Planned Jarden looks fair to rich; existing Jarden slips on swap; market seen quiet, weak

By Rebecca Melvin

New York, June 6 - Jarden Corp.'s planned $250 million of six-year convertible senior notes, which launched before the market open Thursday, were modeling fair to rich and getting a tepid reaction in the market ahead of final pricing expected after the market close.

Jarden's existing 1.875% convertibles, which the Rye, N.Y.-based consumer products company priced last September, traded down and contracted a little more than a point on a dollar-neutral, or hedged, basis using a 60% to 65% delta hedge, sources said.

There was some activity among the homebuilders. The Ryland Group Inc. 0.25% convertibles, which have weakened in recent sessions, traded down by more than 0.5 point on an outright basis, and in tandem with the underlying shares, to 91.69. The Ryland shares recovered from intraday losses to end up 1.6%.

Also among the homebuilders, KB Home's 1.375% convertibles due 2019 traded at 111, which was down 0.4 point outright on the day despite higher shares.

One trader of Lennar Corp.'s 2% convertibles said that paper was unchanged on the day.

Array BioPharma Inc.'s 3% convertibles, which debuted in the secondary market on Wednesday, looked about unchanged on a hedged basis, as the convertibles slipped below par to about 99.75 along with weaker shares.

Market quiets

Overall, the convertible market was described as very quiet. "It seems like August," one New York-based sellsider said.

"People are hiding and not buying anything. Dealers are not committing any capital, from what customers tell me,' the trader explained. He said he didn't think it was because investors were waiting for economic data such as the U.S. jobs report for May, but rather because the tone of the market was weaker.

A second market source said, "Everyone seems nervous for the most part and just trying to figure out what they want to do."

Stocks acted inconsistently Thursday, recovering from early declines. The Dow Jones industrial average swung nearly 200 points from its session low to high, ending better by 80.03 points, or 0.5%, to 15,040.62, following Wednesday's 216.95 points, or 1.4%, drop.

The S&P 500 stock index reversed losses to end with a gain of 13.66 point, or 0.85%, at 1,622.56; and the Nasdaq stock market gained 22.58 points, or 0.7%, to 3,424.05.

Jarden looks rich

Jarden's $250 million deal of six-year convertibles was talked to yield 1% to 1.5% with an initial conversion premium of 30% to 35%.

Using a credit spread of about 300 basis points over Libor and a 22% vol. the deal looked fair to rich at the midpoint of talk.

The underwriter went out with a 27% vol., which market sources said was 5 or 6 points too high and therefore skewing its valuation.

But using a 22% vol. implied a 200 bps spread at the mids.

"They are pushing the envelope," a New York-based trader said regarding Jarden's new deal. It doesn't look like it will perform well, especially versus the existing Jarden issue, he said.

"It's richer than the olds," a Connecticut-based trader said.

Pricing it beyond the cheap end of talked terms would be a way to prevent the deal from "looking a bit rich at those assumptions," another source said.

A Connecticut-based analyst mentioned that the company has a significant amount of debt due in the 2016 to 2018 time frame and that it was likely putting financing in place at favorable terms with an eye toward those maturities.

The private, Rule 144A deal was being marketed by joint bookrunners Barclays, J.P. Morgan Securities LLC and Wells Fargo Securities LLC and has a $50 million greenshoe.

Proceeds will be for general corporate purposes.

The notes are non-callable for life with no puts. There is dividend and takeover protection.

The securities have contingent conversion if shares exceed 130% of the conversion price.

Old Jarden comes 'in'

Jarden's existing 1.875% convertibles due 2018 traded at 115.03 to 115.955 early Thursday, according to a Connecticut-based analyst. Then the paper was quoted at 114.50 bid, 115.50 offered versus an underlying share price of $44.87 in early afternoon.

On a swap basis, the paper was seen to have contracted by about 1.375 points, given a delta of 60% to 65% on Thursday, a market source said.

Although the older Jarden was considered cheaper than the new deal, it still wasn't viewed as cheap. "They need to come in a little more," a New York-based trader said of the Jarden 1.875% convertibles.

Mentioned in this article:

Array BioPharma Inc. Nasdaq: ARRY

Jarden Corp. NYSE: JAH

KB Home NYSE: KBH

Lennar Corp. NYSE: LEN

Ryland Group Inc. NYSE: RYL

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