Ryland, Shutterfly gain outright, on hedge on debuts; SunPower jumps; Vivus, Tesla on tap

By Rebecca Melvin

New York, May 15 - Ryland Group Inc.'s newly priced 0.25% convertible senior notes gained on an outright and dollar-neutral, or hedged, basis in active trade on their debut in the secondary market Wednesday after the $250 million issue of six-year convertibles priced at the rich end of talked terms, market players said.

Shutterfly Inc.'s newly priced 0.25% convertible senior notes also traded up on their debut after the upsized $270 million of five-year convertible bonds priced at the rich end and beyond the rich end of talk late Tuesday.

Also in primary market action, Vivus Inc. launched early Wednesday an offering of $200 million of seven-year convertible senior notes under Rule 144A that were seen pricing after the market close and talked to yield 4.25% to 4.75% with an initial conversion premium of 15% to 20%, according to market sources.

After the market close, Tesla Motors Inc. launched an offering of $450 million of five-year convertible bonds that was seen pricing after the market close Thursday, a syndicate source said.

Pricing of the registered Tesla convertible deal was talked at a coupon of 2% to 2.5% and an initial conversion premium of 30% to 35%.

Back in established issues, SunPower Corp.'s two convertible bond issues jumped along with the underlying shares after the San Jose, Calif.-based solar power company released guidance for full-year earnings and revenue that was higher than most analysts' estimates.

Stocks extended gains, with indices notching again all-time highs. The S&P 500 stock index gained 8.44 points, or 0.5%, to 1,658.78; the Dow Jones industrial average jumped 60.44 points, or 0.4%, to 15,275.69; and the Nasdaq stock index gained 9.01 points, or 0.3%, to 3,471.62.

The S&P 500 and Nasdaq have extended gains for four consecutive sessions. After disappointing manufacturing data and a drop in the producer price index, investors were betting that the Federal Reserve will continue to support market gains through its stimulus measures, including $85 billion a month of Treasury and mortgage bond purchases and low interest rates.

Among the latest economic data, the U.S. producer price index dropped 0.7% in April, which was its biggest drop since February 2010, the Labor Department reported. One survey of economists had forecast that prices would drop 0.6% in April. Also, New York state's manufacturing sector slipped unexpectedly in May, falling to 1.43 from 3.05 and below expectations for a 0.4 rise.

New Ryland adds

Ryland's newly priced 0.25% convertibles due 2019 traded up to as high as 101.625 and was quoted late morning at 100.875 bid, 101.375 offered. Later it was seen at 101.25.

Ryland shares slipped 52 cents, or 1%, to $49.49, which reversed a nearly 1% gain on Tuesday, when the shares gained 45 cents to $50.01.

Trading was extremely active with more than $200 million of the $250 million deal changing hands by late morning, a New York-based convertibles analyst said.

"Ryland is the better name to look at today. It has had very strong two-way flow, largely outright-driven, but with good interest from hedge funds on swap also," the analyst said.

The paper was trading on an outright basis for the most part, but on a dollar-neutral basis the paper expanded about a point on a 60% delta.

The registered, off-the-shelf deal, with an over-allotment option for $37.5 million of notes, came with an initial conversion premium of 50%. That represented the rich end of 45% to 50% premium talk, and it was also at the rich, or tight, end of coupon talk.

The notes were marketed by Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Wells Fargo Securities, LLC and RBS Securities Inc. as joint bookrunning managers, with Deutsche Bank Securities Inc. and UBS Securities LLC acting as co-managers.

The notes are non-callable for four years with no puts.

Proceeds were to be used for general corporate purposes, including acquisitions to expand market opportunities.

Westlake Village, Calif.-based Ryland is a homebuilder and mortgage finance company.

New Shutterfly adds

The new 0.25% convertible bonds of Shutterfly, the Redwood City, Calif.-based provider of digital photo services, traded up to about 104 out of the chute Wednesday when the bonds were released for secondary market trading. Later in the day they were seen at 106 bid.

The underlying shares were initially down about 0.5% at $47.75 but reversed losses to close up 79 cents, or 1.7%, to $48.32. That represented an expansion of about 5 points on a dollar-neutral basis using a delta of about 65%.

The Rule 144A deal was seen at about fair value before final terms were fixed.

Shutterfly priced an upsized $270 million of five-year convertible senior notes to yield 0.25% and with an initial conversion premium of 35%.

The deal came with a call spread that lifted the initial premium to 75% from the issuer's perspective.

The paper was allocated to a mix of outright and hedged participants, a syndicate source said, citing a 55% to 45% profile with slightly better than half coming from outright participation.

The syndicate source said the convertible primary market is notably strong, and better than even six months ago, as upcoming maturities in the convertible universe have investors scrambling for more paper.

Shutterfly's deal, which has a $30 million greenshoe, priced at the rich end and beyond the rich end of talk, which was for a 0.25% to 0.75% yield and a 27.5% to 32.5% premium.

