $52.11.

Each Twitter tranche was $900 million, upsized 38% from an initially talked $650 million.

The deals were right around the 99 level regardless of where the underlying shares were, a New York-based trader commented. That pricing followed on the heels of a level in the gray market ahead of final terms being fixed of 99.875 bid, 100.125 offered.

Pricing came at the midpoint of talk. Tranche A was talked with a 0% to 0.5% coupon and tranche B was talked with a 0.75% to 1.25% coupon, both with a 45% to 50% initial conversion premium.

A credit spread of about 250 bps over Libor was pinned to the issue, with vol. capped at 40%.

Joint bookrunners were Morgan Stanley & Co. LLC, Goldman Sachs & Co. and J.P. Morgan Securities LLC, with BofA Merrill Lynch and Deutsche Bank Securities Inc. acting as co-managers.

Each tranche has a $100 million greenshoe, which if exercised, will raise the deal size to $2 billion.

REITs lower

Prologis’ 3.25% convertibles due 2015 were down 1.9 points in the early going at 108.1, according to Trace data. Prologis shares fell $1.36, or 3.4%, to $39.05 on Friday.

Extra Space’s 2.375% convertibles due 2033 were seen down at the end of the session at 103.75 bid, 104.75 offered with the underlying shares at $50.75. Extra Space shares ended down $1.90, or 3.6%, at $50.70.

Prologis and Extra Space were down 0.5 point to 0.75 point on the day on a dollar-neutral basis, a New York-based sellsider said.

“Rates finally backed off for the first time to the 2.60 handle from about 2.31,” the sellsider said. The move hurt the “high beta, more rate sensitive stuff.”

But DDR’s 1.75% convertibles improved as the stock vol. picked up with a UBS downgrade, a New York-based trader said. “This paper looks very cheap,” a New York-based trader said.

The DDR convertibles changed hands at 118.525, which was down 2.3 points, according to Trace data.

DDR shares fell 66 cents, or 3.7%, to $17.16 on Friday.

Mentioned in this article:

DDR Corp. NYSE: DDR

Extra Space Storage Inc. NYSE: EXR

Liberty Media Corp. Nasdaq: LMCA

ProLogis Inc. NYSE: PLD

Twitter Inc. Nasdaq: TWTR

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