KBR convertibles hit the market; Ribbon withdraws; HC2 on tap; Western Digital active

By Abigail W. Adams

Portland, Me., Nov. 13 – While the convertibles primary market started the week off strongly with one new deal pricing, volatility continued to stifle new deal activity with one prospective issuer withdrawing its offering.

KBR Inc. priced $350 million of five-year convertible notes prior to the market open on Tuesday. The notes were active in the secondary space and trading at a slight premium on swap, a market source said.

Ribbon Communications Inc. withdrew its offering of $150 million of five-year convertible notes, which was scheduled to price after the market close on Tuesday.

Ribbon’s stock had cratered during intraday trading on Tuesday as bookbuilding for the deal was underway.

HC2 Holdings Inc. is on deck with plans to sell $55 million of four-year convertible notes in conjunction with a downsized offering of $470 million of three-year senior notes.

There was scant information in the market about the offering although allocation is expected on Wednesday.

No new deals were announced after the market close on Tuesday with volatility in the markets continuing to damper new deal activity, a market source said.

The Dow Jones industrial average closed Tuesday down 100 points after a 600-point drop on Monday.

However, there are only a few weeks left to the fourth quarter with holidays narrowing the window of opportunity for potential issuers to bring their deals to the market.

Outside of new deal activity, Western Digital Corp.’s 1.5% convertible notes due 2024 again saw active trading during Tuesday’s session with more sellers in the market for the large issuance.

KBR prices

KBR priced $350 million of five-year convertible notes at the cheap end of talk prior to the market open on Tuesday with a coupon of 2.5% and an initial conversion premium of 27.5%.

Price talk had been for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%.

The new paper was active in the secondary space with the notes trading at a slight premium on swap, a market source said.

The notes were seen trading at 100.625 on hedge early in the session, the source said.

The notes traded in a tight range on an outright basis with stock off slightly during Tuesday’s session. They were seen changing hands between 99.25 and par, sources said.

KBR stock closed Tuesday at $19.47, a decrease of 2.7%.

The deal was marketed with a credit spread of 450 basis points over Libor and a 35% vol., which was seen as rich to fair value at the midpoint of talk, sources said.

A previous story published in the Nov. 13 edition of the Prospect News Convertibles Daily included incorrect assumption figures for KBR’s convertible notes offering.

Ribbon pulled

Ribbon Communications withdrew its planned offering of $150 million of five-year convertible notes.

The deal was scheduled to price after the market close on Tuesday. Price talk was for a coupon of 2.25% to 2.75% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal was marketed with a credit spread of 500 bps over Libor and a 34% vol., which modeled about 1.5 points cheap at the midpoint of talk, a market source said.

Other sources also saw the deal as attractive. “They’re giving quite the discount on vol.,” a source said.

However, Ribbon Communications stock was under pressure during bookbuilding, dropping as much as 25% in intraday trading.

Stock traded as low as $4.96 but rallied toward the end of the session, closing the day at $6.20, a decrease of 6.49%.

“The company believes that current market conditions are not conducive for an offering on terms that would be in the best interests of the company's stockholders,” it said in the press release.

HC2 on tap

HC2 Holdings is tapping the convertibles market as part of a restructured senior notes offering.

There was little information in the market about the $55 million four-year convertible notes offering, which was not on the radar of sources queried.

However, the Rule 144A and Regulation S deal is expected to allocate on Wednesday, a market source said.

HC2 Holdings’ stock was also under pressure on Tuesday.

The New York-based diversified holding company’s stock was the worst performer on the New York Stock Exchange, closing the day at $3.65, a decrease of 27.58%.

The convertibles deal is part of a restructured senior notes offering that was initially launched on Oct. 22 as a $535 million five-year senior notes deal.

The senior notes deal was restructured to a shorter maturity, underwent covenant changes, and widened talk as volatility roiled capital markets.

Price talk on the senior notes was last heard to be an 11½% coupon with a reoffer price of 98.75 to yield 12%.

Western Digital active

There were few notable movers in the secondary space outside of the new paper from KBR, a market source said.

Western Digital’s 1.5% convertible notes due 2024 again saw active trading during Tuesday’s session although with little movement in price.

The notes continued to trade around 84.7. Western Digital stock closed Tuesday at $44.69, an increase of 2.83%.

The 1.5% convertible notes have been major volume movers in the secondary space in recent weeks with the notes trending lower since reporting earnings in late October.

There appeared to be more sellers in the market, a source said.

The 1.5% notes will also be dropped from the Thomson Reuters Convertibles Indices at the market’s close on Wednesday.

Mentioned in this article:

HC2 Holdings Inc. NYSE: HCHC

KBR Inc. NYSE: KBR

Ribbon Communications Inc. Nasdaq: RBBN

Western Digital Corp. Nasdaq: WDC

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