New Volcano adds on hedge; old Volcano sinks; McMoRan expands on deal; Bottomline on tap

By Rebecca Melvin

New York, Dec. 5 - Volcano Corp.'s newly priced 1.75% convertible senior notes moved up on a hedged, or dollar-neutral, basis on their debut in the secondary market Wednesday after the San Diego-based therapeutics company priced an upsized $400 million of notes within revised talk.

The new paper was up 3 points dollar neutral, at about 103.375 versus the closing share price of $25.24 at the end of the day, a New York-based analyst said.

"The stock drifted lower into the close," the analyst said. The bonds had been as high as 104.

Volcano's existing 2.875% convertibles traded down. The company bought back much of the issue with proceeds of the new bond.

Also in the primary market, Seacor Holdings Inc.'s planned $250 million offering of 15-year convertibles were bid higher by 0.5 point in the gray market ahead of terms seen being fixed after the market close.

After the market close, Bottomline Technologies Inc. launched an offering of $150 million of five-year convertible bonds that was seen pricing after the market close Thursday at a 1.25% to 1.75% coupon and 27.5% to 32.5% premium.

Back in secondary market action, McMoRan Exploration Co.'s convertibles gained in outright and hedged trade on Wednesday after word that Freeport-McMoRan Copper & Gold Inc. plans to buy it and another oil and gas play in a bid to diversify its operations.

The majority of the day's focus was on the new Volcano issue, sources said, and trading in that name dominated volume charts.

New Volcano adds on hedge

Volcano's newly priced 1.75% convertibles due 2017 traded up to as high as 104 on their debut Wednesday and settled a little lower at 103.375 versus where the underlying shares went out.

Volcano shares closed up 18 cents, or 0.7%, at $25.24.

Volcano shares drifted down into the close but were still positive at $25.24, which was up 18 cents, or 0.7%, on the day.

The new convertibles were seen higher by 3 points dollar neutral, using a delta in the low 60% to 65% range, an analyst said.

The performance outdid pre-pricing activity in the gray market, which was plus 2.25 points, plus 2.75 points.

The company's existing convertibles were said to have traded down after the company went away as a buyer, and the bonds came in on valuation, a West Coast-based trader said.

A chunk of proceeds were used to take out the existing paper. But there is plenty left in proceeds, and the company would also be using it to making acquisitions.

"That makes credit a bit of a wild card because you don't know what kind of a company it is going to acquire. It's not likely to be one with real strong cash flows," a New York-based analyst said.

"My hunch is that they are going to go out and buy something," the analyst said.

The deal was upsized to $400 million of five-year convertible senior notes to yield 1.75% with an initial conversion premium of 31%. Initially, the deal was talked at a base size of $350 million.

Pricing came at the price point of revised talk for the coupon, but that was at the rich end of original coupon talk of 1.75% to 2.25%. The premium came toward the rich end of revised talk of 27.5% to 32.5% but was beyond the rich end of initial 22.5% to 27.5% talk.

The notes are non-callable with no puts.

J.P. Morgan Securities LLC and Goldman Sachs & Co. were the joint bookrunners.

"There was strong demand after the upsize and repricing," a New York-based analyst said.

Concurrently with the notes, Volcano entered into convertible bond hedge and warrant transactions with option counterparties. The strike on the warrants was set at $37.59, which boosts the initial conversion premium from the issuer's perspective to 50%.

Volcano is a maker and seller of intravascular ultrasound and functional measurement products for vascular and structural heart disease.

McMoRan adds

McMoRan's 4% convertibles due 2017 traded at 109.25 on Wednesday, and the McMoRan 5.25% convertibles due 2013, of which there is a much smaller $65 million left outstanding, traded at 103.

The bonds, which are not generally actively traded, were seen prior to the Freeport deal in the 80s, and they were up a couple of points dollar neutral after the deal was announced depending on their delta, an analyst said.

The company also has convertible preferred shares.

The bonds are likely to be converted out with the Freeport deal given the make-whole of the bonds.

The question remains what is the royalty trust interest worth, an analyst said.

Freeport has agreed to a cash buyout at $14.75 plus royalty trust interest.

McMoRan shares zoomed higher by more than $1 above the cash takeout price, so it looked as if the market is saying the royalty trust interest is worth more than $1 or more like $1.50 to $2.00, the analyst said.

Depending on how market players were viewing the deal, the delta on the convertibles is now about 80% to 100%, which is up from about the previous delta.

McMoRan was spun off from Freeport in the 1990s. They used to be the same company, and there are still extant relationships in management, an analyst said.

Freeport may be simply trying to diversify away from copper, which is currently the bulk of its operations, in light of macro headwinds seen, the analyst said.

"But pulling copper out of the ground is a lot different than pulling natural gas out of the ground," the analyst said.

Shares of New Orleans-based McMoRan surged 87% after news that Phoenix-based Freeport-McMoRan planned to expand beyond metals and mining sectors into the energy sector with a $9 billion acquisition of McMoRan and Plains Exploration Co.

Freeport will buy McMoRan for $2.1 billion and Plains for $6.9 billion. The company will also assume $11 billion in debt.

McMoRan develops natural gas resources that lie below shallow water regions of the Gulf of Mexico.

Bottomline to price

Bottomline launched an offering of $150 million of five-year convertible bonds after the market close Wednesday for pricing late Thursday that were talked to yield 1.25% to 1.75% with an initial conversion premium of 27.5% to 32.5%, according to a syndicate source.

The registered deal has a $22.5 million greenshoe and was being sold via RBC Capital Markets as sole coordinator and RBS Global Banking and Markets as passive bookrunner.

Portsmouth, N.H.-based Bottomline is a provider of cloud-based payment, invoice and banking solutions.

The bonds are non-callable with no puts.

There is contingent conversion if the underlying shares rise to 130% of the conversion price.

There is also takeover and dividend protection.

Bottomline also plans to enter into convertible bond hedge and warrant transactions. A portion of the proceeds will be used to pay the cost of the hedge transactions.

Proceeds will also be used for general corporate purposes, including potential acquisitions and working capital.

Mentioned in this article:

Bottomline Technologies Inc. Nasdaq: EPAY

McMoRan Exploration Co. NYSE: MMR

Seacor Holdings Inc. NYSE: CHK

Volcano Corp. Nasdaq: VOLC

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