Planned Sequenom seen cheap; Jarden, Sanchez Energy launch; D.R. Horton trades in line

By Rebecca Melvin

New York, Sept. 11 - Sequenom Inc.'s planned $100 million of five-year convertible bonds was getting a once over by convertible bond players on Tuesday ahead of final terms seen being fixed after the market close. But while the deal was seen as cheap, there was a lot of focus on it given its credit risk, small size and seemingly tightly held allocations, market sources said.

"It models very cheap," a convertibles analyst said.

Another source said the credit spread was seen around 800 basis points over Libor, but others heard a 1,000 bps spread on the deal. Volatility in this case wasn't a big factor, but stock borrow was poor, a trader said.

Two other deals launched after the market close.

Rye, N.Y.-based consumer products company Jarden Corp. plans to price $450 million of six-year convertible senior notes after the market close on Wednesday that were being talked to yield 1.875% with an initial conversion premium of 27.5% to 32.5%.

And Sanchez Energy Corp. planned to price about $100 million of convertible preferred shares that were seen pricing soon after launch for a dividend of 4.875% and an initial conversion premium of 10% for the Houston-based oil and gas company's deal.

A pickup in convertible bond issuance has also been seen internationally. France's Unibail-Rodamco SE priced €750 million of 5.25-year convertible bonds Tuesday with a 0.75% coupon and an initial conversion premium of 35%, which was at the cheap end of talked terms.

The Unibail-Rodamco deal came on the heels of Faurecia SA pricing €220 million of 5.25-year convertible bonds on Monday to yield 3.25% with an initial conversion premium of 37%.

Overseas, a convertibles analyst said the uptick should be ongoing amid "the recent rise in equities and improved aggregate convertible valuations."

"Though the low interest-rate environment, on the one hand, reduces the coupon-saving from issuing a convertible as opposed to straight bond, it also implies a lower absolute coupon cost for all bond issuance, and hence can also be supportive," the analyst said.

He said the ongoing loan-to-bond shift is also probably contributing as is some pent-up issuance from both the summer and the relatively quiet second quarter.

Back in established issues in the United States, activity was slightly toned down on the 11th anniversary of the Sept. 11 terror attacks.

Otherwise, traders noted a trend in convertibles away from high-yield issues, which were in favor during the summer toward more balanced, in-the-money type names.

D.R. Horton Inc. is one such name, a New York-based trader said.

D.R. Horton and others in this category of balanced in-the-money names traded primarily in line with the underlying shares.

D.R. Horton's 2% convertibles were trading at 158 versus a share price of $19.75, which was a bit higher on the day.

Tyson Foods Inc. is another such name, and those convertibles were trading in line at 112 versus an underlying share price of $16.25 on Tuesday.

For the last couple of weeks, however, Tyson has come in as a large outright buyer began scooping up a lot of that paper, the trader said.

"People were playing that over the summer as a corn play, and about 2.5 weeks to three weeks ago, they started getting out," the trader said.

Sequenom to price

The planned $100 million of five-year convertibles of Sequenom, the San Diego-based provider of genetic analysis products, was seen cheap with one source using 1,000 bps over Libor and a 35% volatility input.

Another sources said that the Sequenom offering had no borrow and wasn't attracting a lot of hedged players.

Several sources said they didn't spend any time valuing the new issue but said it looked cheap.

One trader said "most of it was placed in only a few hands."

The deal was seen being fixed with final terms after the market close on Tuesday.

The offering was talked to yield 4.75% to 5.25% and with an initial conversion premium of 25% to 30%.

J.P. Morgan Securities LLC and Jefferies & Co. were the joint bookrunners of the deal, which has a $20 million greenshoe.

Proceeds of the offering will be used to fund the commercialization of a laboratory-developed test, as well as for other general corporate purposes, including research and development, capital expenditures, working capital and general administrative expenses.

The notes are non-callable for three years and then provisionally callable at a price hurdle of 140%. There are no puts. There is also takeover and dividend protection.

Jarden to price

Jarden launched a sizable $450 million deal and a stock repurchase program that will likely be used by hedged convertible bond buyers.

The deal was seen coming with a 1.875% coupon and a 27.5% to 32.5% initial conversion premium.

The Rule 144A deal has a $50 million over-allotment option and is being sold via bookrunners JPMorgan and Barclays.

The notes are non-callable for life with no puts. There is dividend and takeover protection.

The company's board has also authorized an increase to the company's stock repurchase program to allow for the repurchase of up to $250 million of common stock.

Up to $125 million of the proceeds of the convertible bond sale will be used to repurchase common stock through negotiated transactions with investors of the convertible bonds. Remaining proceeds will be used for general corporate purposes.

Sanchez to price

The Houston-based oil and gas company launched an offering of about $100 million of convertible preferred stock that was seen pricing with a 4.875% dividend and 10% initial conversion premium.

The deal was seen pricing late Tuesday after launching after the market close via bookrunner RBC Capital Markets.

Proceeds are expected to be used to fund capital expenditures, and, in particular, to accelerate the company's drilling program across all of its operating areas, for its other operating expenses, and for general corporate purposes.

The Rule 144A deal, which as a $20 million over-allotment option, is a perpetual preferred that is non-callable but has mandatory conversion at the issuer's option at any time on or after Oct. 5, 2017 if the company's common stock exceeds 130% of the conversion price then in effect for 20 out of 30 days.

Mentioned in this article:

D.R. Horton Inc. NYSE:DHI

Jarden Corp. NYSE: JAH

Sanchez Energy Corp. NYSE: SN

Sequenom Inc. Nasdaq: SQNM

Tyson Foods Inc. NYSE: TSN

Unibail-Rodamco SE Parish: UL

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