Ctrip.com surges on debut; Liberty Media up slightly; Seaspan cancels after stock drops

By Rebecca Melvin

New York, Oct. 11 - Ctrip.com International Ltd.'s newly priced 1.25% convertibles jumped sharply upon release to the secondary market Friday after the upsized $700 million of five-year convertible senior notes priced at the rich end of talk.

"I heard it 105.125 to 105.5; guys made money, so there were no complaints," a New York-based trader said of the new paper.

Liberty Media Corp.'s newly priced 1.375% convertibles traded up a couple of points on an outright basis early Friday after the hugely upsized $900 million of notes priced beyond the tight end of revised terms for the coupon. Later the paper came back in to the 101ish range.

Both Ctrip.com and Liberty were initially talked at $500 million in size.

Meanwhile, Seaspan Corp.'s $125 million offering of five-year convertibles was canceled, with the company saying the offering would not be in the best interests of its shareholders, according to a press release.

Shares dropped about 17% after the deal was announced late Monday and remained depressed until Friday when the deal was canceled. Shares rebounded 10% Friday.

All together there was $2.63 billion in new issuance in six deals this past week in the convertibles market, including two BioMarin Pharmaceutical Inc. tranches. If all of the over-allotment options of the deals are exercised, total issuance for the week will be just shy of $3 billion.

SolarCity Corp., a San Mateo, Calif.-based provider of clean distributed energy, has had a deal on the calendar for months and updated its registration for a planned $125 million of five-year convertible senior notes. Previously the deal was planned for $100 million. But there was still no timing and talk on the deal, a syndicate source said Friday.

As for why the avalanche of new paper in a market that has been struggling with just a trickle of new issuance, a New York-based convertibles analyst suggested, "Stocks are significantly higher this year, and perhaps people want to issue now in case there was a shutdown-related correction."

Meanwhile, equities looked like they were going to end the week with gains despite a rocky start. The week started with three down days amid pessimism about the U.S. budget stalemate, partial government shutdown, and impending deadline to raise the debt ceiling or face potential default.

But sentiment turned positive on Thursday, sending the Dow Jones industrial average up triple digits, and the average was up again Friday amid hopeful expectations that these issues will be resolved after discussions commenced Thursday between House Republicans and the Obama Administration.

Bond markets will be closed on Monday in observance of Columbus Day, but the equity markets will be open. The convertible bond market is expected to be open but pretty quiet with reduced staffing, a New York-based trader said.

Ctrip jumps on debut

Ctrip's new 1.25% convertibles jumped to 105.125 to 105.5 on their debut in the secondary market on Friday.

Ahead of final terms, the deal looked worth about 104.5 at the midpoint of talk, using a credit spread of 450 bps over Libor and a 35% vol.

Shares of the Shanghai-based travel services provider wavered in the early going but ended up $1.20, or 2.2% to $56.21.

It seems all of the week's big chunky deals did well, a New York-based convertibles analyst said, and Ctrip was a $700 million deal.

Also making it appealing was that "it was pretty cheap, and the three-year put added value," the analyst said.

The notes are non-callable for life but have a put on Oct. 15, 2016.

A New York-based trader said, "It just goes to show how starved the market is for paper."

Ctrip.com priced an upsized $700 million of five-year convertible senior notes at par to yield 1.25% with an initial conversion premium of 42.5%. That was at the rich end of talk, which was for a 1.25% to 1.75% coupon and a 37.5% to 42.5% initial conversion premium.

The notes are convertible into Ctrip's American Depositary Shares at an initial conversion price of $78.39.

J.P. Morgan Securities LLC is the bookrunner for the deal, which has a $100 million greenshoe.

Proceeds will be used for general corporate purposes, including working capital and potential acquisitions as well as potential repurchases of ADSs and note retirement. Proceeds will also be used to pay the cost of a convertible note hedge transaction.

The notes were distributed under Rule 144A in the United States and to certain persons offshore under Regulation S.

These bonds also have a call spread.

Liberty Media adds

Liberty Media's newly priced 1.375% convertibles were quoted at 101.75 bid, 102.75 offered versus an underlying share price of $149.05 at the end of the session Friday.

Earlier, the bonds were seen at 102.125 bid, 102.5 offered.

One trader also said he saw the bonds on swap at 102 bid versus an underlying share price of $147.75. The delta on the hedged transactions was probably about 75%, the trader said.

Before final terms, a credit spread of 250 bps over Libor and 20% vol. made the deal worth about 102.6 at the midpoint of talk.

Of the week's new issues, Liberty was notable in that pricing was strong, a New York-based convertibles analyst said.

The company's 1.375% coupon was the tight end of revised coupon talk. Talk was revised to 1.375% to 1.5% from 1.5% to 2%. It also came at the wide end of 17.5% to 22.5% premium talk.

Of the week's other new issues, BioMarin was probably more attractive to hedged players, and the Navistar International deal for $200 million at the beginning of the week was geared toward credit investors. But Liberty was among the remaining deals that were pretty balanced in terms of being attractive to both hedged and outright players, the analyst said.

Like Ctrip.com and BioMarin, the Liberty deal came with a call spread.

A call spread is useful to the issuer if it considers its stock price undervalued and/or it doesn't want significant dilution upon conversion of the bonds. It allows the company to buy back the option it is selling when it issues the convertible, and sell another option but at a higher strike, thereby reducing the economic impact of any potential dilution, an analyst said.

The strike on Liberty's call spread was not publicly disclosed. Earlier in the week, BioMarin's call spread raised the initial conversion premium from the issuer's perspective to 80%.

Active bookrunners on the Liberty deal were Citigroup Global Markets Inc., Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC. The joint bookrunners are BofA Merrill Lynch, Barclays, BNP Paribas Securities Corp., Credit Agricole Securities (USA) Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., RBC Capital Markets, LLC, RBS Securities Inc. and Wells Fargo Securities, LLC.

The Rule 144A offering has a $100 million greenshoe. The bonds are non-callable for life with no puts, and they will be cash-only settled.

Proceeds are expected to be used to pay the net cost of a call spread, to pay down margin loans and for general corporate purposes.

Liberty shares moved around during the session but ended higher by $3.156, or 2.2%, at $149.23.

Mentioned in this article:

BioMarin Pharmaceutical Inc. Nasdaq: BMRN

Ctrip.com International Ltd. Nasdaq: CTRP

Liberty Media Corp Nasdaq: LMCA

Seaspan Corp. NYSE: SSW

SolarCity Corp. Nasdaq: SCTY

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