Planned Live Nation looks cheap; Post to price units; existing Post preferreds quiet

By Rebecca Melvin

New York, May 19 - Concert promoter Live Nation Entertainment Inc. launched an offering of $250 million of convertible senior notes on Monday that was seen pricing after the market close on Tuesday. The planned notes looked cheap at the midpoint of talk, using a credit spread of 325 basis points over Libor and vol. input of 28%, according to a market source.

Also in the primary market, Post Holdings Inc. launched an offering of $200 million of tangible equity units, or 2 million units at $100 per unit.

The units were part of a package of funding the St. Louis-based cereal maker is putting together to finance its previously announced acquisition of Michael Foods.

Post's two existing convertible preferreds were offered out at levels that were flat on a delta-adjusted basis compared to Friday, but they didn't trade, the syndicate source said.

"It's been pretty quiet, and most things look to be in line," a New York-based trader said of the overall market compared to Friday.

But there was some expectation that the primary market would be fairly robust this week heading into the long holiday weekend for Memorial Day. Now that earnings are over and before the summer slowdown sets in, there are deals that are expected to price, the trader said.

"We're hearing some things, so we're expecting a pretty busy week in the primary," the trader said.

Elsewhere, Spirit Realty Capital Inc.'s two convertibles that priced last week were seen in fairly active trade at levels that were flat to better on a dollar-neutral basis.

Spirit Realty's 2.875% convertible due 2019 ended the day at 100.625 bid, 101 offered versus an underlying share price of $11.36, a trader said.

Spirit Realty's 3.75% convertibles due 2020 were seen closing out the day at 100.75 bid, 101.25 offered versus the $11.36 share price.

The company's shares ended down four cents, or 0.4%.

TAL Education Group's 2.5% convertibles, which debuted in the market on Friday, also traded a little better on Monday as the stock recovered from a sharp drop on the heels of the convertibles deal launch.

"The notes came back a little with the stock. We saw them last richening as the stock recovered," a market source said.

Live Nation deal

The Live Nation deal looked worth about 102.625 at the midpoint of talk for a 2.5% to 3% coupon and a 47.5% to 52.5% premium, a Connecticut-based market source said.

The Los Angeles-based concert promoter and music venue manager planned to price $250 million of the five-year notes after the market close on Monday or on Tuesday, a syndicate source said.

Live Nation was also planning to price $250 million of straight notes.

Proceeds will be used to redeem the company's outstanding 2.875% convertible senior notes due 2027, which are putable this year, and to pay related fees and expenses, to reinvest in the company's core business and for general corporate purposes, including potential acquisitions.

Live Nation priced $220 million of the 2.875% convertible notes in 2007.

The new Rule 144A offering is being sold via joint bookrunners Goldman Sachs & Co. and J.P. Morgan Securities LLC.

Post to price units

Post launched a $200 million offering of tangible equity units at a coupon range of 5.75% to 6.25%, which is within the typically higher coupon range of shorter, three-year mandatories.

Post has two existing convertibles including, most recently, its 2.5% perpetual preferred shares, which priced at par in December and traded down after issue, and its 3.75% convertible preferreds, which priced in February 2013.

The Post 2.5% preferred was quoted at 94 bid, 94.75 offered on Monday with the common shares a little lower. The Post 3.75% convertibles were quoted at 109 bid, 110 offered, which was flat on a delta adjusted basis compared to Friday.

But the issues weren't heard to have traded, despite some expectation that the existing issues would soften a bit in reaction to the new security being offered.

"The expectation is for them to cheapen with a new security in the complex, which would promote some rotation," a market source said.

But the older issues, with their lower coupons and lower premiums, did not trade down.

The preferred and the tangible equity unit structures are both equity surrogate products. They are considered additional ways to source equity, a market source said.

"The units have a shorter time horizon, and they involve equity going out to investors in three years no matter what," the source said.

Both structures involve outright investors as well as hedge funds that are more geared toward the fundamental view of the company.

The new Post units were talked to yield 5.75% to 6.25% with a threshold appreciation premium of 17.5% to 22.5%. That deal was seen pricing after the market close Wednesday, while the Live Nation deal was seen pricing late Monday or early Tuesday.

Post is also pricing 4.5 million shares of common stock, a private offering of $630 million of straight notes and a $735 million new term loan. These all will be used together with cash on hand to finance its Michael Foods acquisition.

Mentioned in this article:

Live National Entertainment Inc. NYSE: LYV

Post Holdings Inc. Nasdaq: POST

Spirit Realty Corp. NYSE: SRC

TAL Education Group NYSE: XRS

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