iStar, Barclays, SINA join pipeline; Emulex taps market; YRC falters, future in question

By Stephanie N. Rotondo

Phoenix, Nov. 13 - Trading in convertible bonds remained subdued in midweek trading, one trader lamented.

He said that "volume is crazy low."

"It seems that things are better for sale," another trader said. He said that as the year winds down, there was "an aversion to take on more risk."

He also noted that recent deals have been "priced at the rich end or at terms more favorable to the issuer." Investors are choosing to take profits, he said, rather than to take risks.

Still, the primary was seeing some deals added to the calendar.

iStar Financial Inc. announced a Rule 144A offering of $175 million of convertible senior notes due 2016. The company planned to use proceeds, along with cash on hand, to redeem its 5.7% senior notes due 2014.

But a trader said he had yet to see any gray markets and added that even the existing convertible notes were quiet.

The 3% convertible notes due 2016 last traded with a 125 handle.

Meanwhile, Barclays plc planned to sell at least $2 billion of contingent convertible perpetual securities. Price talk was around 8.25%, according to a trader.

Reports were circulating that the deal had already gotten orders of at least $6 billion.

The securities will be non-callable for five years.

Pricing is expected on Thursday.

And, SINA Corp., a Shanghai-based internet media company, said it was looking to sell up to $600 million of convertible senior notes due 2018.

Both the iStar and SINA deals are being done via Rule 144A offerings.

Emulex prices

Emulex Corp. brought $150 million of 1.75% convertible senior notes due 2018 on Wednesday.

The deal was upsized from $125 million.

Shortly after pricing, a trader saw the issue at 101.75 bid, 102.25 offered versus a stock price of $7.81.

By day's end, the stock had closed at $7.69, which was down 8 cents, or 1.03%.

Another trader said he had not seen any trading in the issue, noting that it was one of those deals that were "again at the rich end, at terms that I am not sure make sense."

The initial conversion rate is 97.1322 shares of common stock per each $1,000 of notes. That equals an initial conversion price of $10.30 per share, a 32.5% premium over Tuesday's closing share price of $7.77.

Proceeds are intended for general corporate purposes, including repurchases of common stock.

Costa Mesa, Calif.-based Emulex is focused on network connectivity, monitoring and management for global networks that support enterprise, cloud, government and telecommunications.

YRC future in question

YRC Worldwide Inc. said a shortage of truck drivers was to blame for its swing to a loss for its most recent quarter.

The company also said that its ability to continue as a going concern was in question.

The news didn't bode well for the 10% convertible notes due 2015. One market source placed the issue at 72 bid, 72.25 offered, which compared to previous trades in a 75 to 75.25 context.

Other traders placed the notes in a 72 to 72.25 range as well.

Meanwhile, the company's stock "got clobbered," according to one trader. The equity fell $2.01, or 20.68%, to $7.72.

The Overland Park, Kan.-based company reported a net loss of $44.4 million, which compared to a $3 million profit a year earlier. The company said fewer drivers were the cause, which resulted in higher overtime pay and lower productivity.

YRC is currently engaged in talks with labor unions to extend a contract that continues a 15% wage cut as the company looks to cut costs.

The worse-than-expected performance resulted in management lowering its future financial expectations. In doing so, it sought to amend certain credit facility covenants.

But the amendments might not be enough, as one amendment requires that the 6% convertible notes coming due Feb. 1 be repaid, refinance, replaced, restructured or extended. If the company cannot accomplish that, and if it cannot get a waiver or another amendment from its bank lenders, then the credit facility will be in default and will be due and payable immediately.

YRC said it will not have enough cash to make such a payment. Nor does it expect to have enough money to retire debt maturing in September 2014 or March 2015.

Mentioned in this article:

Barclays plc NYSE: BCS

Emulex Corp. NYSE: ELX

iStar Financial Corp. NYSE: SFI

SINA Corp. Nasdaq: SINA

YRC Worldwide Inc. Nasdaq: YRCW

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