Jakks plans new issue; secondary trades quietly; Ares, Forest City mixed; Volcano edging up

By Rebecca Melvin

New York, July 17 - The U.S. convertibles primary market was quiet during the session - although in the United Kingdom Derwent London plc launched and priced £150 million of 1.125%, six-year convertible bonds. But after the market close, Jakks Pacific Inc. launched an offering of $100 million of five-year convertibles that it planned to price late Thursday at a 3.75% to 4.25% coupon and 25% to 30% initial conversion premium.

At the same time, Jakks announced that its second quarter and six-month results did not meet targets and that it was cutting its full-year outlook, reducing workers and suspending its quarterly dividend. The news bombshell will almost certainly take the company's shares lower on Thursday and impact the pricing of the convertible.

Convertibles were mostly quiet during Wednesday's trading session as the summer slowdown seemed to settle in more fully amid a lack of catalysts, market sources said.

"It's pretty quiet again, like the dog days of summer," a New York-based trader said.

A second New York-based trader said market players appeared to be waiting to see what the new deal calendar might bring and wait for upcoming earnings reports.

"Most [players] are set up already for what earnings will bring," the trader said.

Ares Capital Corp.'s older 5.75% convertibles due 2016 bounced by better than 0.5 point in their second straight day of active trading. They had dropped 1.5 points on Tuesday in reaction to the New York-based private equity firm's new 4.375% convertible that came at a1.5% discount to par.

Forest City Enterprises Inc.'s older 4.25% convertibles due 2018 remained lower for a second day in response to the Cleveland-based real estate developer's new 3.625% convertible, which debuted Tuesday after pricing at the midpoint of talk.

The fact that the existing issues of both issuers dropped initially with the new deals wasn't seen as a portent of trouble to come, however.

"It's always a worry, but our market is too small really to worry too much about that at this point," a New York-based trader said.

Elsewhere, Volcano Corp. was an active trader for a second straight day and improved again on an outright and hedged basis as investors eye the San Diego-based medical device company as a good hedged play.

Meanwhile, there were some stock moves that stirred a little volume on the Trace tape. Wabash National Corp. convertibles traded up about 0.75 point to 128.8, according to Trace data, with the shares sliding 7% on the day after a downgrade by FBR Capital for the shares of the Lafayette, Ind.-based semi trailer maker.

Tesla Motors Inc.'s 1.5% convertibles due 2018 jumped about 5 points to 118.125 as the underlying shares rebounded 10% from a 13% drop Tuesday. Tesla stock fell after Goldman Sachs lowered its price target for the Palo Alto, Calif.-based electric car maker to $84.00. Tesla shares closed on Wednesday at $120.25.

Volcano edging up

Volcano's 1.75% convertibles due 2017 were seen closing at 94.375 bid, 94.875 offered versus an underlying share price of $19.72. That was up 0.375 point on the day versus Tuesday's 93.75 bid, 93.875 offered with the stock at $19.25, a New York-based trader said.

Volcano shares closed higher by 2.5% at $19.73 in light volume. That move reversed a 2% drop on Tuesday as the stock see saws in recent action.

Volcano was one of the biggest traders in the convertibles healthcare space.

"It looks like there's a buyer," a New York-based trader said of the Volcano 1.75% convertibles.

A second New York-based trader said that the name has been in focus in recent session as "Guys are looking for new names and this one kind of sets up nicely."

Derwent London prices

Final terms for Derwent London's £150 million of six-year convertibles came beyond the rich end of talk for the coupon, which was 1.25% to1.75%, and at the rich end of 30% to 35% talk for the premium.

Barclays Bank plc, Royal Bank of Scotland plc, HSBC Bank plc, J.P. Morgan Securities plc and UBS Ltd. were joint bookrunners for the Regulation S securities.

The bonds are non-callable for three years until July 2016 and then provisionally callable with a 130% hurdle.

The London-based real estate investment trust will use proceeds to refinance property acquisitions totaling about £93 million made in the last 12 months, to help fund development, and to increase resources for future acquisitions.

Jakks Pacific to price

Jakks launched an offering of $100 million of five-year convertibles after the market close that were seen pricing late Thursday. Price talk was for a 3.75% to 4.25% coupon and a 25% to 30% initial conversion premium.

The Rule 144A offering has a $15 million greenshoe and was being sold by sole bookrunner BofA Merrill Lynch.

At the same time that the Malibu, Calif.-based toy and leisure product company cut its outlook and announced that it was suspending its quarterly dividend.

That news is expected to affect Jakks' share price on Thursday and it will be watched as the deal is being marketed ahead of final terms seen being fixed after Thursday's market close, a syndicate source said.

The company currently anticipates full-year sales of about $620 million, with a revised loss per share in the range of about $56.1 million, or $2.56 per share. The revised guidance represents a reduction from the company's previously anticipated full year sales estimate of $694 million to $700 million and per share earnings of about $0.63 million to $0.68 million, excluding one-time items.

The company also announced a restructuring plan to begin in the third quarter, which will include a large reduction of leased space, employees and overhead. Despite the loss expected for 2013, Jakks anticipates a return to profitability in 2014, the company said in a release.

The planned Jakks bonds are non-callable for life. They have net share settlement and contingent conversion if the stock exceeds 130% of the conversion price.

Proceeds are earmarked to repurchase a portion of Jakks' 4.5% convertibles due 2014. They will be used for general corporate purposes if Jakks is unable to repurchase the notes on satisfactory terms.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Derwent London plc London: DLN

Forest City Enterprises Inc. NYSE: FCEA, FCEB

Tesla Motors Inc. Nasdaq: TSLA

Volcano Corp. Nasdaq: VOLC

Wabash National Corp. NYSE: WNC

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.