Ares puts in lackluster debut; Priceline comes 'in' slightly; Molycorp deal pushes stock

By Rebecca Melvin

New York, March 9 - Ares Capital Corp.'s newly priced 4.875% convertibles traded just above par in secondary market action early Friday after pricing at the cheap end of talk. The issue wasn't very actively traded and was later seen at 99.5 bid, 100 offered and "better for sale," market sources said.

The new Ares paper ended the session "wrapped right around par," a syndicate source said.

The Ares deal was one of three new issues this past week in the U.S. primary market, which saw the $1.23 billion in new issuance readily digested by convertible players.

Prior to this week, there had been only $875 million in new convertible deals priced for the year to date.

Ares' cooler reception compared to other new deals likely had to do with its sector.

A syndicate source noted that other new issues from business development corporations, or BDCs, of which Ares is one, also traded around issue price initially.

Other sources suggested that anything in the financial sector is likely to be somewhat discounted currently due to the painful legacy of the MF Global bankruptcy last fall, among other things.

Ares is an investment-grade rated company that has the same rating as Priceline.com Inc., a New York-based trader pointed out. But "Ares trades wider," he said, referring to its credit spread compared to Priceline's.

Nevertheless, Priceline.com saw its new 1% convertible trade down by about 0.25 point on a dollar-neutral, or hedged, basis on Friday. On its debut Wednesday, the new Priceline had improved 2 points dollar neutral, so Friday's move was likely part of a rebound toward true valuation, a source said.

Helix Energy Solutions Group Inc.'s new 3.25% convertibles, which also debuted on Wednesday, extended outright gains, however. Although it was in line on a dollar-neutral basis, a source said. The new Helix closed around 107.75, which was up from 105.5 on Wednesday.

Elsewhere, U.S. convertibles issuer Molycorp Inc. said it is buying Canadian convert issuer Neo Material Technologies for $1.3 billion. Molycorp is paying for the purchase with a combination of cash and stock, and 71% will be in cash.

Molcorp shares surged 19% as investors cheered the acquisition. But the Molycorp convertibles weren't heard in trade. The holders of Neo Materials' convertibles likely lost on a hedged basis due to the issue's unfavorable takeover table, a Connecticut-based convertibles analyst said.

Meanwhile, D.R. Horton Inc.'s 2% convertibles due 2014 crossed at 130.875 on Friday, which was up 3.18 points on the day, according to Trace data, after a Credit Suisse upgrade on the shares.

The D.R. Horton convertible trades on about a 70% delta, and the paper was seen higher by about 0.25 point on a dollar-neutral basis.

Also in trade were the Southwest Airlines Co. 5.25% convertibles due 2016, which were issued by AirTran Holdings Inc., and they crossed at 127.25 versus an underlying share price of $8.53, a New York-based trader said.

This past week, market players watched developments in creditor participation in the Greek bond swap deal, and equities rose and fell on the prospects of a successful conclusion.

The Greek government said early Friday that 85.8% of private creditors participated in the €177 billion of Greek government debt exchange.

That was good enough to clear the way for more bailout funds, but it was unclear if the restructuring triggered credit default swap payments on an estimated €3 billion of claims. Greece is expected to invoke a collective action clause to force holdouts to accept the offer, bringing participation up to 95%.

The International Swaps and Derivatives Association was meeting Friday to discuss whether the agreement constitutes a credit event that would trigger the swaps.

Ares edges higher

Ares Capital's newly priced 4.875% convertibles traded at 100 bid, 100.125 offered early in the day, but later slipped below par, before ending the session wrapped around par.

Shares of the New York-based private equity firm were little changed, ending down 2 cents at $16.44 in average trading volume.

The new issue has a relatively light 30% delta hedge, so the moves in the underlying shares shouldn't matter too much.

The deal, which was viewed as slightly rich before final pricing, priced on the cheap end of talk.

Area is a BDC, which raises money through equity and bond offerings and then uses those funds to lend to medium-sized private companies.

BDCs are required to pay out 90% of earnings as dividends, and those dividends are taxed as ordinary income for shareholders.

Ares priced $150 million of five-year convertible senior notes on Thursday at the cheap end of talk to yield 4.875% with an initial conversion premium of 17.5%.

Price talk was at a coupon of 4.375% to 4.875% and a premium of 17.5% to 20%.

The Rule 144A deal has a greenshoe of $22.5 million and was sold via joint bookrunners J.P. Morgan Securities LLC, Bank of America Merrill Lynch, Wells Fargo Securities LLC and Morgan Stanley & Co. LLC.

The notes are non-callable and may not be put. They have contingent conversion at a 130% threshold of the conversion price.

The notes have standard change-of-control and dividend protection.

Proceeds will be used to repay outstanding debt, which may include borrowings under the company's revolving credit facility and other facilities, and for general corporate purposes.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

D.R. Horton Inc. NYSE: DHI

Helix Energy Solutions Group Inc. NYSE: HLX

Molycorp Inc NYSE: MCP

Priceline.com Inc. Nasdaq: PCLN

Southwest Airlines Co. NYSE: LUV

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