Joint bookrunners were Morgan Stanley, JPMorgan, BofA Merrill Lynch and Citigroup.

Co-managers were Credit Suisse Securities, Wells Fargo Securities and Evercore Partners LLC.

The notes are non-callable with no puts. There is net share settlement and contingent conversion if shares exceed 130% of the conversion price. There is also takeover protection.

Proceeds are intended to be used to fund acquisitions and other strategic transactions. The company also used $18 million of the proceeds to pay the cost of convertible note hedge and warrant transactions, or for a call spread, and to repurchase up to $30 million of shares of common stock. Any remaining proceeds will be used for general corporate purposes.

In connection with the pricing of the notes, the company entered into convertible note hedge and warrant transactions with one or more financial institutions, including certain initial purchasers of the notes. The warrant strike price is $83.1775, representing a 75% premium from the issuer's perspective.

Shutterfly shares surged $3.55, or 8%, to $47.53 on Tuesday. That also helped the deal, the syndicate source said.

On Wednesday, Shutterfly shares initially slipped by 0.5%, but turned around for a 79 cent, or 1.7%, gain to $48.32.

Tuesday's gain was attributed to the market's applause of the use of proceeds, the syndicate source said. The company is going to continue to build the business and has been very successful with recent acquisitions, he said.

Vivus on tap

Vivus, a Mountain View, Calif.-based pharmaceutical company focused on treatments for obesity and sexual dysfunction, launched an offering of $200 million of seven-year non-callable convertibles that it expected to price after the market close.

Deutsche Bank Securities was the bookrunner for the Rule 144A deal.

Price talk was for a coupon of 4.25% to 4.75% and an initial conversion premium of 15% to 20%, according to a syndicate source.

Proceeds will be used to commercialize products, to develop product candidates and for general corporate purposes.

A portion of the proceeds will also be used to pay the cost of a capped call transaction with affiliates of one of the initial purchasers of the notes.

There is an over-allotment option for up to an additional $30 million of notes.

The notes are non-callable with no puts.

The company's Asymia, phentermine and topriamate extended-release capsules CIV, approved last year to treat obesity, has not brought in as much revenue in its first year as expected.

The company is exploring how it can increase Asymia's marketing reach by holding discussions with large pharmaceutical companies to explore collaborative efforts to increase reach to prescribing physicians and the public, which is critical to maximizing the value of Qsymia, Vivus stated in a recent letter to shareholders.

In mid-April, Vivus achieved FDA approval of its Risk Evaluation and Mitigation Strategy modification for Qsymia. The approval will allow patients to access Asymia at certified retail pharmacies nationwide. The company said it believes that the medical obesity category is emerging and the drug treatment rate for this indication will increase.

SunPower surges

SunPower's 4.75% convertibles due 2014 traded up to 110, which was higher by nearly 5 points, according to Trace data.

SunPower's 4.5% convertibles due 2015 traded up to 120.3, which was also higher by about 5 points.

SunPower shares jumped $1.75, or 9.2%, to $20.76 in heavy volume on Wednesday.

Inspiring the gains was SunPower 2013 financial guidance announced before the market open. It expects to report net income excluding one-time items of between 5 cents and 15 cents per share for the second quarter on revenue of $550 million to $600 million. That was better than the loss on $513.3 million revenue that analysts were expecting.

SunPower forecast 2013 revenue of $2.5 billion to $2.6 billion and income before items of 60 cents to 80 cents per share.

Excluding items, SunPower expects 2013 results will fall to between a loss of 5 cents per share and 20 cents per share. Analysts were expecting revenue of $2.55 billion and earnings before items of 64 cents per share.

The company also said it would cut operating expenses by 10% from 2012 levels.

Tesla to price

Tesla, the Palo Alto, Calif., electric car maker, launched an offering of $450 million of five-year convertibles talked at a 2% to 2.5% coupon and a 30% to 35% initial conversion premium.

The deal is coming concurrently with an offering of common stock as well as bond hedge transactions.

Tesla plans to price 2,703,027 shares of common stock.

Chief executive Elon Musk has indicated his preliminary interest in purchasing up to 1,201,345 shares of the stock for a total $100 million, of which 540,605 shares would be purchased in the public offering for about $45 million, and 660,740 shares would be purchased directly from Tesla at the public offering price for about $55 million.

Goldman Sachs, Morgan Stanley and JPMorgan are the joint bookrunners of the notes.

Holders may convert their notes if the Tesla share price rises to at least 130% of the conversion price.

The notes are non-callable with no puts except a fundamental change-of-control put.

Proceeds will be used to repay a Department of Energy loan, for the bond hedge as well as for general corporate purposes.

Mentioned in this article

Ryland Group Inc. NYSE: RYL

Shutterfly Inc. Nasdaq: SFLY

SunPower Corp. Nasdaq: SPWR

Tesla Motors Inc. Nasdaq: TSLA

Vivus Inc. Nasdaq: VVUS

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.