Planned Liberty upsized, talk revised; deal models rich to slightly cheap; Molson eyed

By Rebecca Melvin

New York, April 3 - Liberty Interactive Corp.'s planned offering of 30-year senior exchangeable debentures was upsized by 45% during marketing Wednesday and talked terms were revised, making the deal less cheap compared to initial talk.

The $800 million Liberty deal - which was upsized from $550 million - is for debentures exchangeable into Time Warner Cable Inc. and Time Warner Inc. The issue was seen in the gray market ahead of final terms being fixed at 100 to 100.25. Someone also said he heard them trading at par or lower in the gray.

The Liberty deal was expected to price after the market close.

Molson Coors Brewing Co. was among the most actively traded names in the convertible bond market for a third straight day. The action started on Monday following an upgrade of the shares by Goldman Sachs & Co. to "buy" from "neutral." On Wednesday, the Denver-based beer and beverage maker and distributor pared a little bit of the gains of the previous two sessions, but the convertibles appeared to be trading flat or in line on a dollar-neutral basis.

There were also a few gold names in play, and they looked to be down 0.5 point to a point, according to Trace data, as gold prices took a hit. The June gold contract fell $22.40, or 1.4% to $1,553.50 per troy ounce on the Comex, which was the lowest level since June. Other commodity markets were also under pressure including oil.

Goldcorp Inc.'s stock was down as much as 4.6% midsession when the Goldcorp 2% convertibles of 2014 traded at 103.4, which was down 0.6 point. The shares of the Vancouver, B.C.-based precious metal properties developer pared losses, to close down $1.17, or 3.6%, lower at $31.22.

Newmont Mining Corp.'s 1.75% convertibles due 2017 traded at 120, which was also down 0.6 point. Shares of the Denver-based gold and copper mining company ended down $1.36, or 3.4%, at $38.47 on the day.

Overall, convertibles market players vied for action in a small universe of underlying product in trade.

"I'm just trying to lay low and not say too much. There needs to be more participants so that there are divergent opinions. Instead, everyone is trying to do the same thing," a Midwestern-based trader said.

Equities fell on Wednesday, with the S&P 500 stock index dropping the most in more than a month. An ADP private payroll report falling short of estimates was blamed for market weakness. The ADP report showed 158,000 new non-farm jobs created in March, which was lower than estimates that were a little shy of 200,000, for the most part.

Planned Liberty upsized

Liberty, an Englewood, Colo.-based electronic retailing, media, communications and entertainment businesses, upsized its exchangeable debentures offering to $800 million from an initially talked $550 million and cut the proposed coupon to 0.5% to 0.75% from an initially talked 0.75% to 1%. The initial conversion premium was fixed at 10%.

The deal was looking slightly cheap, according to one trader, using a credit spread of 400 basis points over Libor and a 21% vol.

A second source said using those inputs the deal was 1.6% rich. This source was using a lower spread of 300 bps over Libor and a 20% vol. and getting them somewhat cheap.

An East Coast-based buysider said that using a 300 bps credit spread made the deal model slightly cheap - and the deal was trading 100 bid, 100.25 offered in the gray market - but he didn't "have the expectation that it was going to be trading up" immediately in the aftermarket. Nevertheless, given the Liberty Interactive name and credit, he anticipated that it would be moving up in the future.

The deal in fact was seen being somewhat more attractive to outright market players than to hedged players given the Liberty fundamentals, its high-grade rated credit and the size of the deal.

"This will appeal to outrights that need to put money to work," the buysider said.

In addition, the deal, which is exchangeable into two different forms of Time Warner shares, was seen as more complicated from a hedged perspective. There would have to be changes in vol. assumptions for the two different stocks, but the complication wasn't expected to deter hedged players that were interested, the buysider said.

Liberty has priced exchangeable bonds in the past. In fact, it is retiring its 3.125% exchangeable senior debentures of its wholly owned subsidiary Liberty Interactive LLC with proceeds of the new deal.

The new exchangeables have no greenshoe and were being priced via bookrunners BNP Paribas Securities Corp. (billing & delivering and repurchase agent), BofA Merrill Lynch, Credit Suisse Securities (USA) LLC, Wells Fargo Securities LLC, Barclays and Morgan Stanley & Co. LLC.

The debentures are non-callable until April 5, 2018 and then are provisionally callable until April 5, 2023 at a 120% price trigger.

There is an investor put on March 30, 2023.

There is dividend protection. Sixty-seven percent of the reference shares per debenture will be Time Warner Cable stock, and 33% will be Time Warner stock.

Molson remain active

Molson Coors' 2.5% convertibles traded around 104.5 to 104.75, which was down from Tuesday but in line with Monday's levels to which they rose from 103ish previously.

Molson shares fell $1.26, or 2.4%, to $51.02 on Wednesday.

"TAP took a dive on Monday, down on the stock vol.," a trader said, referring to Molson by its ticker symbol.

The ratings move on Monday was definitely a catalyst to trade, but the paper is also very short-dated and therefore trades back and forth ahead of maturity.

"TAP is like NTAP," the trader said, referring to NetApp Inc., which has another short-dated convertible, by its ticker symbol. "They are active like Amgen was for months ahead of its maturity."

Mentioned in this article:

Goldcorp Inc. NYSE: GG

Liberty Interactive Corp. Nasdaq: LINTA

Molson Coors Brewing Co. NYSE: TAP

Newmont Mining Corp. NYSE: NEM

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.