Priceline adds 2 points on hedge after being reoffered; new Helix up 7-8 points on hedge

By Rebecca Melvin

New York, March 7 - Convertible bond players had more than $1 billion in new issuance released for secondary market action on Wednesday, something that once might have been standard fare but of late has become a rarity.

The much larger Priceline.com Inc. issue of $875 million of 1% convertibles, which were reoffered at a discount to par of 99 or 99.5 in an overnight deal, gained about 2 points on a dollar-neutral, or hedged, basis, trading around 101.25 bid, 101.75 offered versus an underlying share price of $629.60 in early dealings and ending around 101.625 bid, 102 offered versus an underlying share price of $641.60, market sources said.

The Rule 144A Priceline deal wasn't being tallied by Trace data, so it was difficult to gauge volume. Given the just slightly elevated volume of stock trading on the Nasdaq stock market, one trader suggested it indicated that there might not have been an overabundance of hedged participants. But a second source said the high share price meant that not that many shares were required to cover one bond, so trading volumes would not be pushed that much higher.

Meanwhile, a second new issue, which was mum ahead of the release for secondary market trading, jumped sharply in early trade Wednesday.

Helix Energy Solutions Group Inc.'s newly priced 3.25% convertibles rose to above 105.5 outright in active dealings, while the dollar-neutral price was said to be even higher at 7 to 8 points higher on the day with shares of the Houston-based offshore energy company lower.

"I didn't hear a word about it Tuesday night; I just saw a headline this morning and it started trading," a New York-based trader commented on the advent of Helix.

Helix priced $200 million of 20-year convertible senior notes at par to yield 3.25% with an initial conversion premium of 35%, according to a regulatory filing. Bookrunner Raymond James & Associates Inc. wouldn't comment on the deal.

Part of the proceeds is being used to repurchase Helix's existing 3.25% convertibles due 2025, which are putable in December. Those bonds were in trade at 101.25 to 101.375, or little changed to slightly higher on the day, sources said.

Convertibles players were hopeful that the new deals were a sign of better things to come. For the year to date there has been less than $2 billion in new issuance in six deals, which is off significantly compared to $8.4 billion in 19 deals for the same period of 2011, according to data compiled by Prospect News.

"The time for high-yield convert issuers to price is right now," a New York-based analyst said.

Convertibles issuers like to get in when their share prices are high and shares are higher right now than they have been in some time after the run up in the last few months. In addition, "the credit market might be starting to feel a bit toppy," the analyst said. "However, there is a lot of macro risk still."

In fact, sources said Wednesday, which was a relatively sanguine day following two days of risk-off trade earlier in the week, might be the calm before the storm, with word expected out of Greece on Thursday regarding its debt swap deal and more data on jobs in the U.S. and Canada expected by Friday.

"The headlines are saying it's a done deal, but it's not over 'til it's over," an analyst said. "We'll see what happens...there's a perverse incentive for people who hold credit default swaps to hold out."

Meanwhile, high-yield corporate bond primary deals haven't been going great. There's been a couple of them in a row that are trading under water, sellsiders said. Perhaps, the market there is too saturated, a New York-based trader suggested.

Priceline higher on debut

Priceline's 1% convertibles due 2018 traded up to 101.675 bid, 102 offered versus an underlying share price of $641.60, market sources said, which was up about 2 points dollar neutral from the remarketed price of 99. A syndicate source said the reoffered price was 99.5.

Priceline shares rose $11.86, or 1.9%, to $641.60 on Wednesday.

Aside from the reoffering, the deal was looked at askance by market players due to the 1% coupon and a 50% initial conversion premium for the six-year notes.

"It's not the cheapest, but it doesn't mean that it's not going to go higher," a sellsider said of the new Priceline convertibles.

The Rule 144A offering, which was distributed via bookrunner Goldman Sachs & Co., is coming from a company with a very solid credit, for one thing, sources said.

A credit spread on the deal was seen at between 200 basis points over Libor to 250 bps, and vol. was seen in the high 20s at 28% to 29% for the six-year paper.

Realized vol. on Priceline options was higher in the 30s, but the options have a much shorter time horizon.

One sellsider said, "Kudos to the underwriter; they did a great job. They identified an opportunity and got a big trade done, and it was successful."

"To those of us who have been doing converts for 20 years or so, we'll never be able to stomach something like this [with its 50% premium and low coupon], unlike Helix, which looks like a real convertible, but it's defensible and you can make it work in the models, where it looks OK - not good, but OK," the sellsider said.

Meanwhile it's a company with a $31 billion market capitalization, and this is a $1 billion deal. "Therefore you have a nice cushion, and from that perspective I love the deal," the sellsider said.

"It's pricing on a rock solid credit, so you could make the case that it's cheap," the sellsider said. Nevertheless, he cautioned that when moving very far away from the norm of what a convertible looks like, "I think you're playing with fire."

The notes have a $125 million greenshoe and will be non-callable for life.

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.

Furthermore, the company did the convertible offering together with a concurrent buy back of stock, so from a technical perspective it gets players interested especially because it was an overnight deal and the shares didn't have time to move before the bond came into secondary market trading.

Given the high dollar price of the stock, trading will be a little different as well. Hedge players will be selling short far fewer shares on swap per bond.

New Helix jumps sharply

Helix' newly priced 3.25% convertibles due 2032 traded up to as high as 105.625 in early trading, with trades seen as low as 103.333, but a lot of volume was in the 105ish area.

Helix shares fell 64 cents, or 3.5%, to $17.89 in heavy volume on Wednesday.

The existing Helix bonds, with the same coupon, were roughly unchanged at 101 plus.

The newer paper is worth more because of the imbedded option value of six-year paper and the lower strike, or conversion, price.

Mentioned in this article:

Priceline.com Inc. Nasdaq: PCLN

Helix Energy Solutions Group Inc. NYSE: HLX

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