Secondary mostly quiet; primary heats up after close; Whiting Petroleum to price $1 billion of notes

By Rebecca Melvin

New York, March 23 – Convertibles put in a quiet session on Monday as stocks wavered and the few convertible issues that were mentioned in trade moved in line, or flat, with the underlying equities, market sources said.

“It’s one of the quieter days I’ve seen this year,” a New York-based sellsider said, surmising that school spring breaks were keeping some market players away from their desks and slowing the market.

After the close, the primary market – very quiet of late – came to life, however.

Whiting Petroleum Corp., a Denver-based oil and gas exploration and production company, which has seen some chatter about it being a possible acquisition target, launched a $1 billion deal of five-year convertible senior notes in the market. The deal is coming concurrently with a $1.25 billion secondary stock offering from the energy company and a third deal for $750 million of eight-year straight notes.

The Whiting deal is expected to price ahead of the market open on Tuesday.

Whiting shares fell sharply in after-hours trade.

Also launching after the market close on Monday was inContact Inc.’s $100 million of seven-year convertible senior notes. That deal, talked at a 2.5%-3% coupon and 30% to 35% premium, was expected to price after the market close on Tuesday.

In the international primary arena, Aabar Investments PJS launched an offering of €1.5 billion of bonds in two tranches, exchangeable for shares of Italian bank UniCredit SpA.

Valuations for the tranches are “okay,” according to a market source, using the underwriter’s credit spread assumption of 125 basis points over Libor and 150 bps over Libor, 32% volatility and 50 bps of borrow cost.

But some of the cautions on the deal are a lack of dividend protection, high premium, non-convertibility and lack of ring fencing on the shares, the market source said.

Back in established issues on Monday, Herbalife Ltd.’s convertibles moved up again on an outright basis, but were flat, or in line, on a swap basis as shares of the Cayman Islands-based nutrition company continued to rip following news last week that a shareholder lawsuit claiming Herbalife is a pyramid scheme has been dismissed.

A U.S. district judge in California said shareholders did not show that Herbalife inflated its stock price by misrepresenting itself.

The Herbalife bonds rose to the mid 80s from the low 80s.

Nvidia Corp. traded a little lower on an outright basis, but was also flat on a swap basis after Goldman Sachs downgraded shares of the Santa Clara, Calif.-based graphics processor company to “sell” from “neutral,” citing concerns over Intel licensing revenue.

And Brookdale Senior Living Inc.'s convertible bonds were flattish on an outright basis, but better on a dollar-neutral basis, a Connecticut-based trader said, citing investors being cheered by talk of the Brentwood, Tenn.-based operator of assisted-living homes for seniors converting into a real estate investment trust.

Whiting Petroleum to price

Denver, Colo.-based Whiting plans to price $1 billion of convertible before the market open on Tuesday. The five-year bonds were talked to yield 0.75% to 1.25% with an initial conversion premium of 30% to 35%.

Whiting is also pricing $750 million of eight-year straight debt and about $1.25 billion, or 35,000,000 shares, of common stock.

The Rule 144A convertible offering has a $150 million greenshoe and was being marketed via bookrunner J.P. Morgan Chase & Co.

The convertibles are non-callable for life with no puts, and they have dividend and takeover protection.

Proceeds from the offerings will be used to repay all or a portion of the amount outstanding under its revolving credit facility and for general corporate purposes.

InContact to price

In a much smaller deal coming after the market close on Tuesday, Salt Lake City, Utah-based inContact plans to price $100 million of seven-year convertible senior notes.

The deal was talked to yield 2.5% to 3% with an initial conversion premium of 30% to 35%.

Jefferies & Co. is bookrunner of the deal that is coming with a 15% greenshoe under Rule 144A.

About $22.7 million of proceeds will be used to retire about $11.7 million of term loans and capital lease obligations and $11 million of outstanding draws on a secured revolving credit facility. Remaining proceeds will be used for general corporate purposes.

The notes are non-callable for four years until April 1, 2019 and then provisionally callable if shares exceed 130% of the conversion price. The notes have takeover and dividend protection and net share settlement.

inContact is a provider of cloud-based contact center software.

Aabar eyes €1.5 billion deal

Aabar Investments plans to price two tranches of exchangeables on Tuesday for up to €2 billion of bonds.

The paper will be exchangeable into shares of Italian bank UniCredit SpA.

The first tranche of €750 million of five-year bonds was talked at a coupon of 0% to 0.5% and an initial exchangeable premium of 40% to 45% over the volume weighted average price of the bank’s shares between launch and pricing.

The second tranche of €750 million seven-year bonds was talked at a coupon of 0.5% to 1% and the same exchange premium.

Proceeds will be used to buy back the fund’s 4% senior unsecured bonds due 2016, exchangeable into shares of Daimler AG.

Deutsche Bank AG will act as bookrunner of the new exchangeables and purchase agent for the buyback of the bonds exchangeable into Daimler’s shares.

Tranche A is non-callable for three years until April 17, 2018 and then provisionally callable if shares exceed 130% of the conversion price. Tranche B is non-callable for five-years until April 17, 2020 and then provisionally callable if shares exceed 130% of the conversion price.

There are no puts except a takeover put. The bonds also have dividend protection and may be settled in cash.

Abu Dhabi-based Aabar Investments is a private investment company focused on infrastructure, aviation, real estate, commodities and financial services. Its parent is IPIC, which is fully owned by the Government of Abu Dhabi.

Herbalife in line

Herbalife’s 2% convertibles due 2019 traded up as many as 4 points on an outright basis to 87.5, according to Trace data. The bond were later quoted at 84 or 85, which was still up 2 points on the day.

The company’s shares were up about 10% in the early going, but closed up $2.89, or 6.9%, to $44.99.

Herbalife shares have been moving higher since March 13 when it was learned that federal investigators were probing Ackman and some of his associates about potential manipulation of Herbalife stock.

Last week’s court decision dealt another blow to hedge fund manager Bill Ackman of Pershing Square Capital, who has heavily shorted the stock because he believes the company is an illegal pyramid scheme.

Mentioned in this article:

Brookdale Senior Living Inc. NYSE: BKD

Herbalife Ltd. NYSE: HLF

inContact Inc. Nasdaq: SAAS

Nvidia Corp. Nasdaq: NVDA

Whiting Petroleum Corp. NYSE” WLL

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