Yandex adds on debut; Trulia in line with shares; Frontline jumps; market eyes new paper

By Rebecca Melvin

New York, Dec. 12 - Yandex NV's newly priced 1.125% convertibles traded higher on their debut in the secondary market Thursday after the Netherlands-based internet search engine company priced $600 million of the five-year bonds toward the cheap end of coupon talk and toward the rich end of premium talk.

The Yandex convertibles were last at 102.25 bid, 102.75 offered versus a closing share price of $38.16, according to a New York-based trader.

Also marking a debut in the convertibles secondary market on Thursday was Trulia Inc.'s upsized $200 million of 2.75% convertibles, which were seen at 101.375 bid, 101.875 offered with the underlying shares of the San Francisco-based real estate site wavering just above or below their flat line. But at the close, the shares were higher by nearly 6%.

A third deal in the market was E-House (China) Holdings Ltd.'s downsized $135 million of 2.75% convertibles, which were heard to have priced at a discount to par of 97.5. Market players queried were not active in the name. E-House's American Depositary Shares surged, ending higher by 88 cents, or 7%, at $13.80.

Back in established issues, Frontline Ltd. was trading higher with a gain in the underlying shares of the Hamilton, Bermuda-based oil tanker company. Shares jumped as much as 9% during the session before pulling back to a 5% gain. The convertibles traded at 74 bid, 75 offered on Thursday, which was up a couple of points from last week and up about 10 points from a month ago, a Connecticut-based trader said.

Most of the focus in the convertible market was on new issues, but that trading volume for the most part was not caught by Trace data, so trading levels looked lower than what actually occurred, a New York-based trader said.

Pricing of the latest crop of new deals has been at about fair value, and they have not done as well in the aftermarket as deals did earlier in the fall, a New York-based analyst said, although Thursday's deals fared better than Wednesday's by and large. The analyst suggested that given the flurry of new issuance at the end of November into December, some demand from outright investors has dissipated.

Traders were anticipating two more deals on Friday to round out the week, including SunEdison Inc.'s $800 million of convertibles in two tranches and Alpha Natural Resources Inc.'s $250 million of seven-year convertibles. SunEdison's shares sank 10% on Thursday, and Alpha Natural's shares fell 6%.

Yandex adds on debut

The Yandex 1.125% convertibles traded up to about 102.25 bid, 102.75 offered versus an underlying share price of $38.16. Shares ended higher by 2%, after trading higher in the middle of the session.

But even though shares came off their session highs, the convertibles improved during the session.

Earlier the convertibles were 101.875 bid, 102.25 offered, with the underlying shares up 2%.

At late morning, the shares were up by 3.3%, to $38.67.

Yandex is a Dutch-based internet search engine company for Russia and internationally. The company priced $600 million of the five-year bonds.

Before pricing, the Yandex bonds looked pretty cheap at the midpoint of price talk, with fair value at 102, using a credit spread of 350 basis points over Libor and a 35% vol.

The deal has a $90 million greenshoe and was being distributed under Rule 144A and Regulation S via bookrunner Goldman Sachs & Co.

The notes mature Dec. 15, 2018 and are convertible into either cash, class A shares or a combination of cash and class A shares, at Yandex's option. The initial conversion rate is 19.4354 shares per $1,000 principal amount of notes, equivalent to an initial conversion price of about $51.45 per share, a 37.5% premium to the $37.42 closing share price on Wednesday.

Prior to June 15, 2018, the notes are convertible under certain circumstances and thereafter at any time until maturity.

The notes are non-callable with no puts. There is full dividend protection in the form of a conversion rate adjustment, and there is takeover protection. There is net share settlement.

The notes priced toward the cheap end of 0.75% to 1.25% coupon talk and toward the rich end of 35% to 40% premium talk.

Trulia edges up

Trulia's new 2.75% convertibles due 2020 priced with a 30% initial conversion premium. The price points were the same as E-House's, which brought a 2.75% five-year convertible with a 30% premium.

The Trulia notes edged up above par, and the shares moved higher to end up $1.60, or 6%, at $29.24.

The deal was upsized by 25% to $200 million of seven-year convertible senior notes. There is also a $30 million greenshoe, which was upsized from $22.5 million.

Pricing came at the cheap end of talk, which was for a 2.25% to 2.75% coupon and a with an initial conversion premium of 30% to 35% premium.

J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and RBC Capital Markets LLC were joint bookrunners of the deal.

Co-managers were Craig-Hallum, Needham, Cantor Fitzgerald & Co., Raymond James & Associates Inc. and William Blair.

The notes are non-callable until Dec. 20, 2018 and then are provisionally callable if shares rise to at least 130% of the conversion price. There are no puts except a change-of-control put.

Up to $30 million of the proceeds will be used to repurchase shares of common stock from initial purchasers of the notes currently with the offering, and about $7.2 million will be used to repay amounts outstanding under the company's credit facility, which will be terminated.

Remaining proceeds will be used for working capital and other general corporate purposes, including potential acquisitions.

San Francisco-based Trulia is a real estate site that provides tools to research homes and neighborhoods.

E-House deal downsized

Sources queried weren't watching E-House in the aftermarket. They only noted that the deal was downsized by 25% to $135 million. It also appeared that the issue priced at a discount to par of 97.5, according to market sources, although confirmation from syndicate sources wasn't immediately available.

The Rule 144A and Regulation S deal was initially talked at $180 million in size. Also an initially talked $20 million greenshoe is not included in the final deal. Pricing came at the cheap end of talk, which was for a 2.5% to 2.75% coupon and a 30% to 35% premium.

Credit Suisse Securities (USA) LLC was the initial purchaser of the notes and the bookrunner.

The notes are non-callable for life, with an investor put on Dec. 15, 2016. There is also a takeover protection put. The securities have dividend protection via an adjustment to the conversion rate for all dividends.

About $45 million of the proceeds will pay the premium on a call option intended to allow investors to hedge the investment in the notes. Remaining proceeds will be used for general corporate purposes, including working capital needs and potential investments in or acquisitions of complementary businesses.

In connection with establishing its initial hedge of the zero-strike call option, the option counterparty or its affiliate has entered into one or more derivative transactions with respect to the ADSs with purchasers of the notes.

Shanghai-based E-House is a real estate services company.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

E-House (China) Holdings Ltd. NYSE: EJ

SunEdison Inc. Nasdaq: SUNE

Trulia Inc. Nasdaq: TRLA

Yandex NV Nasdaq: YNDX

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