By Rebecca Melvin
New York, Feb. 29 - The newly priced convertibles of DealerTrack Holdings Inc. gained in secondary market action Wednesday, trading up as much as 4.75 points on an outright basis, and adding 3.5 points to 4 points from issue on a dollar-neutral or hedged basis.
But in late action, the underlying shares turned negative and the new paper closed at 103.5 bid, 104 offered versus an underlying share price of $27.85, a syndicate source said.
That close meant the paper was 0.25 point better on a dollar-neutral basis, compared to an earlier 104.375 versus an underlying share price of $28.50, a New York-based sellsider said.
Also in the primary market, Stone Energy Corp.'s $250 million of convertible notes were seen somewhat cheap, with valuations ranging from 1.5% to 3.5% cheap prior to expected final terms being fixed after the market close.
"They're not screaming cheap, but I think they will do well because there aren't too many energy names that are desirable in terms of nice, balanced converts," a New York-based sellsider said.
Meanwhile, two of the now three tranches of Hologic Inc. - all derivatives of a single, oversized deal priced in 2007 - traded a little higher after the Bedford, Mass.-based diagnostic imaging and surgical products company said it exchanged $500 million of existing 2% convertibles due 2027 for new 2% convertibles due 2042.
"They keep kicking the can down the road," a sellsider said, referring to the company's current exchange as well as an initial exchange completed in 2010 in which the holder put was pushed out by three years.
The original Hologic convertible and the newly exchanged paper traded up a bit, while the first exchanged tranche, which is more equity sensitive, traded down in line with the underlying shares.
Also active in trade was Central European Distribution Corp., and that convertible paper traded lower by about 6 points outright with the shares dropping nearly 20% after the Polish vodka maker reported a wider fourth-quarter loss and raised doubts about its ability to continue as a going concern.
DealerTrack gains on debut
The newly priced DealerTrack 1.5% convertibles traded up to 104.75 by early afternoon and were seen at 104.625 bid, 105.125 offered before the underlying shares started to slide. The new paper was closed out at 103.5 bid, 104 offered versus an underlying share price of $27.85.
Earlier in the paper's debut session, the underlying shares were up 50 cents, or 1.75%, at $28.50.
At the top of the market, the new convertibles gained 3.5 points to 4 points on a dollar-neutral basis, according to a syndicate source.
"The deal went well," the source said.
There was high demand for allocations from both outright and hedged investors, he said.
A Connecticut-based analyst wasn't too keen on the paper, however, saying that he felt it was "a little steamy," or rich, in terms of pricing.
"People used a much tighter credit and higher vol. than I'm comfortable with," he said, adding, "where is the growth in a story like that coming from?"
DealerTrack priced an upsized $175 million of five-year senior convertible notes after the market close Tuesday to yield 1.5% with an initial conversion premium of 33.5%.
The Rule 144A paper priced on the rich end of coupon talk, which was 1.5% to 2%, and toward the rich end of premium talk, which was 30% to 35%.
Joint bookrunners were Barclays Capital Inc., J.P. Morgan Securities LLC and Wells Fargo Securities LLC.
Co-managers were Cowen & Co., Craig-Hallum Capital Group, Evercore Partners, KeyBanc Capital Markets LLC and JMP Securities LLC.
The bonds will be non-callable for life with no puts. They will have takeover and dividend protection, as well as contingent conversion at a price hurdle of 130%.
A portion of the proceeds of the notes and from the sale of warrants will be used to fund the cost of convertible note hedge transactions. Remaining proceeds will be used for working capital and general corporate purposes, which may include repayment of existing debt, acquisitions and investments.
Lake Success, N.Y.-based DealerTrack provides software services to the automotive retail industry.
Stone Energy looks cheap
Independent oil and natural gas exploration and development company Stone Energy was seen cheap along lines similar to DealerTrack, one market source said early in the day.
The planned $250 million of five-year convertible notes were talked to yield 1.75% to 2.25% with an initial conversion premium of 25% to 30%.
Using a credit spread of 650 basis points over Libor and a vol. of 40%, the paper is at only 99.63 at the midpoint of talk.
Boosting volatility to 45% got the paper to 101.84 at the midpoint of talk, a New York-based trader said.
The Rule 144A offering has a $25 million greenshoe, and final terms were expected to be fixed after the market close Wednesday.
New Hologic adds
Hologic's original, or unexchanged, 2% convertibles due 2037 were seen at 99 bid, 99.25 offered on Wednesday on an outright basis, which was up from 98.5 two days earlier, a New York-based trader said.
The newly exchanged 2% convertibles due 2042 were 101.5 bid, 102 offered, which was up from an initial par value.
The older, exchanged 2% convertibles traded down to 117ish from about 120, the trader said.
Shares of the company, which is focused on women's health care needs, shed 77 cents, or 3.6%, to $20.73 in heavy volume on Wednesday.
"Guys are referring to these as HOLX old, HOLX new, or new new, old new, and old old; but it gets confusing," a trader said.
The newly exchanged notes push out the maturity by five years and will pay interest at 2% per year until March 1, 2018, after which their principal will accrete at a rate of 2% per year.
Starting March 1, 2018, the new notes will also pay contingent interest under certain circumstances based on their then current trading price.
The new notes have an initial conversion rate of 32.07698 shares of common stock per $1,000 original principal amount of notes, equivalent to a conversion price of about $31.175 per share, subject to adjustment in certain events.
The initial conversion price represents a 45% premium over the closing sale price of Hologic's common stock on Feb. 28.
Holders of the new notes have the option to require the company to purchase the notes outstanding on March 1, 2018 and certain subsequent dates, and in certain other circumstances, at a price equal to the accreted principal amount of the new notes to be purchased plus any accrued and unpaid interest.
The notes are non-callable until March 6, 2018.
The company issued $500 million principal amount of new 2% convertible senior notes in exchange for the same amount of 2% convertible senior notes due 2037.
Following the exchange, $775 million principal amount of the original notes remain outstanding. The company also has outstanding $450 million principal amount of its 2% convertible exchange senior notes due 2037, issued on Nov. 23, 2010.
Central European drops
Central European's 3% convertibles due 2013 traded down to 80 bid, 80.5 offered but were last seen at 81.5 bid, 82 offered, sources said. That compared to trades at 87.5 bid, 88.5 offered about a week ago.
Shares of the Polish vodka maker slumped $1.06, or 19.6%, to $4.36 in heavy volume on Wednesday.
For the fourth quarter, the company's loss from continuing operations widened to $456.1 million, or $6.29 a share, from $132.19 million, or 17 cents a share, a year ago.
Excluding items, the company earned 11 cents a share.
Sales rose 23% to $280.1 million.
But the company raised concerns about its ability to continue as a going concern and at this point doesn't know how it is going to pay out the $310 million of 3% convertibles in 2013.
Central European said that it was considering alternatives like selling assets, swapping the convertible notes and issuing stock.
In early February, the shares and convertibles popped on Russian Standard Group's plans to raise its stake in the vodka maker and spirits distributor to 33% from 9.9%.
Mentioned in this article:
Central European Distribution Corp. Nasdaq: CEDC
| DealerTrack Holdings Inc.: | Nasdaq: TRAK
|
| Hologic Inc. | Nasdaq: HOLX
|
| Stone Energy Corp. | NYSE: SGY
|
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