Convertibles stay quiet as long weekend approaches; Qihoo's new notes could signal next trend

By Stephanie N. Rotondo

Phoenix, Aug. 29 - There was "not a whole lot moving around" in the convertible bond market, a trader said Thursday.

Another trader called the day "progressively slower" than the previous day's session, likely due to an upcoming three-day weekend in honor of Labor Day.

Still, a trader remarked that "meager issuance" in the primary was causing many investors to flock to Qihoo 360 Technology Co. Ltd.'s recently priced $550 million issue of 2.5% convertible senior notes due 2018.

The deal priced early Wednesday.

The Chinese technology company said it would use proceeds from the deal for general corporate purposes, a trend one source said he expects to continue.

"The market is spooking a lot of guys," he said. Given the uncertainties plaguing the market, some issuers might be considering doing deals at the currently cheap rates in order to shore up liquidity.

"I wouldn't be surprised if we see a lot of that," he said.

As for the Qihoo deal specifically, a trader saw it trading in a range of 106 to 108.

The stock was up $1.58, or 2.03%, at $79.46.

"I'm sure those bonds are doing well," another trader said, though he added that he had not been involved in the deal himself. He said some of his accounts were choosing to forgo the new issue because it was a Chinese company, which brings a different level of risk.

The deal was sold via Citigroup Global Markets Inc., China Renaissance and UBS as joint bookrunners.

The notes will be convertible into the American Depositary Shares of the Beijing-based company, with every two ADS representing three class A ordinary shares.

The notes are non-callable until Sept. 20, 2016 and then are provisionally callable if the underlying shares exceed 130% of the conversion price. There is an investor put on Sept. 15, 2016.

There is also standard dividend and takeover protection.

Mentioned in this article:

Qihoo 360 Technology Co. Ltd. NYSE: QIHU

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