Upsized Weatherford notes jump on debut; upsized Softbank/Alibaba mandatory lags shares

By Rebecca Melvin

New York, June 2 – Weatherford International Ltd.’s new 5.875% exchangeable traded up strongly in heavy volume Thursday after the international oilfield services company priced an upsized $1.1 billion of the five-year senior notes at terms that were mixed compared to talk, a New York-based trader said.

The new Weatherford convertibles were seen up at 108.375 bid, 108.875 offered near the market close with shares at $5.82. That was wider on a swap basis of about 5 points depending on one’s delta, a trader said.

Also in the primary market, Softbank Group Corp. priced an upsized $5.5 billion of mandatory securities exchangeable into Alibaba Group Holding Ltd. shares. Those securities were seen in the market around par early in the session and were said to have lagged a little on a swap basis as the stock rallied, a second New York-based trader said at the end of the session.

The Alibaba convertibles priced at the cheap end of talked terms for a 5.75% rate and a 17.5% initial exchange premium.

The two super-sized issues accounted for the lion’s share of Thursday’s market action. But Ciena Corp. was a name in focus among established issues after the networking equipment maker posted weaker quarterly earnings that were better than expected. Ciena’s stock surged almost 13%.

Ciena’s 3.75% convertibles jumped to 122.22 from 115.78 previously, according to a pricing source. And the Ciena 4% convertibles rose to 127.68 from about 122.6.

In the broader markets, equities gained traction as the session wore on, ending the day solidly in the green after hugging the flat line earlier. Market players are looking ahead to Friday’s May U.S. jobs report for clues on the strength of the U.S. economy. The data will feed into the thinking of Federal Reserve policy makers regarding whether and when to raise interest rates.

Upsized Weatherford surges

The new Weatherford convertibles were seen up at 108.375 bid, 108.875 offered near the market close with shares at $5.82. That was wider on swap by about 5 points, assuming a delta of about 70% to 75%.

Early in the session, the bonds were notably higher at 104.5 bid, 106 offered, with the underlying shares down about 3%.

But the shares, which underlie the notes, pulled higher starting at late morning and ended up 36 cents or 6.5%, at $5.89.

Higher shares definitely helped the deal, a trader said.

“They widened over 5 points depending on delta. The debt stack is tighter and the equity is higher,” the trader said.

The oilfield services company priced an upsized $1.1 billion of five-year exchangeable senior notes ahead of the market open on Thursday at par to yield 5.875% with an initial exchange premium of 40%.

The company had abandoned a similar deal last September after shares fell 17% in response to the deal launch.

The new registered, off-the-shelf deal was initially talked at $1 billion in size. The greenshoe was upsized to $165 million from $150 million.

Final terms were mixed compared to price talk, coming at the cheap end of 5.625% to 5.875% rate talk and at the rich end of 37.5% to 40% premium talk.

The notes were sold via joint bookrunning managers RBC Capital Markets LLC, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, MUFG, Morgan Stanley & Co. LLC and Wells Fargo Securities LLC.

Co-managers were Barclays, Skandinaviska Enskilda Banken AB, TD Securities (USA) LLC, UniCredit Capital Markets LLC and BBVA Securities Inc.

Proceeds are being used to fund all or a portion of tender offers to purchase certain of the company’s 6.25% senior notes due 2017, 6% senior notes due 2018, 9.625% senior notes due 2019 and 5.125% senior notes due 2020.

Proceeds not used to fund the tenders will be used to repay or retire other outstanding debt, including amounts under Weatherford Bermuda’s revolving credit facility.

Softbank/Alibaba lags shares

Alibaba’s American Depositary Shares rose 61 cents, or 0.8%, to $77.30 on Thursday after an upsized $5.5 billion of mandatory securities exchangeable into the stock had been priced after the market close on Wednesday.

The Rule 144A deal was initially talked at $5 billion in size.

The Alibaba mandatories were heard trading around par in the early going. The new paper priced at the cheap end of talked terms to yield 5.75% with an initial exchange premium of 17.5%.

The mandatory exchangeables were sold via Mandatory Exchangeable Trust, a newly formed, independent trust incorporated in the United States.

Under a collateral agreement, a wholly owned subsidiary of Japan’s Softbank Group Corp. called West Raptor Holdings LLC will initially pledge a number of ordinary shares underlying the maximum number of ADSs deliverable upon maturity of the exchangeables under the forward purchase agreement.

The shareholder may elect to deliver in whole or in part cash instead of ADSs.

Morgan Stanley & Co. LLC and Deutsche Bank Securities Inc. were joint bookrunners of the deal.

Proceeds will be used to pay the purchase price to the shareholder under the forward purchase agreement and to purchase a portfolio of stripped U.S. Treasury securities with face amounts and maturities corresponding to the quarterly distributions.

The offering is part of a series of transactions which Softbank will use to monetize part of the stake in Alibaba held by its subsidiary SB China Holdings Pte. Ltd.

Also included in the minimum $7.9 billion monetization is the sale of $2 billion of Alibaba ordinary shares to Alibaba, the sale of $400 million of Alibaba ordinary shares to members of the Alibaba Partnership acting collectively and the sale of $500 million of Alibaba ordinary shares to a major sovereign wealth fund.

The trust securities will allow Softbank to monetize its shares at a potential premium to the current share price while eliminating downside risks.

After the sale of the Alibaba shares, Softbank will hold 28% of the company.

Based in Hangzhou, China, Alibaba is an online and mobile commerce company in the People’s Republic of China and internationally.

Mentioned in this article:

Alibaba Group Holding Ltd. Nasdaq: BABA

Ciena Corp. Nasdaq: CIEN

Softbank Group Corp. Japan: 9984

Weatherford International plc NYSE: WFT

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.