GM prices upsized $4.35 billion mandatory; new RightNow at 100.5; PDC launches $100 million

By Rebecca Melvin

New York, Nov. 17 - General Motors Co.'s mandatory convertible preferreds were seen a little weaker in the gray market Wednesday compared to recent sessions, but they were still higher by 3 points to 3.5 points, ahead of final terms that came after the market close.

GM priced its $4.35 billion of 4.75% mandatory convertible junior preferred stock at the tight end of dividend talk, and at the talked 20% initial conversion premium.

Concurrently, GM priced $15.77 billion of common stock at $33 per share, in one of the largest ever initial public offerings.

The GM transactions have been a primary market focus this week. Otherwise, convertibles were mostly flat, as aggressive selling Tuesday subsided, a New York-based sellside trader said.

NetApp Inc. convertibles gyrated in active trade as NetApp common stock trade was halted amid a sharp selloff related to the company's prematurely released earnings report, market sources said.

NetApp's fiscal second quarter earnings were released at about 3:30 p.m. ET, or half an hour ahead of the planned post-close release.

In the primary market, RightNow Technologies Inc.'s newly priced 2.5% convertibles traded at about 100.5, although there wasn't a significant amount of trading upon the paper's release for secondary dealings. The RightNow issue was upsized by $25 million to $150 million.

Also in primary action, PDC Energy launched a $100 million offering of 5.5-year convertibles for pricing after the market close Thursday. It was talked to yield 3% to 3.5%, with a 27.5% to 32.5% initial conversion premium.

GM upsizes mandatory deal

The pricing of $4.35 billion of mandatory convertibles by GM marks a huge event for the convertibles market, which has been seeing paper leak out of the space due to calls, puts, maturities and other redemptions, without much replacement for much of this year.

In the gray market, the planned mandatories were at 53 bid, 53.5 offered, compared to 54 bid, 54.5 offered on Tuesday, and up as much as 5 points on Monday.

Price talk was revised Monday to 4.75% to 5.25% with an initial conversion premium of 20%, from a 5.5% to 6% coupon and a 15% to 20% premium.

Stock borrow question

There were questions raised about how stock borrow could be arranged given that the mandatories were coming in tandem with an initial public offering

"We've never seen a mandatory come with an IPO," said a New York-based sellside trader, who wondered if some shares would be made available early for hedging purposes.

"I think it only holds up if guys are going to be able to get a borrow," the trader said.

But a syndicate source said Dole Foods priced a mandatory convertible with a concurrent IPO, and there was no stock borrow, but investors get involved because "they are comfortable that borrow will be available at some point," the New York-based syndicate source said.

A second syndicate source confirmed that he thought the deal would start trading without a borrow and that that would be available at some point in the future, though no one was sure when.

"I don't know; I guess people will be playing a pop in the stock," the syndicate source said.

The mandatories, with a $50 per share liquidation preference, priced off where the equity cleared, which at $33 per share was higher than the initially talked $26 to $29 per share.

The higher price is to the company's benefit and the investors' detriment, but these are high delta convertibles, a syndicate source said.

The offering was upsized by 7 million shares, or $350 million, to 87 million shares, and that amount had been upsized on Monday from an initially talked 60 million shares.

There is a greenshoe for an additional $650 million, or 13 million of mandatory convertibles.

GM also priced $15.77 billion of common stock at $33 per share in one of the largest ever initial public offerings.

Morgan Stanley and J.P. Morgan, BofA Merrill Lynch, Citi, Goldman, Sachs & Co., Barclays Capital, Credit Suisse, Deutsche Bank Securities and RBC Capital Markets were joint book-running managers for the mandatories.

They are three-year non-callable paper, with full dividend and takeover protection.

General Motors is a Detroit-based automaker.

NetApp down on early earnings

NetApp's 1.75% convertibles due 2013 traded at 171.5 versus a share price of $52.72 early in the session, and were lower at 170 bid versus $52.10 right later in the day just before share trading was halted.

After share trading was halted, the convertibles weren't that active, a New York-based sellside trader said.

But the convertible trades posted on Trace show that the levels fell to around 170 at about 3 p.m. ET from 176 early in the session, and then sank to 162.68 at 3:05 p.m. ET. Later pricing looked to have recovered to the 176 level.

On Tuesday, the NetApp 1.75% convertibles were weaker on swap by about 0.375 point as selling beset the data storage company.

Shares of the Sunnyvale, Calif., data storage company settled down $3.44, or 6.5%, to $49.25. But in after-hours trading the shares were up 85 cents, or 1.7%.

"When the earnings were leaked, the stock got hammered," a sellsider said.

He couldn't immediately determine if the NetApp convertibles improved or suffered on a dollar neutral basis.

"Everything has been soft for the last couple days. Yesterday things were down a point across the board," the sellsider said.

RightNow at 100.5 on debut

RightNow's newly priced 2.5% convertibles due 2030 traded at par and half out of the chute on Wednesday, and pretty much stayed there for the session, but there was not a lot of secondary action in the new paper, sources said.

Shares of the Bozeman, Mont.-based software company slipped another 57 cents, or 2.3%, to $23.96.

The stock sank 8% on Tuesday when the deal was launched. Perhaps that explains pricing, which saw the deal come at the cheap end of coupon talk, which was 2% to 2.5%, but beyond the rich end of talk for the premium, which was 23% to 27%. The final premium was 30%.

Often when the stock comes off a lot before pricing, the premium is increased, a source suggested.

The Rule 144A offering was upsized to $150 million from an originally talked $125 million.

The notes will be non-callable until Nov. 20, 2015. There are investor puts in years five, 10 and 15.

Proceeds are earmarked for general corporate purposes, which may include financing potential acquisitions and strategic transactions, stock repurchases and working capital. A portion of the proceeds may be used for stock repurchases under the company's $25 million stock buyback program.

Mentioned in this article:

General Motors Co. NYSE: GM

NetApp Inc. Nasdaq: NTAP

PDC Energy Nasdaq: PETD

RightNow Technologies Inc. Nasdaq: RNOW

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