American Tower on tap with $1.25 billion mandatory; planned Actavis mandatory upsized

By Rebecca Melvin

New York, Feb. 24 – American Tower Corp. joined the convertibles calendar on Tuesday with a $1.25 billion mandatory convertible preferred stock offering set to price on Wednesday on the heels of Actavis plc’s upsized $4.6 billion mandatory convertible preferred issue set to price late Tuesday.

The Actavis deal was upsized to $4.6 billion from $4.2 billion, and the concurrent common stock offering was downsized to $3.8 billion from $4.2 billion.

The Actavis deal was seen in the gray market ahead of final terms being set at 100.5 to 101, a New York-based trader said.

Back in established issues, there was some price softening as market players looked to sell to make space for the new paper.

There was “a little bit of weakness, but nothing substantial,” a New York-based trader said.

Yahoo! Inc.’s 0% convertible due 2018 was one issue that was a little weaker on the back of news of the planned new issues. Also many in-the-money names were weaker.

Elsewhere, convertible solar names were in focus after news that First Solar Inc. and SunPower Corp. plan to merge certain assets into a publicly traded YieldCo.

The convertibles of San Jose, Calif.-based SunPower were mixed after the news with shares shooting up 18%. One trader said that his desk moved the SunPower 0.75% convertibles up by 0.25 point, but some players moved their mark lower, he said.

“People aren’t sure what will happen to SunPower with the YieldCo. They are afraid that volatility may come in. But we didn’t see that with SunEdison when they did their YieldCo,” the trader said.

St. Peters, Mo.-based SunEdison Inc.’s convertibles were mostly unchanged, but the newest SunEdison 2.375% convertibles were up 0.375 point, according to a trader.

Weaker names

“Weakness should be bought,” a New York-based trader said, given what is happening in the straight bond markets and equities, where everything is to buy.

Yahoo!’s 0% convertibles due 2018 were at 107 versus a share price of $43.43 in the early going. That paper has come in about 0.75 point in the past week, a trader said, as some market players have sold it to make room for the new mandatories. “It looks cheap at this level,” the trader said.

Vipshop Holdings Ltd.’s 1.5% convertibles due 2019 were seen a bit lower in the early going as well. The paper was quoted at 142ish against a share price of $25.65, which was Monday’s close.

Vipshop shares slipped 34 cents, or 1.3%, to $25.31 on Tuesday.

One trader said that there was a fair amount of activity in the secondary market on Tuesday, but trades were in “a lot of one-off names.”

Actavis in focus

“Most people today were focused on the new deal,” a trader said.

The Actavis convertibles were seen looking still fairly cheap despite revised price talk on Monday.

“The only question now is allocations: how much are large equity holders going in for and how much will go to hedged players,” a trader said.

While mandatories are typically not the top choice for hedged participants, there is plenty of interest in them these days, not to mention that they appeal to yield funds, equity direction funds and others.

“They are short-dated; you know what you get at the end; there is fat dividend yield and income advantage; and you get to participate in the equity to the upside,” a New York-based trader said in favor of the instrument.

The Actavis mandatory was upsized while the equity portion of its capital raise was reduced.

The deal is talked at a 5.5% to 5.75% dividend and a 20% to 22.5% initial conversion premium. That talk was revised from an initial 5.75% to 6.25% dividend with a 17.5% to 22.5% premium.

Proceeds from the two deals, together with additional debt financing, will be used to finance the cash consideration for its acquisition of Allergan Inc.

Joint bookrunning managers are J.P. Morgan Securities LLC, Mizuho Securities, Wells Fargo Securities LLC, Morgan Stanley & Co. LLC, Barclays and Citigroup Global Markets Inc.

Actavis is a global specialty pharmaceutical company with headquarters in Parsippany, N.J. Allergan is a health care company based in Irvine, Calif. The new company will be called Allergan.

The Actavis deal is cheaper than the American Tower deal and a more interesting company, a trader said.

SunPower, SunEdison trade

SunPower’s 0.75% convertibles due 2027 were seen up at 144.54 at the end of the day, up from about 129.35, according to a market source.

A second source said the paper had been “all over the place.”

One trader moved them up 0.25 point. But he noted that others had marked them lower by about the same amount.

SunPower’s 4.5% convertibles were seen at 145.5, which was up from 123.35.

SunPower shares rose $5.03, or 18%, to $32.85.

The volatility may come in, but that didn’t happen with SunEdison, the trader said.

SunEdison’s 2.375% convertibles due 2022, or the newest of four SunEdison issues, was seen at 114.25 bid, 114.75 offered at the end of the session versus an underlying share price of $22.13.

That was higher on a dollar-neutral, or hedged, basis by 0.375 point.

SunEdison’s other issues, including the 0.25% convertibles 2020, the 2% convertibles 2018 and the 2.75% convertibles due 2021, were seen unchanged at the end of the day, one trader said.

SunEdison shares were up 83 cents, or 3.7%, at $23.29.

Mentioned in this article:

Actavis plc NYSE: ACT

American Tower Corp. NYSE: AMT

SunEdison Inc. Nasdaq: SUNE

SunPower Corp. Nasdaq: SPWR

Yahoo! Inc. Nasdaq: YHOO

Vipshop Holdings Ltd. Nasdaq: VIPS

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