Frontier edges up on swap; Anadarko ups deal; LinkedIn, Microchip firm on outright buyers

By Rebecca Melvin

New York, June 5 – Frontier Communications Corp.’s new 11.125% mandatory convertibles traded up about a point on their debut on Friday after the Stamford, Conn.-based wireline telecommunications provider priced $1.75 billion of the preferred shares at the rich end of talked terms.

The Frontier mandatories were quoted at 101 with the underlying shares up about 1.8% at $5.08.

The new Frontier expanded about 0.25 point to 0.375 point on swap, and there was a lot of activity in it, a New York-based trader said.

Also among new deals, Anadarko Petroleum Corp. priced an upsized $400 million of tangible equity units, which are exchangeable into units of its subsidiary Western Gas Equity Partners LP. Terms were mixed compared to talk.

Shares of Western Gas were off fractionally in the early going but were last up 3% at $60.01. The mandatories were not heard in trade.

Also pricing was Novatel Wireless Inc. with a $120 million deal of 5.5% convertible senior notes due 2020 with a 25% conversion premium, according to a company news release late Thursday.

Novatel is a San Diego-based provider of solutions for the Internet of Things and inventors of technology.

Established issues back in the secondary market were mostly weaker on the heels of big rate moves early Friday when the U.S. jobs report for May revealed a better-then-expected jobs picture that portends a rate hike later this year.

“Everything moved down with the bond market,” a New York-based analyst said of convertibles on Friday.

Notable exceptions were a couple of large-cap, technology names, namely LinkedIn Corp. and Microchip Technology Inc.

Buyers stepped into those names and helped them to hold in despite broad-based weakness, a market source said.

But SanDisk Corp. saw weakness as did Intel Corp. Amid a rise in the underlying shares, the SanDisk 0.5% convertibles due 2020 came in about 0.25 point on swap, a New York-based trader said.

The Intel 2.95% convertible came in about 0.5 point to 0.625 point over the last week, a second source said.

“They didn’t come in a ton,” a source said about the Intel move. Much of it occurred prior to the rate move when there was an outright seller, likely making room or who had a redemption.

There was not a ton of selling to make room for new issuance, but there was some. Still convertibles put in a so-so week.

“It was kind of the same old, same old. Nothing stands out,” a sellside analyst said.

A second source said, “All fixed [debt] was weaker on rates,” and “vol. was a little weaker.”

Equities were narrowly mixed after a positive U.S. payrolls report rekindled worries about the greater potential for an earlier Fed rate hike later this year.

May nonfarm payrolls came in at 280,000 workers, which was better than expected. April’s tally was revised down to 221,000 workers added to payrolls from 223,000. The unemployment rate ticked up to 5.5% from 5.4% as more people entered the workforce.

New Frontier adds on swap

Frontier’s new 11.125% convertibles were up about a point on an outright basis and were seen better on swap by about 0.25 point to 0.375 point.

Frontier shares were higher in the early going, but they ended down 3 cents, or 0.7%, to $4.97. On Thursday, shares ended down 38 cents, or 7%, at $5.00.

Frontier priced $1.75 billion of mandatory preferred shares and a secondary stock offering for $750 million.

The deal priced on the rich end of talked terms, with a 17.5% initial conversion premium. Before pricing, the deal was seen at about fair value at the midpoint of talk, which was for an 11.125% to 11.625% dividend and 12.5% to 17.5% premium.

The new mandatory was very busy in trade early Friday.

Anadarko upsizes

Anadarko priced an upsized $400 million of 7.5% tangible equity units at terms that were mixed compared to initial talk. The deal came at a 20% premium, which was the cheap end of 20% to 25% talk and at the rich end of 11.125% to 11.1625% dividend talk.

The mandatory deal was initially talked at $325 million in size, and it came concurrently with a $116.4 million secondary sale of 2 million shares at $58.20 apiece.

Sources queried hadn’t seen the mandatories trade in the aftermarket, and they weren’t getting a lot of attention from market players.

“We haven’t looked at it. There is no stock borrow, so we won’t get any traction in it. It’s for convertible long-only guys,” a New York-based analyst said.

Each $50-par unit will be exchanged in three years for shares of Western Gas Equity. They are non-callable and have takeover and dividend protection.

LinkedIn, Microchip ‘hold in’

LinkedIn’s 0.5% convertibles due 2019 were seen at 102.75 bid, 103.25 offered late in the session with the underlying shares at $213.54, a New York-based analyst said.

That was in line but essentially better because the paper should have been lower, the analyst said.

Shares of the Mountain View, Calif.-based business-oriented social networking service added 97 cents, or 0.5%, to $213.80 on the day.

Also holding in was Microchip’s 1.625% convertibles due 2025, which were seen at 101.5 bid, 101.75 offered with the underlying shares at $47.46.

Microchip shares added 15 cents, or 0.3%, to $47.46 on the day.

A market source said there were buyers in a couple of large-cap, tech names such as LinkedIn and Microchip.

“Those held in pretty well. They should be lower but there was outright buying,” the source said.

In early May, LinkedIn came in after a weak earnings report sent shares down 19%.

Mentioned in this article:

Anadarko Petroleum Corp. NYSE: APC

Frontier Communications Corp. NYSE: FTR

Intel Corp. Nasdaq: INTC

LinkedIn Corp. Nasdaq: LNKD

Microchip Technology Inc. Nasdaq: MCHP

Novatel Wireless Inc. Nasdaq: MIFI

SanDisk Corp. Nasdaq: SNDK

Western Gas Equity Partners LP NYSE: WGP

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