Micron jumps on buyback, exchange news; Energy XXI up on debut; Newpark expands on swap

By Rebecca Melvin

New York, Oct. 29 - Micron Technology Inc.'s 1.875% convertibles due 2014 were higher and active in trade Friday after the Boise, Idaho-based chip maker said it's buying back about $350 million of that paper, including $175 million in an exchange for new 1.875% notes due 2027.

The Micron 4.25% convertibles, of which $91.1 million is being repurchased, were not as active.

Energy XXI (Bermuda) Ltd.'s newly priced 5.625% convertible perpetual preferreds traded up handsomely price-wise, but they were not very active upon release for secondary dealings, perhaps due to the fact that the market focus was primarily on Micron, market sources said.

"They did very well; I just haven't seen very much of it," a New York based sellside trader said of Energy XXI.

Also on Friday, Green Plains Renewable Energy Inc.'s newly priced 5.75% convertible bonds were in the market, but none of the upsized $75 million of five-year senior notes was reported in trade.

Newpark Resources Inc. fell outright on Friday, but expanded 2 or 3 points on a swap basis, after shares of the Woodlands, Texas-based oilfield services company were pummeled on weak quarterly earnings.

Micron active on buybacks

Micron's 1.875% convertibles due 2014 traded up to as high as 97, or 3 to 4 points outright, and given the low delta on the name, even on a hedged basis, they were higher by a couple of points, a New York-based sellside analyst said.

The paper was last seen on Trace at 94.25, which was up 1.5 points on the day.

The Micron 4.25% convertibles due 2013 were not as actively traded. They were seen up to 178.5 compared to 170 on Thursday, according to a pricing source.

The 4.25% paper doesn't have a lot outstanding, and with the buyback on about $320 million outstanding, it leaves about $140 million out there, the analyst said.

The $350 million buyback on $1.3 billion outstanding of the 1.875% convertibles leaves about $950 million out there.

The news follows on the heels of Ford Motor Co.'s exchange offerings launched earlier this week to take out as much as $3.5 billion of its two 4.25% convertible bonds.

Although the Ford offers were considered fair by market players, they might not be viewed as attractive, especially to outright players, who have to consider what they will replace the paper with that is as good as far as credit quality.

Scarce and continually disappearing high-grade paper in the convertible market is an issue for market players, especially outright players who have to maintain a portion of their portfolios in high-grade credits.

Energy XXI trades higher

The new Energy XXI 5.625% perpetual convertible preferreds traded at 264, which was 14 points above their 250 par, and in line with where gray market indications were on Thursday when the upsized $250 million deal priced after the market close. Those gains - about 4 points dollar neutral - came despite lower shares.

The paper was seen pretty stable all day in the 263 bid, 267 offered range, according to a sellsider.

Shares of the Bermuda-based oil exploration and production company turned higher, and were up 17 cents, or nearly a percentage point, to $21.72 at the close, after spending most of the day in negative territory, or lower by about 1%. On Thursday, the shares lost nearly 8%.

The stock was down at about $21.25 for most of the morning and into the afternoon.

The gain on a dollar-neutral basis was probably about 4 points based on a $20.75 stock price, which is where a concurrent stock offering was priced.

"It's up about 4 points, I guess, if you want to look at it like that," a New York-based sellside trader said.

There was not a lot of paper trading possibly because it was a preferred stock deal and not all convertibles players are involved in preferreds, a New York-based sellside trader suggested.

In addition, the Micron Technology news was a distraction, the trader said. "Most people were trading that."

Energy XXI priced concurrent upsized offerings of common and preferred stock, with proceeds of almost 50% of its market cap.

The preferred offering was initially going to be $200 million in size.

The perpetual preferreds have an initial conversion premium of 22.5%.

It came at the tight end of the range, or rich end, of talk, which was for a dividend of 5.625% to 6.125% and a premium of 17.5% to 22.5%.

Energy XXI also priced $249 million, or 1 million shares, of common stock, at $20.75 per share.

