New DFC Global rises to 104 on debut; new Prospect reoffered at 97.75; Micron launches

By Rebecca Melvin

New York, April 11 - Convertibles saw two new issues debut in the secondary market on Wednesday and another new deal launched at the market close.

DFC Global Corp.'s newly priced $200 million of 3.25% convertibles jumped out of the chute at 104 after pricing on the cheap end of yield talk late Tuesday.

The new DFC convertibles were "well placed, well received, with a good book of both hedged and outright participation," a syndicate source said.

DFC's existing 3% convertible due 2028 traded at 111, according to Trace data, with decent action in those notes that was likely sparked by players wanting to sell them to get into the new paper as well as players wanting to hold them as a shorter duration, hedge play, a New York-based trader said.

A second new issue, Prospect Capital Corp.'s 5.375% convertible, was said to have struggled some to get done, and the overnight deal was reoffered at 97.75.

At the market close, Micron Technology Inc. launched an offering of $870 million of 20-year convertible senior notes in two evenly divided tranches for pricing after the market close Thursday.

Elsewhere in the secondary market, trades occurred mostly "in line" with underlying shares.

"There was not a lot of movement," a trader said of Wednesday's session.

The short-dated, 2.5% Molson Coors Brewing Co. convertibles were trading actively in the 103 bid, 103.5 offered context, which is a level for potentially raised interest for the investment-grade credit, a trader said.

"People are taking a nibble in that one after the bonds had come in 0.75 point to a point in the last two to three weeks," the trader said.

Amgen Inc. was also trading and looking interesting at its current level of 101ish for the 0.375% convertibles.

DFC jumps to 104

In the early going, DFC's new 3.25% convertibles due 2017 were quoted at 104 to 105 versus an underlying share price $17.00.

Later, the 5.5-year convertible senior notes were at 103 versus an underlying share price of $16.80.

Shares of the Berwyn, Pa.-based provider of financial services to unbanked and under-banked consumers pared early gains and ended up 10 cents, or 0.6%, to $16.63 on Wednesday.

The new bonds looked to have traded at fair value, sources said.

"I liked the deal. It opened up at 104 and definitely traded in line all day," a New York-based trader said.

He said the bonds were fair using a credit spread of 700 basis points over Libor and a 32% vol.

That spread was a 150 bps discount to the 550 bps spread on the shorter-dated, existing convertibles that come due in three years.

DFC is essentially a pawn shop and targets consumers with low credit. The other new deal of Prospect Capital is a business development company that targets companies with credit that might not be strong enough to be served by larger banks.

However, the business segments that the current issuance is coming from is not the focus of market participants right now, a market source said.

"The primary concern remains lack of supply. There's so little paper," the source said.

The deal was distributed under Rule 144A via Barclays Capital Inc., Deutsche Bank Securities Inc. and Wells Fargo Securities LLC as the bookrunners, and with Nomura Securities and JMP Securities LLC as the joint lead managers and C.L. King & Associates, FBR Capital Markets, Roth Capital Partners and William Blair & Co. as co-managers.

Proceeds will be used to repay amounts outstanding under the company's revolving credit facility and for general corporate purposes, and to fund the cost of a call spread.

Prospect reoffered at 97.75

Prospect's new convertible priced at the cheap end of 5% to 5.375% coupon talk and at a discount to par of 97.75 early Wednesday.

Shares of the New York venture capital and private equity firm closed a few cents off of its opening level at $10.56.

Prospect is a very low vol. stock and therefore appetite for the paper from a broad cross section of market players is limited, a sellsider said.

The deal also came on the heels of several days of down markets and overnight as well, which may have been stumbling blocks for it, a New York-based trader said. He said the fact that it is the company's third convertible in two years was not a problem for it.

The underwriter may have been betting on getting a bump up in the markets after several days of selling, and went overnight, but using a tight credit assumption was critical to getting those pieces to work together, the trader said.

The deal may have worked using a sub 500 bps credit assumption. "But unfortunately I don't think most people were using that," the trader said.

Using a credit spread on the deal of 525 bps and 15% volatility, the trader got fair value at 98.25.

A second source said, "They've done a few of these before, and at 97.75 to 98, this is in line with the other deals."

Goldman Sachs & Co. was the bookrunner of the $130 million of new Prospect convertibles.

Micron to price

Micron launched a deal of $870 million of convertibles similar in structure to the $600 million of convertibles the Boise, Idaho-based maker of semiconductor devices priced in July 2011.

Tranche A for $435 million was talked to yield 1.875% to 2.375% with an initial conversion premium of 37.5% to 42.5%, and tranche B, also for $435 million, was talked to yield 2.625% to 3.125% with a premium of 42.5% to 47.5%.

The initial investor put for tranche A is after seven years, and that tranche is non-callable for four years and then provisionally callable at 130% of conversion for three years before becoming freely callable.

Tranche B has an investor put after nine years. The tranche is non-callable for five years and then is provisionally callable for four years at 130% of conversion, before becoming freely callable.

Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC are the joint bookrunners of the Rule 144A deal.

In connection with the convertibles, Micron plans to enter into capped call transactions with counterparties that may include the underwriters and their affiliates.

Proceeds are earmarked for general corporate purposes, including working capital, capital expenditures, strategic acquisitions, joint ventures and other investments, to repay debt and to cover the expense of the capped-call spread.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

DFC Global Corp. Nasdaq: DLLR

Micron Technology Inc. NYSE: MU

Molson Coors Brewing Co. NYSE: TAP

Prospect Capital Corp. Nasdaq: PSEC

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