New Vector expands dollar neutral, old Vector off; Navistar, YY lag; Emerald, Gramercy add

By Rebecca Melvin

New York, March 19 - Five new issues put in mixed debuts in the U.S. convertibles market on Wednesday against a backdrop of mostly lower shares.

Vector Group Ltd. and its older sister issue were very actively traded, and the new deal managed to edge higher despite sharply lower shares, and Navistar International Corp.'s new deal, which was pretty much a carbon copy of a deal it did six months ago, was deemed a success because "it gets the job done," an East Coast-based buysider said.

Proceeds of the new Navistar deal will be used to redeem its 3% convertibles due later this year and thus allows the company to resume focus on its turnaround program.

YY Inc.'s newly priced 2.25% convertibles due 2019 traded lower but mostly in line with the underlying shares of the Guangzhou, China-based online music, entertainment and gaming company after it priced $400 million of the five-year senior notes at the cheap end of talked terms.

The new YY convertibles traded at 99 before the market open, a New York-based trader said, and were later seen at 99.5 before heading back down to the 99 mark, sources said. YY shares were weak, trending 2.5% lower for much of the session and ending lower than that, down $2.31, or 2.8%, at $79.69.

Emerald Oil Inc.'s newly priced 2% convertibles due 2019 traded up despite lagging underlying shares after the Denver-based oil and natural gas company priced an upsized $140 million of the five-year senior notes at the midpoint of talk.

Gramercy Property Trust Inc.'s newly priced 3.75% exchangeables due 2019 outperformed shares, which were up, after the New York-based commercial real estate investment company priced $100 million of the five-year notes at the midpoint of talk.

The new Gramercy Property convertibles were heard at 102.5 bid, 103.25 offered with the underlying shares up 1.3% at $5.235.

The Gramercy deal "may be interesting," a buysider said, noting that the company's stock looks somewhat cheap to book value.

After the market close, National Health Investors Inc. was expected to price $175 million of seven-year convertibles. The health care real estate investment trust was viewed as essentially a play on senior care, a buysider said.

The equity markets were weak heading into Wednesday afternoon when the Federal Reserve released its latest policy statement, and they moved further south following news that the Fed will continue cutting bond buying by another $10 billion to $55 billion, and also abandon its previous practice of tying short-term interest rates at near 0% to a specific unemployment rate.

The unemployment rate at which the Fed said it would start to look at raising interest rates was 6.5%, and unemployment now stands at 6.7%.

The Fed also updated its economic forecast for this year, predicting 2.8% to 3% growth this year, which is a bit lower than its December forecast of between 2.8% and 3.2%.

New Vector expands

Vector Group's newly priced 1.75% convertibles due 2020 were closed at 100.875 bid, 101.375 offered versus the closing underlying share price of $20.70, according to a syndicate source. Earlier, the bonds were seen at 100.625 bid, 101.125 offered with the underlying shares at $20.53.

With the underlying shares down $1.03, or 4.7%, that meant the new bonds expanded 2.5 points on a hedged basis, the syndicate source said.

The new bonds with their dividend-pass-through make an interesting yield play, a market source said.

The Miami-based tobacco holding company priced an upsized $225 million of the variable-rate convertibles at the midpoint of talked terms.

Vector's existing 2.5% convertibles due 2019, which also have a dividend pass through, were under some pressure, trading down about 3 points on an outright basis to 133, according to Trace data.

The company is a "relatively complex, relatively under-covered tobacco company, which makes it ugly for some investors, but it's a very good yield instrument for some people," a market source said.

The dividend pass through feature pulls yield up to an annual floor of 5.5%. The feature is seen as compensation for litigation risk and other risk associated with a tobacco company, the market source said.

"There is a high vol. risk associated with if a settlement goes wrong or something happens, and since it generates a lot of cash flow, [the pass through] is a good way to reward investors if the stock gets impaired," the source said.