The preferred offering has a greenshoe of up to $37.5 million of additional shares, which was upsized from $30 million, and the common stock offering has a greenshoe for up to 1.8 million of additional shares.

UBS Securities LLC, BNP Paribas Securities Corp. and RBS Securities Inc. were the joint bookrunners of the preferred offering, and UBS Securities and Credit Suisse were joint bookrunners of the stock offering.

The preferreds are non-callable for three years and then provisionally callable subject to a price hurdle of 130% over the conversion price.

Proceeds will be used to redeem $119.7 million of its 16% second-lien junior secured notes due 2014, and $91.5 million will be used to repay amounts outstanding under a revolver.

Remaining proceeds will be used for general corporate purposes, which may include further market purchases of the 16% notes due 2014, repayment of other debt, accelerating development of existing reserves or acquisitions.

Energy XXI is a Hamilton, Bermuda-based oil and natural gas exploration and production company with U.S. Gulf of Mexico properties.

Green Plains upsizes

Green Plains' 5.75% convertible bonds due 2015 were not heard in trade.

The Rule 144A deal was upsized to $75 million with a $15 million greenshoe, from an initially talked $60 million with a $10 million shoe.

The deal came at the cheap end of talk for the coupon, which was 5.25% to 5.75%, and at the rich end of talk for the premium, which was 22.5% to 27.5%.

Jefferies & Co. and Credit Suisse Securities were the joint bookrunners for the bonds, which are non-callable for three years and then provisionally callable subject to a price hurdle of 140% of the conversion price. There is a takeover put at par plus accrued interest.

Proceeds are for general corporate purposes. Green Plains may also use a portion of the proceeds to acquire or invest in additional facilities, assets or technologies intended to further growth.

The company does not intend to use proceeds to fund its announced acquisition of Global Ethanol, LLC.

Omaha-based Green Plains is an ethanol producer.

Newpark expands on swap

Newpark Resources' 4% convertible senior notes due 2017, which were issued about a month ago, fell about 14 points outright to around 92 bid, 93 offered on Friday, down from 106 bid, 107 offered with the stock at $8.25 late Thursday, a New York-based sellside trader said.

The convertibles fell with their underlying shares, which careened lower by 33% in early trade on weak earnings. Shares of the company closed down $2.37, or 29%, at $5.88.

"They expanded a little bit, and came in on a 75% to 80% delta. Guys on an outright are not too happy," the trader said.

The trader estimated that hedged bonds expanded by 2 or 3 points. The paper performed well on hedge perhaps because buyers stepped in near the bottom. Also, bonds typically perform better on such a sharp, sudden stock drop, the trader said.

Swap buyers may also have stepped in to buy because they think that the paper's going to continue to move around and be volatile, he said. And swap players might have bought some stock on the way down.

The paper traded actively, and as to why shares reacted so violently to the weak earnings, the trader suggested that it might have been because the unexpectedly weak report raised issues regarding disclosure.

"They didn't miss by that much to warrant such a big fall. But maybe it's because they didn't report this when they came with the deal," the trader said.

Newpark is a small company with about a single B rating and a credit spread of about 700 basis points over Libor.

Newpark reported lower-than-expected quarterly profit amid weakness at its Haynesville gas shale operations due to lower activity in the region. The company also saw demand for its water-based drilling fluids hurt by increased competition.

Net income for the third quarter was $8.2 million, or $0.09 per diluted share, compared to net income for the second quarter of $10.8 million, or $0.12 per diluted share, and net income for the third quarter of 2009 of $0.2 million, or break-even on a per share basis.

Total revenue was $179.3 million for the third quarter compared to $181.4 million for the second quarter of 2010 and $118.2 million for the third quarter of 2009.

Mentioned in this article:

Energy XXI (Bermuda) Ltd. Nasdaq: EXXI

Green Plains Renewable Energy Inc. Nasdaq: GPRE

Micron Technology Inc. NYSE: MU

Newpark Resources Inc. NYSE: NR

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