Morning Commentary: Planned Gogo convertible ‘looks cheap’; NXP Semiconductors active

By Rebecca Melvin

New York, March 3 – Convertibles players were eyeing a new deal in the market early Tuesday from Gogo Inc., which plans to price $300 million of five-year convertible senior notes after the market close.

The new Gogo deal was seen more than 2 points cheap at the midpoint of talk, according to one Connecticut-based trader, who valued the deal using a credit spread of 900 basis points over Libor and a 35% vol.

The Gogo deal was talked at a 3.25% to 3.75% coupon and a 22.5% to 27.5% initial conversion premium.

The Gogo deal is a mid-size issue typically favored by convertible players, and there have been precious few recently as the market seems dominated by extra-large deals that are often mandatory convertibles and smaller deals of $100 million in size or less. Nevertheless, there wasn’t a lot of “noise” surrounding the deal, one trader said.

The stock has no stock borrow to speak of, a second trader pointed out. But it is coming with a borrow facility from the underwriters.

Elsewhere, NXP Semiconductors NV’s convertibles remained active in trade and steady on Monday’s level after the paper jumped on an outright basis and expanded on a dollar-neutral basis on news the Dutch semiconductor components company is buying Freescale Semiconductor Ltd. of Texas for about $16.7 billion, including debt.

The NXP 1% convertibles due 2019 traded at about 118 early Tuesday with shares pulling back slightly from Monday’s spike. The shares were last at $98.49, which was down $1.07, or 1%.

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