New Priceline slips outright, trades flat on hedge after reoffer; existing Priceline off

By Rebecca Melvin

New York, Aug. 15 – Priceline Group Inc.’s newly priced $1 billion of 0.9% convertibles slipped a little outright but were in line, or flat, on a hedged basis on Friday after the Norwalk, Conn.-based online travel company priced the seven-year notes at a discount to par and at the cheap end of coupon talk, market sources said.

The new Priceline convertibles were quoted at 98.5 bid, 99.5 offered near the end of the session on Friday with the underlying shares down 1% at about $1,270.00. The bonds had been reoffered at 99.

The new deal accounted for a good chunk of Friday’s trading, but Priceline’s existing convertibles were also down about 0.5 point to 0.75 point on an outright basis in active trade.

There were seven new deals for about $2.23 billion in base deal proceeds this past week, making it the busiest week for the U.S. convertibles primary market since early June.

In comparison, there was $2.71 billion of new issuance in eight deals the week ending June 5 and $2.69 billion in seven deals the week ending June 13. Before that, the week of May 9 saw $2 billion in three new deals, according to Prospect News data.

The Priceline deal capped off a strong week for new issuance, but pricing was not that strong. Of the week’s deals, AOL Inc.’s new 0.75% convertibles outperformed the rest of the field in first-day trading on Thursday, adding 3 points on swap on their debut. Apollo Commercial Real Estate Finance Inc.’s 5.5% convertible senior notes, on the other hand, sank after the New York-based real estate investment trust priced a $100 million add-on to that issue, which debuted on Wednesday.

Aegerion Pharmaceuticals Inc.’s new 2% convertibles added about 0.5 point on swap on Tuesday after the Cambridge, Mass.-based biopharmaceutical company priced an upsized $300 million of the senior notes at the rich end of talk.

Primary is healthy

The latest crop of new issuance didn’t change the complexion of the convertibles market materially, an East Coast-based buysider said. In the spring, the market was about 1% to 2% more expensive than it is now, but that is just a function of healthier new issuance, he said. “In my opinion, it hasn’t come in.”

Individual names may have gone down, but just as many went up, he said. “In the markets, in general, high yield has taken a bit of a hit, so some people may feel like it has come in.”

“Net supply has been very healthy, with volume at or above last year at this time, and not a lot of paper maturing in 2014,” the buysider said. “It’s not that the new deals aren’t good deals, it’s just that there is a lot of new deals, and paper can’t be priced as aggressively as it was.”

The good thing, he said, is that “it’s more of a stock picker’s market.”

The buysider said the fact that the market is not starved for paper anymore has been a multiyear process. Last year was the first year since the financial crisis that there was net new issuance in which issuance covered redemptions, he said.

The market right now is fairly valued, he said.

Market players had doubts that the level of new issuance would remain strong for the rest of the summer.

“I have gotten a definite sense that there was a race to get in before September,” a syndicate source said about new issuance. He doesn’t expect more deals until the middle of September.

But time will tell, a buysider said. And whether the market reopens after the summer doldrums as strongly as it finished this week also remains to be seen.

Priceline flat on debut

Priceline’s new 0.9% convertibles due 2021 were seen at 98.5 bid, 99.5 offered at the end of the session. That was slightly lower than the 99 reoffer price at which the paper started the day.

The Norwalk, Conn.-based online travel company priced $1 billion of the seven-year senior notes at the cheap end of talked terms, including a 99 to 99.25 reoffer price and a 0.75% to 0.9% coupon. It also came at the fixed 60% initial conversion premium that was talked.

The new Priceline bonds were placed primarily in outright hands. Given the discounted price to par, the yield on the paper is about 105 and the actual premium is a little lower at 58.4%, a syndicate source said.

After midmorning, Priceline shares traded off some and were last at $1,270.12, which was down $14.69, or 1.2%.

The deal has a $150 million greenshoe and was sold via Wells Fargo Securities LLC and Citigroup Global Markets Inc.

The new Priceline deal was not considered one of the week’s top winners for hedged players. “There are outstanding issues that were much better. I think it was structured for certain accounts that need investment-grade rated stuff and large, liquid stuff that will go in the index. If you like Priceline you’d own the more equity sensitive bonds,” a buysider said.

The notes will be non-callable for life, with dividend and takeover protection. The bond matures Sept. 15, 2021.

About $147 million of proceeds are being used to repurchase shares of common stock, which may be affected through initial purchasers of the notes concurrently with the consummation of the offering; and for general corporate purposes, which may include repaying debt, repurchasing additional common stock and corporate acquisitions.

Given that the new issue came at a discount, there was some pressure on the older Priceline bonds that were forced to cheapen a bit.

Priceline’s 1% convertibles, which priced a while ago, are in-the-money and behaving like equity. They traded at 145 to 146 on Friday.

The Priceline 0.35% convertibles, which priced about a year ago, traded at 119.625 on Friday, according to Trace data.

The new bonds are trading more like debt with a much higher strike.

“Some people were lightening up to buy the new ones, or to play the mixture of views,” a syndicate source said. “Some want more debt protection and the higher coupon. They might want the equity risk off the table.”

The deal was allocated primarily to outright investors, he said.

Mentioned in this article:

Aegerion Pharmaceuticals Inc. Nasdaq: AEGR

AOL Inc. NYSE: AOL

Apollo Commercial Real Estate Finance Inc. NYSE: ARI

Priceline Group Ltd. Nasdaq: PCLN

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