JetBlue Airways to price $160 million 30-year convertibles in two tranches to yield 5%-5.5%, up 20%-25%

By Rebecca Melvin

New York, May 27 - JetBlue Airways Corp. intends to price $160 million of 30-year convertible debentures in two tranches to yield 5% to 5.5% with an initial conversion premium of 20% to 25%, according to a syndicate source.

The registered offering, which is expected to price Thursday after the close, will be divided into two $80 million tranches.

The series A convertibles will be non-callable for five years, with puts in years 2013, 2018, 2023, 2028 and 2033; while the series B convertibles will be non-callable for seven years, with puts in years 2015, 2020, 2025, 2030 and 2035. Otherwise the two tranches are the same, a syndicate source said.

The notes are being sold via Morgan Stanley & Co. and Merrill Lynch & Co. There is a greenshoe of 15%.

JetBlue intends to use proceeds from the offering, together with cash on hand, if needed, to repay up to $175 million of its 3.5% convertible notes due 2033, which will become subject to repurchase by JetBlue at the holders' option on July 15.

Concurrently with the debenture offering, JetBlue intends to enter into a share lending agreement with an affiliate of Morgan Stanley under which JetBlue will lend up to about 38 million shares of its common stock, depending on the terms of the concurrent offering of its convertible debentures and the hedging to be conducted by investors in the convertible debentures.

Under the share lending agreement, the share borrower will offer and sell borrowed shares of JetBlue common stock in a registered public offering and will use the short position resulting from the sale of the shares of JetBlue common stock to facilitate the establishment of hedge positions by investors in the debenture offering.

The share borrower will be required to return the borrowed shares under the share lending agreement when the debentures are no longer outstanding and in certain other circumstances.

The share borrower will receive all of the proceeds from the sale of the borrowed shares. JetBlue will not receive any proceeds from the offering of the borrowed shares, but will receive a nominal lending fee from the share borrower.

New York-based JetBlue is a discount air carrier.

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