New Ares slips from discounted price; Forest City gains; Affiliated dips on company call

By Rebecca Melvin

New York, July 16 - Ares Capital Corp.'s newly priced 4.375% convertibles traded flat to lower after the New York-based private equity firm priced $250 million of 5.5-year convertible notes at a 1.5% discount to par, with the coupon coming at the cheap end of talk.

The new Ares bonds came in about 0.5 point on a 35% delta on the bid side, a Connecticut-based trader said.

Ares Capital's four existing convertibles were weaker, with Ares' existing 5.75% convertible due 2016 among the most heavily traded names of the day in convertibles, and lower by nearly 1.5 points at 107.6 as of midafternoon, according to Finra's Trace data.

Forest City Enterprises Inc.'s newly priced 3.625% convertibles traded a bit higher on an outright and dollar-neutral, or hedged, basis after the Cleveland-based real estate developer priced $250 million of seven-year convertibles at the midpoint of talk.

Forest City's three existing issues were all lower by about 1 point to 1.5 points on swap, a New York-based trader said.

The complex moved together, he said, and indicates ebbing appetite for multiple issues from the same issuer.

Back in established issues, Affiliated Managers Group Inc. was called the name of the day after the Prides Crossing, Mass.-based asset-management company called its 3.95% convertibles early Tuesday and the bonds traded down to about parity having been about parity plus a point as recently as a week and a half ago, a New York-based trader said.

Elsewhere, the convertibles market was seen as quiet. "I don't see much otherwise," a New York-based trader said.

New Ares comes at discount

Ares Capital's newly priced 4.375% convertibles due 2019 were quoted at 97.75 bid, 98.25 offered versus a share price of $17.46, which was down about 0.5 point on a 35% delta on the bid side, a Connecticut-based trader said.

A New York-based trader said he saw the new paper offered as low at 98.625 in the early going after the issue priced at a discount to par of 98.5. The discount was 1.5%, which was larger than the 1% discount initially talked.

Ares shares slipped about 0.5%, ending the session down 8 cents at $17.45, on top of a 9-cent, or 0.5%, decline on Monday.

The company priced $250 million of 5.5-year convertible senior notes at 98.5 after the market close Monday and with a 4.375% coupon and 15% initial conversion premium.

The Rule 144A deal came beyond the cheap end of the talked 99 discount and at the cheap end of 4.125% to 4.375% coupon talk. The premium had been fixed at 15%.

There is a $50 million over-allotment option that was upsized from $37.5 million, and the deal was sold via active joint bookrunners BofA Merrill Lynch, Morgan Stanley & Co. LLC and Wells Fargo Securities LLC and passive joint bookrunner Deutsche Bank Securities Inc.

The bonds have contingent conversion if shares rise to or exceed 130% of the conversion price and have flexible settlement with intention to net share settle. They are non-callable for life and will mature on Jan. 15, 2019.

Proceeds will be used to repay or repurchase debt, including borrowings under Ares' revolving credit facility, and for other general corporate purposes, which include investing in portfolio companies.

Existing Ares bonds come in

Most of Ares Capital's existing convertibles traded down 1 or 2 points relative to the new bond, a New York-based convertibles analyst said.

Ares' existing 5.75% convertible due 2016 was among the most heavily traded names and lower by nearly 1.5 points at 107.6, according to Trace data.

"They got bombed," a trader said.

A second trader said, "They found out five issues is too many."

In addition to the 5.75% convertibles, Ares Capital has existing 4.75% convertibles due 2018, 4.875% convertibles due 2017 and 5.125% convertibles due 2016.

New Forest City adds

Forest City's newly priced 3.625% convertibles due 2020 ended the session at 101 versus the closing share price of $18.15. That was up about 0.5 point on swap on about a 50% delta.

Earlier in the session, a market source said the new bonds were 100.5 bid, 100.875 offered versus a share price of $17.93, which was the stock price at issue and represented a 0.625-point improvement on a dollar-neutral basis.

Forest City shares gained 22 cents, or 1.2%, to $18.15 in active trade.

Forest City priced $250 million of seven-year convertible senior notes at par after the market close Monday to yield 3.625% with an initial conversion premium of 35%, according to a syndicate source.

The Rule 144A offering came at the midpoint of talk, which was for a 3.375% to 3.875% coupon and a 32.5% to 37.5% premium.

There is a $50 million over-allotment option. BofA Merrill Lynch, Barclays, Citigroup Global Markets Inc., Goldman Sachs & Co. and Morgan Stanley were joint bookrunners of the deal.

The notes are provisionally callable until Aug. 15, 2018 at par subject to the stock trading at 130% of the conversion price or higher, and then feely callable in the last two years.

If the notes are called in the first five years, investors can get additional shares via a make-whole table.

Proceeds are earmarked to repay the balance of Forest City's 6.5% senior notes due 2017 and other outstanding debt.

Proceeds will be held in an escrow account and invested in short-term, investment-grade, interest-bearing securities, pending their application.

Forest City is a Cleveland-based real estate developer with $10.6 billion in assets.

The company's existing 4.25% convertibles, 5% convertibles and 3.625% convertibles were all reported lower on the day on swap.

Affiliated Managers dips

Affiliated Managers' 3.95% convertibles due 2038 were seen at 138.56 versus an underlying share price of $174.11 at the close, a New York-based trader said.

That level was about parity and was just about where they were trading all day, the trader said.

The paper was also quoted at parity plus 0.0625 point, which was down 0.1875 point.

It was very active in trade, sources said.

Holders that believed the company intended to keep the issue outstanding as a cheap source of financing and because the company has some higher-coupon preferreds outstanding would have been hurt by the call.

But a trader said that as of July 11 the bond was quoted plus 0.25 point bid, plus 0.5 point offered, and therefore no one would have had them marked any higher than plus 0.375 point over parity.

The notice to redeem all of Affiliated Managers' outstanding 3.95% convertible senior notes due 2038 came early Tuesday. The issue originally pried Aug. 6, 2008 with a first call date of Aug. 15, 2013, which is in 30 days.

Mentioned in this article:

Affiliated Managers Group Inc. NYSE: AMG

Ares Capital Corp. Nasdaq: ARCC

Forest City Enterprises Inc. NYSE: FCEA, FCEB

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