New Liberty exchangeable expands on hedge; Cubist upsizes, tightens talk; Navistar slips

By Rebecca Melvin

New York, Sept. 4 - Convertible bond players focused Wednesday on two new deals that launched after the market close on Tuesday. One deal priced early Wednesday and the other was expected to price after the market close.

Liberty Interactive Corp.'s new 1% exchangeable debentures traded up modestly in early action on their debut Wednesday after the Englewood, Colo.-based media company priced $350 million of the 30-year paper at the cheap end of exchange premium talk, market sources said.

The new Liberty debentures exchange into shares of HSN Inc. and were quoted at 101.125 bid, 101.5 offered versus an underlying share price of $53.34 around midsession. That was seen up about 1.75 points on a 30% delta, according to a Connecticut-based trader.

Cubist Pharmaceuticals Inc.'s offering of convertible senior notes in five- and seven-year tranches was upsized during marketing to $700 million from $600 million and price talk was tightened. But the planned 2018 and 2020 tranches of the Lexington, Mass.-based biopharmaceutical company were still seen a little bit rich ahead of final terms being fixed.

Cubist's existing 2.25% convertibles due 2017, which priced in October 2010, were seen in trade at 223.78, which was about in line with previous levels given the underlying share price.

Elsewhere, Navistar International Corp.'s 3% convertibles traded down about a point in active trade after the Lisle, Ill.-based heavy-truck maker reported a third-quarter loss, missed estimates and said it planned to cut 500 jobs.

Affymetrix Inc.'s convertibles started to get active late in the session with shares of the Santa Clara, Calif.-based clinical research company accelerating upward into the close and tallying a 14% climb in the past two days.

The Affymetrix 4% convertibles traded at about 123.25 versus a share price of $6.06 during the session and "expanded a point Wednesday from last week on a delta of 85%," a New York-based trader said.

In Europe, Algeta ASA priced a $120 million deal of five-year convertible bonds at the rich end of talk to yield 3.375% with an initial conversion premium of 32.5%. The Regulation S deal followed on the heels of Great Portland Estates plc's £150 million of 1%, five-year senior convertible bonds that priced at the rich end of talk on Tuesday.

The day's action represented an uptick following a slowdown leading into the Labor Day weekend but still wasn't considered close to full tilt, market players said.

New Liberty exchangeable adds

Liberty Interactive's new exchangeable traded at 101.125 bid, 101.5 offered versus an underlying share price of $53.34.

HSN shares, the exchangeable entity, closed a little better than that, but still lower at $53.57, which was off 47 cents, or 0.9%, on the day.

The new paper was seen having expanded by 1.75 points on a dollar-neutral, or hedged, basis, assuming a low delta of 30%.

A syndicate source put the delta even lower at 23% or in the upper 20s.

Liberty Interactive LLC, a subsidiary of Liberty Interactive Corp., priced $350 million of the 30-year senior debentures to yield 1% with an initial exchange premium of 37.5%.

Pricing of the Rule 144A deal came at the cheap end of the 37.5% to 40% exchange premium talk.

Englewood, Colo.-based Liberty Interactive owns interests in electronic retailing, media communications and entertainment businesses. HSN is a St. Petersburg, Fla.-based interactive multi-channel retailer.

BNP Paribas Securities Corp., Barclays, Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC and Credit Agricole Securities (USA) Inc. were joint bookrunners of the deal.

The exchangeables will be non-callable until Oct. 5, 2016, with no provisional call period. There is an investor put on Oct. 5, 2016.

Proceeds will be for general corporate purposes.

Last month, Liberty Interactive reported mixed financial results for its second quarter. Quarterly net income was $120 million, or 23 cents per share, compared to $234 million, or 42 cents per share, in the year-earlier period.

Cubist upsizes, tightens talk

Cubist's planned $600 million in convertibles were upsized to $700 million.

The size of the first tranche, which matures in 2018, was unchanged at $300 million, but talk was tightened to a 1.125% to 1.625% coupon from a 1.625% to 2.125% coupon.

The size of the second tranche, maturing in 2020, was upsized to $400 million from $300 million and talk was revised to 1.875% to 2.125% from 2.125% to 2.625%.

The initial conversion premium of both tranches was tightened to 32.5% from initial talk of 27.5% to 32.5%.

The 2018 tranche was seen at about 101.5 in the gray market and the 2020 tranche was seen at 101, according to a New York-based trader.

One trader said he used a credit spread of 450 basis points over Libor and 32% vol. for the A tranche and a 500 bps credit spread and 32% vol. for the B tranche and got them both modeling slightly rich. He thought that some market players were using a tighter credit spread of 350 bps over Libor.

Joint bookrunners on the paper are Morgan Stanley & Co. LLC, Barclays and RBC Capital Markets LLC.

In connection with the offering, the company plans to enter into convertible note hedge and warrant transactions with initial purchasers of the bonds.

Proceeds will be used primarily to fund its previously announced acquisition of Optimer Pharmaceuticals Inc. and to pay the cost of the convertible note hedge and warrant transactions. Remaining proceeds will be for general corporate purposes.

Cubist shares traded down $2.25, or 3.5%, at $62.21 on Wednesday.

Navistar slips after loss

Navistar's 3% convertibles due Oct. 15, 2014 traded during the session at 99.675, which was down 0.825 point from previous levels, according to Trace data, and "seemed to settle in there," a New York-based trader said, quoting the paper at 99.50 bid, 99.75 offered.

Navistar shares slipped 94 cents, or 2.8%, to $3.07 on Wednesday.

Navistar posted another quarterly loss and will cut 500 jobs as the company continues to struggle with its transition to a new emission technology and lower truck-business demand in North America.

The company reported a loss of $247 million, or $3.06 per share. Excluding one-time items, the loss was $2.73 per share, which was greater than the $1.30 per share loss that analysts had expected.

Revenue fell 12% to $2.82 billion for the three months ended July 31. Analysts had been expecting revenue of $2.92 billion.

But Navistar also ended the period with $1 billion of manufacturing cash and is eying the upcoming maturity of the $550 million convertible bond issue in little more than one year.

Mentioned in this article:

Affymetrix Inc. Nasdaq: AFFX

Cubist Pharmaceuticals Inc. Nasdaq: CBST

HSN Inc. Nasdaq: HSNI

Liberty Interactive Corp. Nasdaq, LINTA, LINTB

Navistar International Corp. NYSE: NAV

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