New McDermott adds; DFC Global sister convertibles surge on buyout news; 51job deal on tap

By Rebecca Melvin

New York, April 2 - McDermott International Inc.'s newly priced 6.25% tangible equity units traded higher Wednesday after the Houston-based offshore oil and gas construction company priced $250 million of the units at the rich end of talked terms.

The $25.00 par McDermott mandatories were quoted at 25.25 bid, 25.50 offered with the underlying shares weaker in the early going, a Connecticut-based trader said.

But the real name of the day was DFC Global Corp. Its sister convertible bonds shot up in active trade after news that the Berwyn, Pa.-based financial services company is being acquired by private equity firm Lone Star Funds LLC for $9.50 per share in cash, a New York-based trader said.

The longer-dated DFC Global, or Dollar, notes shot up more than 10 points to about 97 after the news and the shorter-dated paper jumped a lesser amount to about 98.

It was a "Christmas present" for many distressed players, who stole the thunder from the hedged community, which had previously sold the paper to distressed desks for the most part, a New York-based trader said.

MannKind Corp.'s convertibles were also in focus again, as the convertibles spurted higher in tandem with shares of the Valencia, Calif.-based biopharmaceutical company, which skyrocketed 74%, after word that a Food and Drug Administration advisory panel recommended approval of its Afrezza inhaled diabetes drug despite briefing documents last week that flagged issues with the drug. A final FDA ruling is expected April 15.

LifePoint Hospitals Inc.'s 3.5% convertibles, which mature in six weeks, gained a point or two to as high as 108.25 in the early going Wednesday, but they curbed back down to 107, moving in the same direction as shares of the Brentwood, Tenn.-based rural hospital owner and operator, which have generally risen in recent sessions.

After the market close, 51job Inc. launched an offering of $150 million of five-year convertible notes that it planned to price late Thursday in a Regulation S and Rule 144A deal.

Equities, which were mostly flat for much of the session, rose after an ADP employment report showed that private employers added 191,000 jobs in March, and which also revised February's jobs number higher to 153,000 jobs from a previously reported figure of 139,000. The report comes ahead of the Labor Department's March jobs report slated for release on Friday.

The S&P 500 index rose 5.38 points, or 0.3%, to another record of 1,890.90. The Nasdaq stock market gained 8.42 points, or 0.2%, to 4,276.46; and the Dow Jones industrial average rose 40.39 points, or 0.3%, to 16,573.00.

New McDermott adds

McDermott's new 6.25% tangible equity units were quoted at 25.25 bid, 25.50 offered with the underlying shares weaker in the early going.

The fractional gain for the $25.00-par units equates to a 1-point to 2-point gain when compared to a standard 100-par convertible.

McDermott shares ended up 3 cents, or 0.4%, to $7.06. Earlier they shares were down a penny at $7.02.

Some large trading desks in New York didn't trade the new McDermott mandatories. The company priced $250 million of the units, with a 6.25% dividend and 22.5% appreciation premium, according to a term sheet.

This pricing was at the rich end of talk for a 6.25% to 6.75% dividend and 17.5% to 22.5% appreciation premium.

There is a greenshoe for up to an additional $37.5 million of units for the registered deal, which was sold via Goldman Sachs & Co. as the bookrunning manager.

The units, comprised of a prepaid stock purchase price and a senior amortizing note, will automatically settle for shares on April 1, 2017.

Proceeds from the offering, together with proceeds expected to be received from other previously announced financing transactions relating to the refinancing of its outstanding credit agreement, are for general corporate purposes, including the funding of working capital requirements and capital expenditures.

A gray market on Tuesday in the planned McDermott $250 million of tangible equity units was seen at 100.10 bid.

Dollar surges on buyout

DFC Global 3.25% convertibles due 2017 traded up on heavy volume to 97.125 late in the day, from 85 bid, 85 offered previously, according to market sources.

The shorter-dated Dollar 3% convertibles due 2028, which are putable in 2015, traded up on lesser volume, though still active, to 98.75 from 93 bid, 94 offered.

The greater price swing in the 3.25% convertibles precipitated much greater volume in that issue, but both issues were actively traded.

