Meritor prices, trades up; older issues also rise; Marriott Vacations, Maxwell on tap

By Stephanie N. Rotondo

Seattle, Sept. 20 – The convertible bond market had a new issue to push around on Wednesday and it took up a bulk of the day’s trading, according to traders.

Late Tuesday, Meritor Inc. sold $300 million of 3.25% convertible senior notes due 2037 with an initial conversion premium of 60%.

The Rule 144A deal came in line with initial price talk.

On the break, the issue was immediately seen trading above par. The company’s older issues were also on the rise.

Meanwhile, the market was waiting for two other issues to price, both of which were announced on Tuesday.

Marriott Vacations Worldwide Corp. said it was offering $200 million of five-year convertible notes via a Rule 144A sale.

Price talk is for a 1.25% to 1.75% yield and an initial conversion premium of 27.5% to 32.5%, according to a market source.

J.P. Morgan Securities LLC, BofA Merrill Lynch and SunTrust Robinson Humphrey Inc. are the joint bookrunners.

The new issue will mark the Orlando-based hospitality company’s first foray into the convertible bond market.

Also new to the market is Maxwell Technologies Inc. The San Diego-based developer and manufacturer of capacitor energy storage and power delivery solutions announced a $50 million Rule 114A offering of five-year convertibles as well.

Price talk is for a 5% to 5.5% coupon and an initial conversion premium of 20% to 30%.

Barclays is the bookrunner.

Away from the new issue, a trader said Cobalt International Energy Inc.’s convertible debt was moving “close to the lows set in March.”

With no fresh news out on the oil and gas producer, the trader opined that investors were “getting out of the name.”

He saw the 2.625% convertible notes due 2019 in a 20.75 to 21 range, while the 3.125% convertible notes due 2024 were in a 17.5 to 17.75 context.

He deemed both issues “several points lower.”

“They’ve been trading pretty steadily all day,” he added.

Another market source saw the 2.625% convertibles around 20.5, down 3.25 points on the day.

Cobalt’s equity was also a touch weaker, falling a penny to $1.73.

Meritor trades above par

Meritor’s new 3.25% convertibles were doing well in their first official day of trading.

A trader said the bonds were trading in a 103 to 103.375 range at mid-morning. By late afternoon, the paper was up around 104.5.

However, the company’s stock was weaker, falling 49 cents, or 1.92%, to $25.08.

BNP Paribas Securities Corp., BofA Merrill Lynch, JPMorgan, RBC Capital Markets LLC and PNC Capital Markets LLC ran the books.

Holders can convert their bonds through July 15, 2037 only in certain circumstances. After that date, the notes can be converted at any time.

Conversions will be settled in cash up to the principal amount of the notes surrendered for conversion. For the remainder owed, conversions will be settled in cash, common stock, or a combination of both, at the company’s option.

The initial conversion price is $39.92, equal to an initial conversion rate of 25.0474 shares per each $1,000 of notes.

The convertibles become callable on or after Oct. 15, 2025. The issue is also putable on that date.

Meritor intends to use proceeds to privately repurchase $118.6 million of its 4% convertible notes due 2027 and $116.7 million of its 7.875% convertible notes due 2026.

Those issues were active in the midweek session.

The 4% convertibles were trading at 116.148, according to Trace data.

The convertibles had been around 114 on Monday.

As for the 7.875% paper, most of the trades occurred at 230.488. That compared to 216.875 on Monday.

Meritor is a Troy, Mich.-based supplier of drivetrain, mobility, braking and aftermarket solutions for commercial vehicle and industrial markets.

Mentioned in this article:

Cobalt International Energy Inc. NYSE: CIE

Marriott Vacations Worldwide Corp. NYSE: VAC

Maxwell Technologies Inc. Nasdaq: MXWL

Meritor Inc. NYSE: MTOR

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