Ares Capital deal trades over par post-pricing; Horizon Global on tap; Yahoo! active

By Stephanie N. Rotondo

Seattle, Jan. 24 – Ares Capital Corp.’s new $350 million issue of 3.75% convertible notes due 2022 topped trading on Tuesday, according to a trader.

Another trader said the deal “priced to perfection,” which was evidenced by the fact that the issue was trading “around par.”

The paper was pegged in a par to 100.125 range earlier in the day.

One sellsider, however, was not as impressed.

“What kind of convert yields 3.75% while the underlying stock throws off 9%?” the source commented.

As of mid-morning, trading in the Ares issue made up about $73 million of the total $167 million volume, the trader said.

The underlying stock edged up 12 cents to $16.98.

The deal came with a 15% initial conversion premium. Pricing overall was at the cheap end of the 3.25% to 3.75% yield talk, with a conversion premium of 15% to 20%.

J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, BMO Capital Markets and Goldman Sachs & Co. ran the books.

The notes are convertible at a rate of 51.5756 shares per each $1,000 of notes, equal to $19.39 per share.

Proceeds will be used to repay certain outstanding debt.

Late in the day, another deal was added to the calendar, a $100 million offering of convertible senior notes due 2022 from Horizon Global Corp.

Price talk was for a 2.75% to 3.25% yield and an initial conversion premium of 27.5% to 32.5%.

The deal is expected to price after the market’s close on Thursday.

Ahead of the announcement, Horizon’s shares fell 7 cents to $20.88.

JPMorgan, Wells Fargo, BofA Merrill Lynch and BMO Capital Markets are leading the deal.

The deal in being done in conjunction with a common stock offering, though neither deal is contingent upon each other.

Proceeds from both transactions will be used to repay $147.5 million of its term loan. The remaining proceeds will be used to fund convertible note hedge transactions the company intends to enter into.

Yahoo for Yahoo!

Yahoo! Inc.’s 0% convertible notes due 2018 were quite busy in the wake of better-than-expected earnings.

One trader said the convertibles were “near 102.” Another market source also placed the issue around the 102 area, which was up 1.5 to 2 points outright.

Yet another trader saw the convertibles at 102 versus a stock price of $43.70.

That trader said the issue was “nuking inline,” while rising a point outright.

The company’s common shares were up $1.50, or 3.54%, at $43.90.

Yahoo! reported its fourth-quarter results late Monday. Additionally, the company gave an update on its Verizon merger, saying that the closing of the deal is delayed until the second quarter.

The buyout was initially expected to be wrapped up in the first quarter of 2017 but was pushed back as the Securities and Exchange Commission launched an investigation into hackings that occurred in 2013 and 2014. The SEC contends that the security breaches should have been reported to investors sooner.

For the fourth quarter, Yahoo! reported adjusted earnings per share of 25 cents on revenue of $1.47 billion. By comparison, the company posted EPS of 13 cents on revenue of $1.27 in the same quarter of 2015.

Analysts polled by Thomson Reuters had forecast EPS of 21 cents on revenue of $1.38 billion.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Horizon Global Corp. NYSE: HZN

Yahoo! Inc. Nasdaq: YHOO

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