One trader noted that hedged guys had for the most part previously sold these bonds to distressed desks due to what appeared to be weakening fundamentals as the company "kept revising down" its results expectations.

Shares of the financial services company, which serves unbanked or under-banked consumers, gained 47 cents, or 5.2%, to $9.45 on Wednesday.

The news was that the company entered into a definitive agreement to be acquired by an affiliate of Lone Star Funds in a deal including the assumption of debt valued at about $1.3 billion.

Upon completion of the deal, DFC Global will be a privately held company.

Under the agreement, DFC Global stockholders will receive $9.50 in cash for each share of DFC Global stock they own. This represents a premium of 5.8% to DFC Global's closing stock price on April 1. A third-quarter close is expected.

In related news, DFC reduced its guidance for fiscal year 2014 to adjusted EBITDA of between $151 million and $156 million, which was down compared to its previous range of between $170 million and $200 million.

The company also reduced its diluted pro forma operating earnings guidance, which excludes any non-operating and unusual charges, to between $0.04 to $0.12 per share from a previous range between $0.35 and $0.80 per share.

The company said that its new 2014 guidance "reflect principally the revenue and expense effects of the transition in the U.K. to a new regulatory environment, including the Handbook of Rules and Guidance published on Feb. 28, 2014 by the Financial Conduct Authority (FCA), which became the principal regulator of the company's consumer credit sector effective April 1"

The new ranges also reflect ongoing unfavorable trends in the value of the Canadian dollar with respect to the U.S. currency and a decrease in gold commodity prices.

Houlihan Lokey Capital, Inc. is acting as financial adviser to DFC Global in connection with the transaction. Pepper Hamilton LLP is acting as DFC Global's legal adviser. Jefferies LLC is acting as lead financial adviser to Lone Star Funds, and Credit Suisse Securities (USA), LLC is acting as financial adviser.

Jefferies Finance LLC and Credit Suisse AG are providing debt financing commitments for the acquisition. Gibson, Dunn & Crutcher LLP is acting as legal counsel to Lone Star Funds.

MannKind spurts higher

MannKind's 5.75% convertibles due 2015 traded up to about 120 from 95 on Wednesday. The bonds printed as high as 127.25, according to Trace data.

MannKind shares surged $2.97, or 74%, to $6.99. And shares spent some of the session north of $7.00, hitting as high as $8.08.

Some attributed the outsized gain partially to short covering as there was a large amount of short interest in the shares going into the day.

The spike continues ongoing volatility in the securities of MannKind as it awaits a final decision on its Afrezza drug by the DFA.

On Friday, MannKind shares bounced around in response to briefing documents by FDA staff reviewing the drug, which raised safety and efficacy questions.

Nevertheless this panel voted 13 to 1 in favor of Afrezza on Tuesday, affirming what it views as the greater good of having therapy options for diabetes patients over negatives that include potential lung irritation in patients using the inhalation powder. The FDA has assigned an action date of April 15 for its review of the Afrezza New Drug Application.

51job to price

Shanghai-based 51job, a recruiting service, plans to price $150 million of five-year convertible notes in a Regulation S and Rule 144A offering after the market close Thursday that were talked to yield 2.75% to 3.25% with an initial conversion premium of 25% to 30%, according to a syndicate source.

The deal includes a $22.5 million greenshoe and is being sold via joint bookrunners J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC.

The notes are non-callable for life and putable on April 15, 2017. They mature on April 15, 2019.

The securities will be convertible at the holder's option in certain circumstances into two American Depositary Shares of 51job. Upon conversion, 51job will pay or deliver cash, ADSs or a combination of cash and ADSs.

Proceeds will be used for general corporate purposes, including working capital needs and potential acquisitions of complementary businesses.

51job also plans to use some proceeds to pay the cost of call options being entered into in connection with the notes offering.

Mentioned in this article:

DFC Global Corp . Nasdaq: DLLR

51job Inc. Nasdaq: ADS: JOBS

LifePoint Hospitals Inc. Nasdaq: LPNT

MannKind Corp. Nasdaq: MNKD

McDermott International Inc. NYSE: MDR

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