Chesapeake Energy’s $1.1 billion issue in focus; Ship Finance prices; NXP on radar

By Stephanie N. Rotondo

Seattle, Sept. 30 – Convertible bond market players were focusing on Chesapeake Energy Corp.’s newly priced $1.1 billion issue of 5.5% convertible senior notes due 2026, sources reported Friday.

The deal came late Thursday, with an initial conversion premium of 40%. Initial price talk had the coupon in the mid-6% area, according to a market source, with a conversion premium of 25%. Talk was later reduced to 5.5% to 6%.

The deal was also increased from the originally announced $850 million.

Goldman Sachs & Co. led the deal. Deutsche Bank Securities Inc. also participated.

In early Friday trading, a trader placed the new issue at par versus a share price of $6.12, which was Thursday’s closing share price.

Another trader deemed the deal “a bit heavy,” given that the coupon was reduced and the size increased.

That trader saw the issue trading “just about par.”

The stock traded up 15 cents, or 2.45%, to $6.27.

The notes convert at a price of $8.57, a 40% premium to the closing level on Thursday.

The deal has net share settlement and contingent conversion.

Chesapeake may call the notes after three years subject to a 130% stock price hurdle.

Proceeds will be used for general corporate purposes, which may include debt repurchases and the repayment of a credit facility and senior notes with near-term maturities.

But while Chesapeake was intriguing investors, Ship Finance International Ltd.’s $225 million offering of 5.75% five-year convertible senior notes – another deal that came before the market opened – was not.

A trader said the deal was “not doing well,” seeing the debt trading south of par at 99.125.

The equity, however, was doing well, rising 22 cents, or 1.52%, to $14.73.

The deal came upsized from $200 million and at the rich end of the 5.25% to 5.75% price talk. The 22.5% conversion premium was in the middle of the expected 20% to 25% range.

Jefferies LLC, ABG Sundal Collier and Morgan Stanley & Co. LLC are the joint bookrunners. Seaport Global Securities LLC and Clarksons Platou Securities Inc. are co-managers.

Proceeds will be used for general corporate purposes, including working capital and the repurchase of all or a portion of its existing 3.25% convertible notes due 2018.

Follow-through in NXP

In secondary trading, a market source said NXP Semiconductors NV’s 1% convertible notes due 2019 was continuing to trade actively in the wake of reports Qualcomm Inc. was looking to acquire the chip maker.

Another market source saw the notes continuing to gain ground, rising 4.5 points to 119.25. The equity – which added nearly 17% in value on Thursday – also remained firm, adding $5.89, or 6.13%, to $102.01.

When the news was first announced on Thursday, a source said the name was “cheapening on a hedge basis” following the stock’s surge. A second source commented that the debt had “a bad takeover matrix.”

The over $30 billion deal is expected to take two to three months to complete, assuming an official agreement is reached.

As of Thursday’s close, NXP had a market cap of $32.6 billion. Qualcomm came in at $99.4 billion.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

NXP Semiconductors NV NYSE: NXPI

Ship Finance International Ltd. NYSE: SFL

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