TICC Capital adds on debut; XPO Logistics fades with stock; burst of issuance continues

By Rebecca Melvin

New York, Sept. 21 - TICC Capital Corp.'s newly priced 7.5% convertibles due 2017 traded up to 101 bid, 102 offered on their debut in the secondary market on Friday after the Greenwich, Conn.-based business development company priced $100 million of five-year convertibles at the cheap end of talked terms.

XPO Logistics Inc.'s newly priced 4.5% convertibles traded up out of the chute but faded with weaker shares to the 99 bid, 100 offered level after the Greenwich, Conn.-based trucking concern priced an upsized $125 million of the notes at terms that were mixed compared to talk.

XPO shares sank 3% to $12.52 on Friday on top of a 17.4% slide on Thursday, pulling the deal lower, market sources said.

"We don't think it was hedge activity [in the shares] as there wasn't a lot of borrow to begin with," a syndicate source said.

"But the company raised 60% of their market cap in a day, compared to most convert issues, which are 10% to 20% of market cap," he said by way of explanation.

The convertible bond market saw four new deals price this past week, bringing the month's total number of new issues up to 11 or 12, depending how the tally is handled, and representing the strongest burst of activity in the convertible primary market in more than a year since July 2011, market sources said.

For the week, convertibles issuers brought $475 million in new paper - or $538.75 million if over-allotments are exercised.

All the issues except for XPO traded up in the aftermarket despite a lack of borrow in the names.

For the month to date, there have been 12 deals, totaling $2.47 billion, compared to 13 deals totaling $3.20 billion in July 2011, according to Prospect News' data.

"There's been $2.5 billion since Labor Day; it's certainly been the busiest point of the year," a New York-based syndicate source said.

In addition to XPO Logistics and TICC, new issues included Hovnanian Enterprises Inc.'s small $90 million deal of 6% convertibles and Ctrip.com International Ltd.'s upsized $160 million of 0.5% convertibles.

The new Hovnanian traded actively and added to 101 bid, 102 offered on their debut after the Red Bank, N.J.-based homebuilder sold its exchangeable note units at terms that were mixed compared to talk.

Ctrip.com, a Shanghai-based travel services provider, saw its new convertibles jump to 108.25 bid, 109.25 offered in secondary market action on their debut along with higher underlying shares after pricing came at the midpoint of coupon talk and the cheap end of premium talk.

Bankrupt AMR Corp. was mostly quiet and last at 68.25 bid, 69 offered amid headlines regarding labor woes and numerous flight cancelations this week for the Fort Worth, Texas-based carrier.

Meanwhile there has been some outright selling in D.R. Horton Inc., which has been under some pressure as the underlying stock rises.

Some homebuilders have seen gains of 25% to 30% in their shares this month. But D.R. Horton's convertible is way in the money and "with the rise in stocks, some vol. names are seeing pressure," a West Coast-based trader said.

In addition, the market is "seeing people kind of peeling out of some of the names" that are around par and with low yields and high premiums as some of the new issuance come slightly cheaper.

Overall however the market hasn't seen pressure yet from new issuance. "These deals have been well priced, and there is plenty of appetite," a trader said.

New TICC adds

TICC's newly priced 7.5% convertibles due 2017 opened at 100.5 bid, 101.5 offered and moved higher to 101 bid, 102 offered, boosted by the underlying shares, which were up about 1% during some of the morning session.

Shares of the Greenwich, Conn., business development company closed a little stronger, up 16 cents, or 1.5%, to $10.58.

TICC priced $100 million of five-year convertible senior notes after the market close Thursday at par to yield 7.5%, with an initial conversion premium of 10%, according to a syndicate source.

Pricing came at the cheap end of talk, which was for a yield of 7% to 7.5% and an initial conversion premium of 10% to 15%.

The large coupon is due mainly to the company's sector, which means it pays out a large dividend on the common stock. "So if they are going to sell it hedges, they have to pay up for that," a trader said.

Trading in the financial services name was not like "wild fire" but definitely respectable for a small deal that was well-placed among holders generally happy with their allocations, he said.

"Some of it turned over," he said.

Another market source noted that TICC, with a market cap of about $432 million, isn't significantly bigger than XPO Logistics, but TICC's shares held up much better than XPO's.

TICC's Rule 144A offering has a $15 million over-allotment option and was sold via Barclays as bookrunner, with Ladenburg Thalmann as co-manager.

The bonds are non-callable with no puts and feature dividend and takeover protection.

Proceeds will be used for general corporate purposes, which may include investments in corporate debt and equity securities and investments in structured finance vehicles.

TICC is a business development company focused on small and mid-size companies and is based in Greenwich, Conn.

XPO prices upsized deal

XPO Logistics' newly priced 4.5% convertibles due 2017 traded up in the early going to as high as 102 but settled back down, trading at 99 bid, 100 offered at the end of the day, according to a syndicate source.

A second trader said the market late in the session was more like 99.5 bid, 100 offered.

The company's shares, which tanked 17.4% on Thursday, were down again Friday by 39 cents, or 3%, at $12.50 at the close.

Nevertheless, one trader, who referred to XPO as a micro cap, said he thought the deal was successful and pretty well priced, given its $278 million market cap.

"The first spate of deals that got done were for bigger companies with less risk and less hair on them. Now you don't see the pop because there is a pushback because there was risk. But the deals got done and were priced well given the risk," the trader said.

"The bankers are doing a good job having paper come to market, and it seems priced correctly, and some are oversubscribed. And all of these are trading at somewhat of a premium after issuance. Everyone seems happy," he said.

"Nothing is going radio silent and no one know where they are," he said.

XPO priced an upsized $125 million of five-year convertible senior notes after the market close Thursday to yield 4.5% with an initial conversion premium of 27.5%.

The registered offering's greenshoe was also upsized to $18.75 million. Initially, the base deal was talked at $100 million with a greenshoe of $15 million.

Pricing came at the cheap end of coupon talk, which was 4% to 4.5%, and through the rich end of 20% to 25% premium talk.

Morgan Stanley & Co. LLC, Deutsche Bank Securities Inc. and Jefferies & Co. Inc. were the joint bookrunners. Co-managers were Avondale Partners LLC, BB&T Capital Markets, a division of Scott & Stringfellow LLC, FBR Capital Markets & Co., Oppenheimer & Co. Inc., Raymond James & Associates Inc. and Stifel, Nicolaus & Co. Inc.

The bonds are non-callable for three years and then are provisionally callable subject to shares being at least 130% of conversion for 20 out of 30 trading days. There is a coupon make-whole feature in the event they are called.

The bonds also have net share settlement.

Proceeds will be used for general corporate purposes, which may include potential acquisitions.

Greenwich, Conn.-based XPO is a transportation services company.

Mentioned in this article:

AMR Corp. Pink Sheets: AAMRQ

Ctrip.com International Ltd. Nasdaq: CTRP

D.R. Horton Inc. NYSE: DHI

Hovnanian Enterprises Inc. NYSE: HOV

TICC Capital Corp. Nasdaq: TICC

XPO Logistics Inc. NYSE: XPO

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