Blucora expands on hedge; Salesforce looks rich ahead of pricing; Iconix, iStar look cheap

By Rebecca Melvin

New York, March 12 - Blucora Inc.'s newly priced 4.25% convertibles added on an outright and dollar-neutral, or hedged, basis on Tuesday after the upsized $175 million of six-year convertibles priced at the midpoint of coupon talk and at a 40% premium after the market close Monday.

The Blucora deal did well, expanding about 1.75 points to 2 points, sources said.

Meanwhile market players were sizing up a windfall of new deals expected to price after the market close, with Salesforce.com's planned $1 billion offering of five-year convertible bonds getting a lot of attention despite pricing that was seen as rich.

"I think that these are going to get reoffered; the terms are very aggressive," a New York-based trader said of the planned Salesforce deal, which was offered in the gray market at 100.375 early in the session and traded around par in the gray.

Salesforce's existing 0.75% convertibles due 2015 traded down on an outright basis in the secondary market.

Iconix Brand Group Inc.'s planned $325 million of five-year convertibles were seen better in terms of pricing and about 3% cheap, according to a Connecticut-based analyst. After the market close, an upsized $350 million of the Iconix convertibles priced with a 1.5% coupon and a 32.5% premium, which was at the midpoint and rich end of talk, respectively.

iStar Financial Inc. launched a $150 million offering of perpetual convertible preferred stock early in the session, and the new paper was seen about 3% cheap. The registered, off-the-shelf offering of series J preferreds was seen pricing at a fixed 4.5% dividend and 20% premium.

Meadowbrook Insurance Group Inc.'s planned $75 million offering of seven-year convertible senior notes was quiet in the gray market ahead of pricing expected after the close Tuesday. Shares of the Southfield, Mich.-based insurance holding company slumped nearly 10% to $6.68 during the session.

Equities finished mixed, with the Dow Jones industrial average managing to eke out another gain, ending higher by 2.77 points at 14,450.06, and continuing a string of record high closes, after spending much of the session in negative territory. But the S&P 500 stock index slipped 3.75 points, or 0.24%, to 1,552.48; and the Nasdaq Composite index slipped 10.55 points, or 0.32%, to close at 3,242.32.

New Blucora expands

Blucora's newly priced 4.25% convertibles due 2019 ended their debut session at 101.25 bid, 101.75 offered versus an underlying share price of $15.20. The addition from par despite the underlying shares that dropped 28 cents, or 1.8%, meant that the paper expanded from issue at just under 2 points, using a 73% delta, a syndicate source said.

Early in the session, the paper was called 100.5 bid, 101 offered versus an underlying share price of $15.20. That compared to 101 bid, 102 offered in the gray market ahead of pricing.

One source said that modeling indicated that the delta should be around 61%.

Blucora priced an upsized $175 million of six-year convertible senior notes at par after the market close Monday to yield 4.25% with an initial conversion premium of 40%.

The Rule 144A deal was initially going to be $150 million in size, and pricing came at the midpoint of 4% to 4.5% coupon talk and at the rich end of 35% to 40% premium talk.

There is a $26.25 million greenshoe, which was upsized from $22.5 million. BofA Merrill Lynch and Jefferies & Co. were the joint bookrunners of the deal, with JMP Securities LLC, UBS Securities LLC, Barrington Research Associates Inc. and Craig-Hallum Capital Group LLC acting as co-managers.

The notes are non-callable until April 6, 2016, with no puts. There is takeover and full dividend protection, and there is net share settlement pending shareholder approval.

Proceeds will be used for working capital and general corporate purposes, including acquisitions.

Bellevue, Wash.-based Blucora is an online search and tax preparation business.

Salesforce looks rich

The talked terms of Salesforce.com's planned $1 billion of convertibles, with a 0% to 0.25% coupon and a 47% to 52% initial conversion premium, were viewed negatively by market players.

But one East Coast-based buysider said that despite the terrible pricing from both a model and optics perspective, one could "focus on the fact that it's a big deal of a high bond floor name."

"It's in a stock where you should be able to realize higher vol. than the model, and the stock is an animal in its own right, so outrights may want the exposure," the buysider said.

The convertibles were offered at 100.375 early and were said to have traded at par in the gray market.

One trader got the new Salesforce paper worth just over 99 at the midpoint of talk, using a credit spread of 200 basis points over Libor and a vol. of 33%.

The trader thought that the deal might be reoffered and hoped that it would come on the cheap end of talk.

Another trader, using a tighter 125 bps over Libor and 27% vol., got them worth 97.39.

Salesforce's existing convertibles traded down to 213.7 from 219 bid, 220 offered on Monday, while shares slipped $5.15, or 2.8%, to $180.79.

The Rule 144A offering of $1 billion of five-year convertibles was being sold via joint bookrunners Morgan Stanley & Co. LLC and BofA Merrill Lynch. There is a $150 million over-allotment option.

The planned bonds are non-callable. Upon conversion the notes will be settled in cash and shares of Salesforce.com common stock.

Proceeds will be used for general corporate purposes, including acquisitions and investments in complementary businesses, working capital and capital expenditures as well as to pay the cost of convertible note hedge transactions.

Iconix looks cheap

Iconix's planned $325 million of five-year convertibles was seen about 2% cheap using a credit spread of 400 bps over Libor and a 28% vol., according to one trader, which put the deal at about 102 at the midpoint of talk.

But the issuer is considered a low vol. name, and a second market source said he was using a much tighter spread and only 22% vol. and getting them more than 3% cheap.

A source agreed that the deal was better than Salesforce's.

The senior notes were talked to yield 1.25% to 1.75% with an initial conversion premium of 27.5% to 32.5%.

"It should do well since they made the old issue look cheap," a New York-based trader said, referring to the company's existing 2.5% convertibles due 2016.

The new deal pricing via Barclays as bookrunner are non-callable with no puts. There is contingent conversion if shares rise to 130% of the conversion price.

Proceeds are earmarked to fund the repurchase of up to $75 million of common stock concurrently with the offering and to fund the cost of a call spread aimed at reducing potential dilution upon conversion and for general corporate purposes, including acquisitions and share repurchase programs.

iStar looks cheap

One source suggested that the planned iStar issue - which was being marketed with fixed terms in one day - was about 3% cheap.

The New York-based commercial real estate lender launched $150 million of perpetual convertible preferred stock to yield 4.5% with an initial conversion premium of 20%, according to a syndicate source.

The registered, off-the shelf series J preferreds, with a liquidation preference of $50 per share, were seen pricing after the market close via Barclays, BofA Merrill Lynch and J.P. Morgan Securities LLC as joint bookrunners.

The preferreds are non-callable for five years. iStar doesn't intend to list the preferreds and will use proceeds for new investment activities and for general corporate purposes.

Mentioned in this article:

Blucora Inc. Nasdaq: BCOR

Iconix Brand Group Inc. Nasdaq: ICON

iStar Financial Inc. NYSE: SFI

Meadowbrook Insurance Group Inc. NYSE: MIG

Salesforce.com NYSE: CRM

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