Ctrip.com tranches flat on debut; newer Restoration Hardware lower; Healthways up on swap

By Rebecca Melvin

New York, June 19 – Ctrip.com International Ltd.’s two new tranches of convertible bonds dropped on an outright basis and were flat on a dollar-neutral, or hedged, basis in active trade on Friday after the Shanghai-based travel services provider priced an upsized $1.1 billion of the senior notes at the midpoint and cheap end of talked terms.

Ctrip.com shares dropped 4.5%, and both Ctrip.com tranches were quoted at 98.5 late in the session. One trader thought that the weakness in the bonds was due to them being over-allocated to hedged funds without enough outright participation.

Ctrip.com’s older 1.25% convertibles due 2018 were also active at mostly steady pricing.

Ctrip.com was initially expected to sell $1 billion of convertibles.

Restoration Hardware Holdings Inc.’s newer 0% convertibles traded a little lower on swap on Friday and were quoted at 99.5 versus an underlying share price of $95.90.

Restoration Hardware shares were last up fractionally at $96.23.

This week’s new issue market, namely Ctrip.com and Restoration Hardware, was lackluster, one trader said.

While the overall market was weaker this past week, there was a bid on Thursday after Federal Reserve chairman Janet Yellen struck a more dovish tone than some expected, a trader said.

U.S. Treasuries saw rates push out, but convertibles lagged the bond markets.

“For converts not to rally on the back of that is weird,” a trader said.

Back in established issues on Friday, Healthways Inc.’s 1.5% convertibles due 2018 fell on an outright basis but were up on a swap basis after the Nashville-based health improvement company cut its revenue forecast to $770 million to $785 million from $800 million to $825 million.

Synergy Pharmaceuticals Inc.’s convertibles traded higher for a third straight day, this time with shares a little lower following a two-day spike of 88%.

“Synergy has had a monster week,” a trader said.

The Synergy paper traded at 298 near the end of the session, which was up from about 295 on Thursday. Meanwhile, shares shed a dime, or 1%, to $9.07.

Shares of the New York-based biopharmaceutical company doubled this week after positive phase 3 trial results for the company’s plecanatide constipation drug were announced.

The energy sector was weak, but without much activity. “There were a few scrappy trades,” a market source said, adding that Peabody Energy Corp. was still trading at 18.

“The convertibles market was generically pretty weak and lagged the bond market. But there were no major situations. People were just generally lightening up risk,” a New York-based trader said.

Ctrip tranches flat on issue

The $700 million of Ctrip.com’s 1% convertibles due 2020, or the C tranche, which priced at the midpoint of talked terms, were seen just over par at 100.125 and were also quoted at par. But near the end of the session they were down to 98.5 with lower shares, sources said.

The $400 million of Ctrip.com’s 1.99% convertibles due 2025, or the D tranche, which priced at the cheap end of talk, slipped below par and were seen at 99.5 and then at 99 and finally at 98.5.

Ctrip.com’s older 1.25% convertibles due 2018 were mostly steady.

“Ctrip was the focus today,” a trader said, adding that they were last offered on the issue price.

Ctrip.com shares were initially down about 2% and ended down $3.34, or 4.5%, at $71.67.

The C tranche of five-year bonds was upsized to $700 million from $500 million, and the D tranche of 10-year bonds was downsized to $400 million from $500 million.

There is an upsized greenshoe for up to $165 million of additional bonds, including up to $105 million of the 2020 notes and up to $60 million of the 2025 notes.

The five-year tranche has a 1% coupon and 45% initial conversion premium, which was the midpoint of talk for a 0.75% to 1.25% coupon and 42.5% to 47.5% premium.

The seven-year tranche has a 1.99% coupon and a 42.5% premium, which was the cheap end of talk for a 1.5% to 2% coupon and 42.5% to 47.5% premium.

J.P. Morgan Securities LLC was the bookrunner for the deal, which was distributed under Rule 144A and Regulation S.

Both tranches are non-callable for life. Holders can put the 2020 bonds on July 1, 2018, and holders can put the 2025 bonds on July 1, 2020.

In connection with the pricing of the bonds, Ctrip.com entered into convertible note hedge and warrant transactions, or a call spread.

Proceeds will be used to pay the net cost of the call spread and for general corporate purposes, including a concurrent repurchase of its ADSs and potential note retirement from time to time.

Healthways adds on swap

The Healthways convertibles were quoted near the end of the session at 92.25 bid, 93 offered with underlying shares near $12.40.

Healthways shares fell $3.13, or 20%, to $12.40.

“They moved up about 1.5 points on a dollar nuke,” a trader said.

“I moved them up pretty aggressively,” he said.

Mentioned in this article:

Ctrip.com International Ltd. Nasdaq: CTRP

Healthways Inc. Nasdaq: HWAY

Restoration Hardware Holdings Inc. NYSE: RH

Synergy Pharmaceuticals Inc. Nasdaq: SGYP

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