Upsized Weyerhaeuser slips below par, following shares; Encore sags with broader markets

By Rebecca Melvin

New York, June 19 - Weyerhaeuser Co.'s newly priced 6.375% mandatory convertible preferreds traded mostly flat to slightly higher ahead of the Federal Reserve's policy announcement Wednesday but ticked below par with lower common shares following word that the Fed's current accommodative policies will remain unchanged until at least the latter part of the year and possibly longer.

The new Weyerhaeuser mandatories were actively traded and a central focus of the session on their debut following an upsizing to $600 million and pricing at the rich end of talk.

Also making a debut in the secondary market was Encore Capital Group Inc.'s newly priced 3% convertibles, which were also weaker with lower shares and general heaviness in the market, market sources said. Encore's upsized $150 million of seven-year convertible senior notes also priced at the rich end of talk.

There were no further details on SolarCity Corp.'s planned $175 million offering of five-year convertibles, which may be an "over the wall" deal for select investors, one market player said.

SolarCity's chairman is billionaire Elon Musk, who is also chairman and chief executive officer of Tesla Motors Inc. SolarCity's chief executive is Lyndon Rive.

Elsewhere, the secondary market was described as quiet.

"It's pretty slow otherwise," a New York-based trader said.

In the broader markets, both Treasuries and stocks fell. Selling accelerated after the Federal Reserve announced that it would maintain its current accommodative monetary policy in the face of continuing improvement in the labor market and the economy, in general.

The Fed policy statement was released at 2 p.m. ET, and stocks, which had been weak to start the day, moved sharply lower.

The news seemed no different from what many had expected, which was that the Fed will maintain its $85 billion per month of bond buying, with an option to scale back later this year if the U.S. labor market continues to improve.

The Fed has said that it would remain highly accommodative until the unemployment rate drops to 6.5% while holding at a 2.5% objective on inflation.

"Treasuries were selling off pretty hard, and all risk products are following it. There was not a lot of trading in the last hour, as people are trying to figure out where everything is," a New York-based convertibles trader said in late afternoon.

Upsized Weyerhaeuser dips

Weyerhaeuser's newly priced 6.375% mandatory convertible preferreds slipped beneath par to trade at 49.75 bid, 50 offered versus an underlying share price of $27.60 in late afternoon trading, a syndicate source said.

"It's all over the place," the syndicate source said.

Earlier, the bonds traded at 50, which was par, with the underlying common stock at $27.75, and higher at 50.25 bid, 50.75 offered when shares were higher.

The mandatory preferreds were actively traded, and moved with the common shares.

Weyerhaeuser shares fell 93 cents, or 3.3%, to $27.31 in heavy volume.

"Weyerhaeuser was pretty liquid, thankfully," a New York-based trader said.

"It basically moved on delta with the shares since before the open," a syndicate source said, adding that it "pretty much did what we expected."

The Federal Way, Wash.-based forest products company priced an upsized issue of the mandatories, or $600 million worth, compared to an initially talked $500 million issue.

The registered, off-the-shelf 6.375% paper has a 20% premium. There is a $90 million greenshoe, which was upsized from $75 million.

Weyerhaeuser also priced 29 million shares at $27.75 per share, which represented at 1.7% discount from the $28.24 closing price of shares on the New York Stock Exchange on June 18.

Morgan Stanley & Co. LLC, Deutsche Bank Securities Inc., and Citigroup Global Markets Inc. were the joint bookrunning managers of both offerings. Allen & Co. LLC and J.P. Morgan Securities LLC were the senior co-managers, and Goldman Sachs & Co., BofA Merrill Lynch, Mitsubishi UFJ Securities (USA) Inc., PNC Capital Markets LLC and Wells Fargo Securities LLC were the junior co-managers.

The series A preferreds have dividend protection at a quarterly dividend threshold of $0.22 and cash takeover protection. They will automatically convert into a variable number of shares on July 1, 2016.

Proceeds will be used to finance the company's previously announced acquisition of Longview Timber LLC and for debt repayment.

The securities had been seen in the gray market ahead of pricing at 100.25 to 100.375.

Encore slips on debut

Encore's newly priced 3% convertible senior notes closed at about 99.5 to 99.75 versus a share price of $34.57.

Encore shares were down 60 cents, or 1.7%.

Earlier when the shares were down by a lesser magnitude, the convertibles had changed hands at par versus a share price of $35.15, a syndicate source said.

Another source saw the paper 99.625 bid, 100.25 offered versus a $35.00 share price.

The paper priced off of the common's $35.17 closing price Tuesday.

"It's acting poorly with the market heavy," a Connecticut-based convertibles analyst said.

Encore is a San Diego-based consumer accounts receivable management firm.

The deal had a 30% premium. It was initially talked at $110 million in size. There is a $22.5 million greenshoe that was upsized from $16.5 million.

Active bookrunners were Morgan Stanley and Barclays, and passive bookrunners were Citigroup, Deutsche Bank Securities and RBS Securities Inc. JMP Securities LLC was a co-manager.

The notes will be guaranteed on a senior unsecured basis by Midland Credit Management Inc., a subsidiary of the company.

Proceeds are expected to be used to pay a portion of the purchase price of a controlling interest in Cabot Holdings S.A.R.I. and for general corporate purposes. Proceeds were also used to pay the cost of capped call transactions in connection with the deal.

The cap price of the capped call transactions will initially be $61.5475 per share, which represents a premium of about 75% from the issuer's perspective.

Mentioned in this article:

Encore Capital Group Inc. Nasdaq: ECPG

SolarCity Corp. Nasdaq: SCTY

Weyerhaeuser Co. NYSE: WY

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