Blackstone adds on hedge; new Cardtronics, Albany Molecular slip; Yahoo! upsizes; WebMD on tap

By Rebecca Melvin

New York, Nov. 20 - Blackstone Mortgage Trust Inc.'s newly priced 5.25% convertibles due 2018 added on an outright basis and on hedge on their debut in the secondary market on Wednesday after the New York-based real estate financial company priced $150 million of the notes at the cheap end of coupon talk.

Buyers stepped in and lifted the new paper from early trades below par, a syndicate source said.

Cardtronics Inc.'s newly priced 1% convertibles due 2020 were seen hovering near par in the early going Wednesday and later pushed up above par, but lagged the shares on a hedged basis, after the Houston-based ATM services provider priced $250 million of the notes at the midpoint of talked terms.

Albany Molecular Research Inc.'s newly priced 2.25% convertibles due 2018 were bid below par with no offers in the early going and ended at 99.25 bid, 100 offered with shares weaker after the Albany, N.Y.-based drug discovery services and manufacturing company priced an upsized $130 million of the notes at the midpoint of coupon talk and near the rich end of premium talk late.

The latest crop of new convertible issues in the past week hasn't performed as strongly as previous new issues, and sources said that supply has become an issue.

The market was starved for supply for a long time but suddenly has been satiated.

"In the convertible market, you have to be careful for what you wish for," a New York-based trader said, adding, "it was a lot of supply in a short period of time."

In addition, given the time of year and gains for the year to date, market players are "less inclined to reach for things," the trader added.

Meanwhile the deals keep coming. Yahoo! Inc. priced an upsized $1.25 billion of five-year convertibles after the market close, and WebMD Health Corp. came in with an overnight deal after the market close for $300 million of seven-year convertibles talked at a fixed 1.5% coupon and 36% initial conversion premium.

In addition, Forestar Group Inc. came in with a $135 million deal for tangible equity units, American Residential Properties Inc. launched a $100 million exchangeable deal, and GAIN Capital Holdings Inc. announced a small $65 million deal of convertible senior notes.

Buyers lift Blackstone

Blackstone's newly priced 5.25% convertibles due 2018 started off lower at 99 bid, 99.5 offered but got a lift when buyers stepped in, including crossover accounts leaving the new bonds better on a dollar-neutral basis by 0.25 point to 0.5 point, a syndicate source said.

"Buyers came out of the woodwork on that one," the syndicate source said.

The new paper, which traded mostly outright, was said to have ended at 100 bid, 100.75 offered. Shares of the New York-based real estate financial company with the underlying shares ended up 18 cents, or 0.7%, at $25.10.

"That one traded a lot," the syndicate source said, contrasting it to Cardtronics' new deal, which also debuted in Wednesday's market.

Blackstone priced $150 million of the five-year notes on Tuesday at the cheap end of coupon talk.

The registered deal has a greenshoe for up to $22.5 million of additional notes and was sold via Citigroup Global Markets Inc., BofA Merrill Lynch, J.P. Morgan Securities LLC and Wells Fargo Securities LLC. Blackstone Capital Markets was a co-manager.

Proceeds are earmarked to originate and purchase additional commercial mortgage loans and other target assets and investment consistent with the company's investment strategies and investment guidelines. Proceeds may also be used for working capital and other general corporate purposes.

Cardtronics slips on debut

Cardtronics' newly priced 1% convertibles due 2020 ended higher on an outright basis, ending the session at 101.25 bid, 102.25 offered, according to a syndicate source. But they came in on a dollar-neutral, or hedged, basis by about 0.5 point, assuming about a 70% delta.

Meanwhile, Cardtronics shares gained $1.48, or 3.5%, to $43.36.

"There's so much supply in the market right now, and it's expected that more is coming in before the end of the year, so people are playing a little defense," the syndicate source said.

Yahoo! coming Wednesday night with a $1 billion deal was also cited as part of the supply issue.

"All the new stuff, the low coupon, high premium stuff was in pretty significantly," a syndicate source said. That would include the new issues of the last three or four weeks, he said.

"It's all supply at this point; it's purely technical. Although the Fed minutes didn't help," he said.

Cardtronics priced $250 million of seven-year convertible senior notes at par to yield 1% with an initial conversion premium of 25%. That was the midpoint of talked terms for the Rule 144A offering.

The deal has a $37.5 million greenshoe and was brought via joint bookrunners BofA Merrill Lynch, JPMorgan and Wells Fargo Securities.

The notes are non-callable for life.

In connection with the offering, the company entered into convertible note hedge and warrant transactions with initial purchasers of the notes, or a call spread, which boosts the initial conversion premium from the issuer's perspective to 75%. The strike price on the warrants is $73.29.

A portion of the proceeds will be used to pay the cost of the convertible note hedge transactions. About $156.5 million of proceeds will be used to repay outstanding borrowings under the company's revolving credit facility, and about $28 million will be used to repurchase shares of common stock. Remaining proceeds will be earmarked for general corporate purposes, including capital expenditures and working capital.

Houston-based Cardtronics is a provider of ATM services.

Albany Molecular slips

Albany Molecular's newly priced 2.25% convertibles due 2018 closed at 99.25 bid, 100 offered versus an underlying share price of $11.27, according to a syndicate source.

Shares of the Albany, N.Y.-based drug discovery services and manufacturing company closed off 57 cents, or 4.8%, at $11.27.

The Rule 144A deal was upsized to $130 million from an initially talked $100 million in size, and pricing came at the midpoint of 2% to 2.5% coupon talk and toward the rich end of 27.5% to 32.5% premium talk.

There is a $20 million greenshoe, which was upsized from $15 million, for the deal brought by joint bookrunning managers JPMorgan and Morgan Stanley.

In connection with the pricing of the non-callable notes, Albany Molecular entered into privately negotiated cash convertible note hedge transactions with one or more of the initial purchasers of the notes. The initial strike price of the cash convertible note hedge transactions is $18.94, which boosts the initial conversion premium from the issuer's perspective to 60%.

A portion of the proceeds will be used to pay the cost of the cash convertible note hedge transactions. Remaining proceeds will be used for working capital and other general corporate purposes, which may include acquisitions of, or investments in, complementary businesses, products, services, technologies and capital expenditures.

Yahoo! prices

Sunnyvale, Calif.-based Yahoo! priced $1.25 billion of five-year 0% convertible senior notes with a 50% conversion premium after the market close.

The Rule 144A deal was upsized from $1 billion and has a $187.5 million greenshoe.

Prior to pricing, one trader was using a credit spread of 125 basis points over Libor and a 32% vol. as inputs for his valuation of the Yahoo! deal. A second source said 125 bps was too wide, while a third source said a credit spread of 100 bps was appropriate.

Yahoo!'s talked terms, at a 0% to 0.5% coupon and a 45% to 50% premium, were not viewed as favorable for investors, a New York-based trader said. But he liked the deal, saying it may "encourage more sizable issuers into the market."

Joint bookrunners include JPMorgan, Goldman Sachs & Co., Citigroup, BofA Merrill Lynch and Morgan Stanley.

Mentioned in this article:

Albany Molecular Research Inc. Nasdaq: AMRI

American Residential Properties Inc. Nasdaq: ARPI

Blackstone Mortgage Trust Inc. Nasdaq: BXMT

Cardtronics Inc. Nasdaq: CATM

Forestar Group Inc. NYSE: FOR

GAIN Capital Holdings Inc. Nasdaq: GCAP

Yahoo! Inc. Nasdaq: YHOO

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