He said the feature makes sense for other high-yield sectors like mortgage REITs.

Vector priced an upsized $225 million of the 1.75% six-year variable interest rate convertible bonds with an initial conversion premium of 25%.

The registered deal was initially talked at $150 million in size, and pricing came at the midpoint of talk, which was for a 1.5% to 2% coupon and a 22.5% to 27.5% premium.

The overnight deal was sold by bookrunner Jefferies LLC, and there is a $33.75 over-allotment option, which was upsized from $22.5 million.

The convertibles will be non-callable and have takeover and dividend protection.

Proceeds will be used for general corporate purposes, including for its existing tobacco business and for investments in real estate through its subsidiary New Valley LLC. A portion of the proceeds may also be used for upcoming debt maturities.

New Navistar little changed

Navistar's new 4.75% convertibles due 2019 traded right around par after the Lisle, Ill.-based truck and engine maker priced its upsized $370 million of the five-year senior notes at the cheap end of terms.

"The deal needed to get done, and it cleared up financing for the next three years. It was the most useful of the deals," a market source said.

The new deal, which priced at par and with a 57.5% initial conversion premium, is similar to the Navistar 4.5% convertibles, which priced in October at a discount to par of 99.5 and with a 60% initial conversion premium.

The extra coupon and little better profile puts pressure on the older issue in the short term but not for the medium and long term, a market source said.

The stock price stands at almost the same level it was back in October, although in between it took a dive due to weak first-quarter results.

The offering was sold via J.P. Morgan Securities LLC (active), Goldman Sachs & Co., Credit Suisse Securities (USA) LLC and BofA Merrill Lynch as joint bookrunners.

The bonds are non-callable for three years and then provisionally callable if shares exceed 130% of the conversion price.

New YY drops

YY's new 2.25% convertibles due 2019 traded down to 99 before the market open on Wednesday, and the paper ended "wrapped around 99," a market source said. YY shares fell 2.8%, but shares are up 60% from November when the company was going to price, but shelved a convertibles deal.

As far as Chinese internet companies go, this one is generating cash flow, which isn't true of all the Chinese internet names out there.

This deal is also non-callable but with a put in year three, which is unusual.

"The put is a nice option, but it's only helpful if the company is cash generative. It's a differentiating element if the equities don't perform well," a market source said.

The company priced $400 million of five-year convertible senior notes after the market close Tuesday at par to yield 2.25% with an initial conversion premium of 35%.

Pricing of the Rule 144A and Regulation S deal came at the cheap end of talk, which was for a 1.75% to 2.25% coupon and a 35% to 40% premium.

There is a $60 million greenshoe.

Bookrunners were Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Morgan Stanley & Co International plc.

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

New Emerald edges higher

Emerald Oil's new 2% convertibles due 2019 traded up to 101 bid, 102 offered in the early going with the underlying shares at $6.50.

Shares of the company ended up 4 cents, or 0.6%, at $6.46 on Wednesday.

The company priced an upsized $140 million of the five-year senior notes at the midpoint of talk, including a 35% initial conversion premium.

The Rule 144A offering was initially talked at $125 million in size. The greenshoe was upsized to $32.5 million from $18.75 million.

Joint book-running managers were Credit Suisse and Barclays.

The notes are non-callable. They will be settled in shares. They also have change-of-control protection via a make-whole table and anti-dilution adjustments and dividend protection via adjustment to the conversion rate for dividends payments.

Proceeds will be used to repay all of the outstanding borrowings under a revolving credit facility and for general corporate purposes, including funding a portion of the company's drilling and development program and potential acquisitions.

Mentioned in this article:

Emerald Oil Inc. NYSE: EOX

Gramercy Property Trust Inc. NYSE: GPT

National Health Investors Inc. NYSE: NHI

Navistar International Corp. NYSE: NAV

Vector Group Ltd . NYSE: VGR

YY Inc. NYSE: YY

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