New Crown Castle adds; planned SanDisk gains in the gray; American Realty a little lower

By Rebecca Melvin

New York, Oct. 23 - Crown Castle International Corp. put in a strong debut in the convertible secondary market on Wednesday, with the new $850 million of 4.5% mandatory convertible preferreds edging up to a 1.25 point gain on a dollar neutral, or hedged, basis by the close, a New York-based trader said.

Meanwhile, SanDisk Corp. launched an offering of $1.3 billion of seven-year convertible senior notes early Wednesday that gained in the gray market ahead of final terms seen being fixed after the market close. The gray market was seen about 101.5 at the market close.

In addition, price talk on the new SanDisk deal was tightened during marketing to a 0.5% yield with an initial conversion premium of 35%, which was tightened from initial talk of a 0.75% to 1.25% yield and a 30% to 35% premium. The deal was also upsized to $1.3 billion from $1 billion.

SanDisk's existing 1.5% convertibles due 2017 slipped on an outright basis and were seen flattish on a dollar-neutral, or hedged, basis in active trade following news of the new deal.

Elsewhere, American Realty Capital Properties Inc. was a little lower on both an outright and hedged basis after news that the New York-based real estate investment trust has agreed to acquire Cole Real Estate Investments Inc. in an $11.2 billion tie up that would create the largest net-lease REIT in the sector.

Also AMR Corp.'s bonds did gain altitude, according to a trader. He said the gains could have been due to U.S. Airways' earnings release.

Equities pulled back a little amid some weak earnings reports and after a four-day streak of record highs for the S&P 500 stock index.

The S&P slipped 8.29 points, or nearly 0.5%, to 1,746.38; the Dow Jones industrial average shed 54.33 points, or 0.4%, to 15,413.33, and the Nasdaq stock market lost 22.49 points, or 0.6%, to 3,907.07.

New Crown Castle adds

Crown Castle's new 4.5% mandatory convertible preferred stock changed hands initially Wednesday on either side of 101 and then edged higher to 101.20 bid, 101.60 offered, with the stock a little stronger, market sources said.

The paper ended around 101.25, which represented a 1.25-point gain on a dollar-neutral basis, a New York-based trader said. "Remember the stock priced at $74," he added, referring to a concurrent common stock offering. The common stock moved down 87 cents, or 1.2%, to $74.00 in trade on Wednesday after the large deal of about $2.66 billion of shares priced.

The new Crown Castle mandatory preferred was upsized to $850 million from $750 million.

"CCI did well," a trader said.

There was a flurry of activity in the name, especially early in the session, after the deal priced at the tight end of revised terms.

Price talk on the Crown Castle mandatory convertible deal was tightened during marketing to a dividend of 4.5% to 4.75% with an initial conversion premium of 20% to 25%, from a larger 4.75% to 5.25% dividend and 15% to 20% initial conversion premium.

The deal came concurrently with the sale of $2.66 billion of common stock, or 36 million shares at $74.00 each.

There is a greenshoe for up to $127.5 million of additional mandatory preferreds, which was upsized from $112.5 million. The greenshoe for the common share offering is for $399.6 million of additional shares.

The offerings were sold via Morgan Stanley & Co. LLC, BofA Merrill Lynch, J.P. Morgan Securities LLC and Barclays as joint bookrunners.

The three-year mandatories mature on Nov. 1, 2016.

Proceeds from both offerings, together with cash on hand and additional debt financing, were earmarked to pay AT&T Inc. and its affiliates in connection with a previously announced transaction between Crown Castle and AT&T.

If the transaction does not close, proceeds will be used for general corporate purposes, which may include repayment of debt.

Houston-based Crown Castle operates and leases towers and other infrastructure for wireless communications.

SanDisk adds in the gray

SanDisk upsized and tightened talk on its planned $1.3 billion of seven-year convertible senior notes during marketing to a 0.5% yield and 35% initial conversion premium, according to a syndicate source.

The Rule 144A deal was initially expected to be $1 billion in size, and talk was revised from a 0.75% to 1.25% yield and a 30% to 35% premium.

The planned SanDisk convertibles were seen at 102.5 bid, 103.25 offered in the gray market early in the session and ended the day at about 101.5 ahead of final terms seen being fixed after the market close.

"The new ones are cheaper on a vol. basis, but the old ones aren't bad," a Connecticut-based trader said referring to SanDisk's planned convertibles and existing 1.5% convertibles due 2017.

The SanDisk 1.5% convertibles were trading between 143 and 145, which was lower compared to previous levels between 146 and 148, according to Trace data.

SanDisk shares lost $1.08, or 1.6%, to $68.24.

The existing bonds were flattish on a dollar-neutral, or hedged, basis, assuming a delta in the mid 70% range, a New York-based trader said.

Goldman Sachs & Co. was the bookrunner for the new non-callable notes, which have a greenshoe for up to another $150 million of notes.

A portion of the proceeds is being used to fund the cost of the call spread, which increases the effective conversion price of the debt from the issuer's perspective.

Proceeds will also be used to repurchase shares of common stock from purchasers of the notes and for repayment of debt at maturity or repurchase from time to time. In addition, proceeds will be used for potential strategic investment or acquisitions, the repurchase of common stock under existing stock repurchase programs and for other general corporate purposes, including capital expenditures relating to manufacturing and technology.

SanDisk is a Sunnyvale, Calif.-based maker of flash storage cards used in consumer electronics.

American Realty slips

American Realty's 3% convertibles due 2018 traded at 101.345 late in the session, which was down 0.925 point, according to Trace data.

Shares of the New York-based REIT shed 27 cents, or 2%, to $13.09.

The bonds were trading on news of its acquisition of Cole for $11.2 billion, which will result in a combined portfolio totaling 3,732 properties and 102 million square feet, traders said.

The bonds came in about 0.375 point on a dollar-neutral basis, assuming about a 30% delta, a trader said.

The paper had been up about 3 to 4 points after last week's upgrade to investment grade, and now it appeared to be investors taking profits on news of the acquisition, one trader said.

AMR on the rise

A trader saw AMR's benchmark 6.25 convertible notes due 2014 putting on "2 points and change" in midweek trading.

He opined that the rise might have been due to U.S. Airways' earnings release.

He pegged the issue in a 116 to 116½ context.

Tempe, Ariz.-based U.S. Air posted a net profit of $216 million for the third quarter. That was down from the previous year, but the company said that before taxes and special items, profit would have been record-breaking at $367 million.

Revenues increased 9.1% to $3.86 billion.

The numbers came on the heels of AMR's own release last week. The bankrupt Fort Worth, Texas-based airline reported net income of $289 million.

Additionally, U.S. Airways said it remained committed to its planned merger with AMR, despite an ongoing battle with the Justice Department. The company also said that with both U.S. Air and AMR seeing improving financials, it only encouraged them that the merger would create a very strong company.

Stephanie Rotondo contributed to this report

Mentioned in this article:

American Realty Capital Properties Inc. Nasdaq: ARCP

AMR Corp. Pink Sheets: AAMRQ

Crown Castle International Corp. NYSE: CCI

SanDisk Corp. Nasdaq: SNDK

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