Herbalife slips after pricing; Cepheid talk gets tightened; NRG, American Energy on tap

By Rebecca Melvin

New York, Feb. 4 - Herbalife Ltd.'s newly priced 2% convertibles dropped below par on their debut in the secondary market on Tuesday after the Cayman Islands-based nutrition company priced $1 billion of the 5.5-year senior notes at the cheap end of talk.

There was an outright bid on the new Herbalife paper at 99.125 bid, 100.125 offered out of the chute with the underlying share price at $69.70, a syndicate source said.

Later a level on the new Herbalife convertible was quoted at 96.75 bid, 97.75 offered versus a share price of $67.10, according to a Connecticut-based trader.

Shares of the Cayman Islands-based nutrition and vitamin supplements company opened a little higher but slipped in subsequent action and ended down $1.75, or 2.5%, at $67.27.

Also in the primary market, the Cepheid offering of seven-year convertible notes, which was expected to price after the market close, was upsized during marketing to $300 million in size from $250 million, and price talk was tightened to a 1.25% to 1.5% yield with an initial conversion premium of 32.5%, according to a syndicate source.

"The deal had been well received, a syndicate source said, "with broad interest across all kinds of accounts."

The fact that the most recent convertible deals were going well despite suddenly volatile equity markets was testimony to the resilience of the convertible market right now, the syndicate source said.

Also in the primary market, an affiliate of American Energy Partners LP, American Energy - Utica LLC, launched a $500 million offering of seven-year convertible subordinated notes that was seen pricing Feb. 20 and was talked at a 3% to 4% coupon.

After the market close, NRG Yield Inc. launched an offering of $300 million of five-year convertibles that was talked to yield 3% to 3.5% with an initial conversion premium of 27.5% to 32.5%.

Back in established issues, shares of Take-Two Interactive Software Inc. slid after the New York-based video game publishing company posted fiscal third-quarter results that beat estimates but guided lower for the fourth quarter. Take-Two's 1% convertible due 2018 traded intraday at 107.678, according to Trace data.

Overall, the tone in the convertible market was little changed. "It's the same as it's been only a bit better bid," a New York-based trader said. "There was no real panic when equities sold off on Monday, and that didn't change today."

Herbalife slips on debut

Herbalife's new 2% convertibles due 2019 traded around par and then lower with the underlying shares of the Cayman Islands-based nutrition company slipping following a 7% rally on Monday.

Pricing of the $1 billion of 5-5-year notes came at the cheap end of talk, which was for a 1.5% to 2% coupon and a 25% to 30% premium.

"The stock was up 7% during marketing so I think the use of proceeds was right," a syndicate source said.

Of net proceeds estimated at $975 million, about $686 million will be used to fund the cost of the forward share repurchase transactions, and about $111 million of proceeds will fund the cost of capped call transactions. Remaining proceeds will be used for working capital and general corporate purposes, including the repurchase of outstanding common shares.

The Herbalife deal was also bigger than the deals so far year to date, the syndicate source pointed out, and it came during a volatile patch in the equities markets, pointing to the convert market's resilience, he said.

The Rule 144A deal has a $150 million greenshoe and was sold by joint bookrunners BofA Merrill Lynch, Credit Suisse Securities (USA) LLC, HSBC Securities (USA) Inc. and Morgan Stanley & Co. LLC.

The bonds are non-callable with no puts. There is takeover and dividend protection.

The deal was completed concurrently with prepaid forward share repurchase transactions, or a borrow facility, and capped call transactions. The cap price of the capped call transactions will initially be $120.79 per common share, which boosts the initial conversion premium from Herbalife's perspective to about 75% over the last reported closing share price.

George Town, Cayman Islands-based Herbalife is a nutrition company that makes vitamins, skin creams and meal-replacement shakes.

On Monday, when the convertible deal was launched, Herbalife also preannounced earnings that were better-than-expected for the most recent quarter. But guidance for the current period was weak.

Cepheid talk tightened

Cepheid's seven-year convertibles deal was upsized to $300 million with a $45 million greenshoe during marketing. That was up from an originally talked $250 million and $37.5 million deal size.

Pricing was tightened to a 1.25% to 1.5% yield with an initial conversion premium of 32.5%. That was up from an originally talked 1.5% to 2% coupon and 27.5% to 32.5% premium.

At the original talk, the deal was seen 2.6% cheap a using a credit spread of 375 basis points over Libor and a 32% vol., according to one source.

The deal was being sold via joint bookrunners Morgan Stanley and Jefferies LLC.

Proceeds of the seven-year bullet paper will be used for general corporate purposes, including potential acquisitions and strategic transactions, and to pay the cost of the capped call transactions.

Cepheid expects to enter into capped call transactions with one or more of the initial purchasers of the notes or their respective affiliates.

Sunnyvale, Calif.-based Cepheid is a molecular diagnostics company.

American Energy to price

American Energy - Utica LLC, an affiliate of American Energy Partners, launched an offering of $500 million of seven-year convertible subordinated notes on Tuesday that the non-listed company plans to price Feb. 20. The coupon was talked at 3% to 4%.

The Rule 144A offering is being sold via bookrunners including Jefferies LLC and Citigroup Global Markets Inc.

Proceeds will be used, together with additional borrowings under American Energy's credit facility, to fund a portion of its additional leasehold acquisitions as approved by the board, to fund a portion of its capital expenditure plans associated with its drilling and development program, and to fund drilling-carry capital expenditures agreed under certain purchase agreements and to fund a portion of its anticipated seismic data acquisitions.

Oklahoma City-based American Energy is involved in onshore U.S. unconventional resource plays.

NRG Yield to price

NRG Yield, another energy company, launched an offering of $300 million of five-year convertibles after the market close on Tuesday that were seen pricing after the market close on Wednesday and were talked to yield 3% to 3.5% with an initial conversion premium of 27.5% to 32.5%, according to a syndicate source.

The offering has a $45 million greenshoe and was being sold via joint bookrunners Morgan Stanley & Co. LLC, BofA Merrill Lynch, RBC Capital Markets and Goldman Sachs.

The convertibles are non-callable.

Princeton, N.J.-based NRG Yield is an independent electricity generator with natural gas or duel-fired facilities, as well as solar and wind generation.

Mentioned in this article:

Cepheid Nasdaq: CPHD

Herbalife Ltd. NYSE: HLF

NRG Yield Inc. Nasdaq: NYLD

Take-Two Interactive Software Inc. Nasdaq: TTWO

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