Recent new deals again active in trading; Cobalt convertibles trade off after debt exchange

By Stephanie N. Rotondo

Seattle, Dec. 8 – New convertible bond deals that priced on Wednesday continued to be in focus in Thursday dealings.

The midweek session saw three issues hitting the tape, a $750 million issue of 3% exchangeable senior notes due 2024 from Ensco plc, a $400 million sale of 1.25% senior convertible notes due 2023 from Teradyne Inc. and a $400 million issue of 2% convertible senior notes due 2021 from Zillow Group Inc.

Come Thursday, trading in those three issues made up almost half of the total trading volume, a trader noted.

“All three deals traded higher right out of the gate,” another trader commented. “The market was clearly in need of paper.”

In Ensco, the notes went out straddling 106. Earlier in the session, they were pegged at 104.

Those levels compared to around 102 as of Wednesday’s close.

The underlying equity also fared well, improving 47 cents, or 4.74%, to $10.39.

Teradyne’s paper was seen closing at 105.625 bid, 106.5 offered, though there were trades with a 107 handle during the session, according to one market source.

The source called that up 1 to 2 points outright.

In early trading, the convertibles were seen in a 105.75 to 106.25 context.

Like Ensco, the common shares did well, adding 73 cents, or 2.86%, to $26.25.

As for Zillow, the convertibles were up, even as the common shares declined.

A trader quoted the issue at 102.5 bid, 103 offered. The class C stock – the shares underlying the new debt issue – declined 69 cents, or 1.81%, to $37.43. The class A common shares were similarly weaker, ending at $36.97 – a loss of 61 cents, or 1.62%.

The market can expect the pipeline to continue to flow: Aerojet Rocketdyne Holdings Inc. said on Wednesday that it planned to raise $200 million via an offering of convertible senior notes due 2023.

Price talk is 1.875% to 2.375%, with an initial conversion premium of 27.5% to 32.5%.

BofA Merrill Lynch and Jefferies are the joint bookrunners.

Prior to Sept. 15, 2023, the notes are convertible at the holder’s option only in certain circumstances. After that date, the notes are convertible at any time.

There is a contingent conversion trigger if the stock hits 130% of the conversion price.

Conversions will be settled by cash, common stock or a combination thereof.

The notes become redeemable on or after Dec. 21, 2020 under certain circumstances – including a 150% price hurdle – at par plus accrued interest.

Proceeds will be used to repay a revolving credit facility, to redeem certain outstanding debt and for general corporate purposes.

Cobalt declines post-exchange

Away from new issues, a trader said Cobalt International Energy Inc.’s convertibles were “on the list,” a trader said.

He noted that the paper hasn’t traded much in the last few days but was busy on Thursday.

Thursday’s activity in the name came after the company said it had completed a debt exchange and financing transaction. The exchange took out about $712.4 million of the 2.625% convertible notes due 2019 and 3.125% convertible notes due 2024.

The convertibles that remain outstanding were initially inching upward in trading, though the stock was trading off. However, the debt eventually finished with a weaker tone.

The 2.625% convertibles – the more active of the two issues, according to one trader – ended at 37.5 bid, 38.5 offered, though there were late-day prints in a 40 to 41 range. That was down from previous levels in a 44 to 45 context.

The 3.125% convertibles opened near 35, which was about unchanged day over day. At the bell, however, the bonds were seen between 29.5 and 30.5.

At another desk, the 2.625% convertibles were called nearly 5 points lower, trading at 38.5. The 3.125% convertibles were pegged with a 29 handle, down 4 to 5 points on the day.

The common stock also came in, on well above-average trading volume.

The shares waned 19 cents, or 14.18%, to $1.15.

Under the terms of the exchange, participating holders will receive a total of $500 million of new first-lien senior secured notes due 2021 at a price of 98, $584.73 million of new second-lien senior secured notes due 2023 and 30 million common shares.

The exchange reduces the outstanding amount of the 2.625% convertibles by $616.55 million and the 3.125% convertibles by $95.86 million.

Mentioned in this article:

Cobalt International Energy Inc. NYSE: CIE

Ensco plc NYSE: ESV

Teradyne Inc. NYSE: TER

Zillow Group Inc. Nasdaq: ZG/Nasdaq: Z

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