Liberty Interactive/Charter exchangeable jumps 2 points on swap; Jones Energy launches

By Rebecca Melvin

New York, Aug. 18 – Liberty Interactive LLC’s new 1.75% debentures exchangeable for Charter Communications Inc. stock was the name of the day in the convertibles market on Thursday, with the new issue jumping 2 points on a dollar-neutral, or hedged, basis in active trade after the Englewood, Colo.-based media company priced an upsized deal at the rich end of price talk, market sources said.

The new Liberty Interactive/Charter paper was seen at 103.5 bid, 103.75 offered in the early going. Charter’s common shares initially moved up on the day but ended down $2.60, or 0.4%, at $254.83.

Liberty Interactive’s 1% debentures exchangeable into HSN Inc. shares and due 2043 were pulled into trade on Thursday in tandem with the new deal. That paper traded actively and about unchanged.

“It trades outright, and there were better buyers today. It trades around 86,” a sellsider said.

Also in the new-issue arena, Jones Energy Inc. launched concurrent offerings of $50 million of perpetual convertible preferred stock and $50 million of common stock early Thursday. The deals were expected to price after the market close.

The common shares of Jones, an Austin, Texas-based independent oil and natural gas company, slumped in the early going and were last down 81 cents, or 22.6%, at $2.77.

Meanwhile, Dominion Resources Inc.’s 6.75% equity units closed up 2 cents at $51.37. The $1.25 billion deal began trading on the New York Stock Exchange on Thursday after initially pricing Aug. 10.

The common shares of the Richmond, Va.-based producer and transporter of energy were last down 24 cents, or 0.3%, at $76.39.

Cobalt International Energy Inc.’s convertible debt and equity surged after equities research firm Tudor Pickering raised its rating on the shares to “buy” from “hold” and discussed asset sales in a research report.

The Cobalt convertibles “jumped points,” a sellsider said, as the shares that underlie the bonds gained 28% to $1.34.

The Cobalt 2.625% convertible notes due 2019 traded up to 45.25 in strong volume from about 40, and the Cobalt 3.125% convertibles were seen gaining to about 40 from 34.

Illumina Inc.’s convertible bonds were also trading, “mostly outright with hedge fund covering,” a sellsider said, adding “you don’t do well on a takeout there.”

The Illumina 0.5% convertibles due 2021 were seen in trade at 107, and the Illumina 0% convertibles due 2019 traded up about a point to 103.2, according to Trace data.

Liberty Interactive/Charter up

The new Liberty Interactive/Charter deal was quoted at 103.5 bid, 103.75 offered in the early going. Charter’s common shares initially moved up but were last down $2.60, or 0.4%, at $254.83, a New York-based trader said.

At late morning, the paper traded at 103, according to Trace data.

“It was up 2 points on a 60% delta,” a New York-based sellsider said.

The outrights loved it. They poured right in because they need paper. Then the hedge funds don’t mind going in, since it’s free money for them,” the sellsider said.

Liberty Interactive priced an upsized $675 million base deal with a $75 million greenshoe, making a $750 million deal all in. The Rule 144A offering was initially talked at $500 million in size.

It came with a 1.75% coupon and an initial conversion premium of 32.5%, which represented the rich end of talked terms.

The debenture is non-callable until Oct. 5, 2023 and freely callable thereafter. There is a put on Oct. 5, 2023. There is dividend protection is in the form of a pass through, and upon an exchange of debentures, the company may deliver Charter Communications stock, cash or a combination of stock and cash.

But there is no takeover protection, a standard feature on most convertible deals, but eliminated in this one and also from Liberty Media Corp.’s debentures exchangeable into Time Warner Inc., which priced last week.

The thinking is that the company doesn’t know what the prospects for Charter Communications are going forward and it doesn’t feel that it should be penalized if Charter gets bought out or there is another form of change of control at the exchange entity, a sellsider explained.

“I guess they can do this and people don’t care. These guys are a big company. They are savvy and it gives them an advantage,” a sellsider said.

Proceeds of the Liberty Interactive/Charter deal will be used to repay up to $450 million outstanding under a Liberty margin loan facility recently entered into by its wholly owned special purpose subsidiary LV Bridge, LLC; to repurchase its outstanding 0.75% exchangeable senior debentures due 2043; and to satisfy its exchange obligation in cash for holders that tender the 2043 debentures. Any remaining net proceeds will be used for general corporate purposes, including to pay interest on the debentures.

Active bookrunners were BNP Paribas Securities Corp., Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc.

The debentures, as well as the associated cash proceeds, will be attributed to the Liberty Ventures Group.

Mentioned in this article:

Cobalt International Energy Inc. NYSE:CIE

Charter Communications Corp. Nasdaq: CHTR

Dominion Resources Inc. equity units NYSE: DCUD

Dominion Resources Inc. NYSE: D

Illumina Inc. Nasdaq: ILMN

Jones Energy Inc. Nasdaq: JONE

Liberty Interactive Corp. Nasdaq: QVCA

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