Priceline to price up to $875 million; credit names weaken; DryShips, Jefferies lower

By Rebecca Melvin

New York, March 6 - Credit names in the convertible bond market were seen weaker across the board on Tuesday as stocks fell the most in nearly three months. Equity-sensitive names, in general, were said to be lower outright but little changed on a dollar-neutral, or hedged, basis.

Trading in the convertible secondary market was described as "pretty light," and the primary market was quiet during the session, but after the market close, Priceline.com Inc. launched an offering to sell up to $875 million of six-year convertible notes in an overnight deal via bookrunner Goldman Sachs & Co.

The Norwalk, Conn.-based online travel agency's deal was seen pricing ahead of Wednesday's market open.

In tandem with the stock selloff, the CBOE Volatility Index, or VIX, jumped 2.82 points to 20.97, and that is up from 15 to 16 for most of the year, as investors eyed the risk of a disorderly default in Greece and potentially reduced economic growth in China and Europe.

DryShips Inc. traded lower outright, but some players said it looked to be holding in pretty well with shares pulling back from a recent run higher from late January to mid-February.

Jefferies Group Inc. also traded down a point or two in active trade, according to Trace data.

Meanwhile, there was a flurry of activity in the typically quiet convertibles of VeriFone Systems Inc.

Shares of the San Jose, Calif.-based provider of electronic payment services were an exception to the general market, riding higher on Tuesday after the company reported Monday a fiscal first-quarter loss but provided a better-than-expected outlook.

EMC Corp. and NetApp Inc. were notable tech names in the convertibles market that were in trade and lower in tandem with lower shares, and United States Steel Corp., which has been trading actively for the last several days, continued to move lower outright.

"It looks to me like the whole market got smoked," a New York-based trader said.

But equity sensitive, vol. names were not seen as lower on a hedged basis, another trader said.

"If there is a continuation in the selling in equities, convertibles will continue lower as well and valuations will cheapen," the trader said.

Market players eyed developments in creditor participation in the Greek bond swap deal.

The Greek government has said that it wants 90% participation in the €177 billion of Greek government bonds to be exchanged, and as of Tuesday it looked like there was 75% to 80% participation. Lower levels of participation would activate collective action clauses, and the deal expires late Thursday.

Priceline pricing deal

Terms for Priceline's planned up to $875 million of six-year convertible notes included a coupon in the 1% range and a 50% initial conversion premium, and didn't seem that attractive, even at the talked reoffer price of 98.5 to 99.5 of par, a New York-based buysider said.

"But give it time," the buysider said. "Buyers may want to plunge in, particularly given the prospects for Priceline and the market to rebound tomorrow."

In addition, the buysider noted, Priceline has become a household name, "so short-term prospects for favorable performance by this deal probably are good."

Shares of Priceline settled lower by $12.95, or 2%, at $629.74 in average trading volume.

"The last time Priceline was over $600 in 2000, the stock plunged to just over $6 by year-end, and six years later its high was just over $44," the buysider said. So if in six years, when the convertibles mature, shares are down at $44 again, then convertibles holders - who stuck with it - would have hugely outperformed stock holders with a simple return of 6%, he said.

The overnight deal, being placed by bookrunner Goldman Sachs, is a Rule 144A offering with a $125 million greenshoe.

Proceeds are expected to be used to repurchase up to $200 million of common stock in privately negotiated, off-market transactions, and also for general corporate purposes, which may include repurchasing shares in the open market or in private transactions, and to repay outstanding debt and for corporate acquisitions.

In connection with the offering, priceline's board authorized a $200 million share repurchase program.

DryShips slips on news

DryShips' 5% convertibles due 2014 were seen at 80.5 bid, 81 offered in trade, which was down about 3 points outright, while the underlying shares fell 18 cents, or 5.5%, to $3.12.

"It's reasonably active today," a New York-based trader said about DryShips, which he described as being roughly in line with where they had been. "The common has given up half of its gain from $2.50 to $3.80, trading around $3.10 now."

VeriFone in trade

VeriFone's 1.375% convertibles due June 2012 traded at 114 bid, 114.5 offered versus an underlying share price of $49.00.

Shares of the San Jose, Calif.-based provider of electronic payment systems rose $3.69, or 8%, to $50.24 on Tuesday.

The VeriFone flurry of activity in the convertibles could have been sparked by sellers, a trader said, but he wasn't certain of this.

VeriFone, which changed its name from VeriFone Holdings Inc. in May 2010, reported a net loss of $3.1 million, or 3 cents per share, in the most recent quarter ended Jan. 31, compared to net income of $32 million, or 35 cents per share, during the same period a year earlier.

Excluding one-time items, the company earned 58 cents per share, compared to adjusted earnings of 43 cents a share in the year-earlier period and better than the 52 cents per share expected by analysts.

The company reported revenue of $419.5 million for the quarter, compared to $411 million in the year-earlier quarter and better than the $417.5 million expected by analysts.

VeriFone updated its guidance, saying that it expects to report non-GAAP net revenue between $465 million to $470 million for the current quarter and non-GAAP net income of between $0.59 and $0.60 per share for the period.

For the full year, VeriFone expects to report non-GAAP revenue in the range of $1.9 billion to $1.925 billion, with non-GAAP net income between $2.60 and $2.66 per share.

Mentioned in this article:

DryShips Inc. Nasdaq: DRYS

EMC Corp. NYSE: EMC

Jefferies Group Inc. NYSE: JEF

Priceline.com Inc. Nasdaq: PCLN

United States Steel Corp. NYSE: X

VeriFone Systems Inc. NYSE: PAY

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