Convertibles soft; Exelon, J2 Global, TCP, Penn Virginia to price; Endeavour gains

By Rebecca Melvin

New York, June 10 – Convertibles were generally for sale on Tuesday but with few bidders, so pricing was soft as market players continued to gear up for potentially more new issuance this week on the back of a strong primary market last week.

In fact, four deals launched after the market close for $1.65 million in base deals.

Exelon Corp. launched equity units for $1 billion, or 20 million units at $50 each, with pricing expected after the market close on Wednesday.

Also pricing after the market close on Wednesday are Los Angeles-based internet services provider J2 Global Inc., which plans to sell $300 million of 15-year convertible senior notes, and Santa Monica, Calif. -based TCP Capital Corp., which plans to sell $100 million of five-year convertible senior notes.

In addition, Radnor, Pa.-based oil and gas driller Penn Virginia Corp. is pricing $250 million of convertible perpetual preferred shares ahead of the market open on Wednesday.

Back in established issues, many names were moving in line on a dollar neutral basis during the session, a trader said. But “stuff was a bit weaker. Things were coming for sale this morning, although not a lot was trading. People are holding off on buying on rumblings of anticipation of the calendar coming,” the trader said.

Generally, the tone was a little softer with the new issuance, a second trader said.

Intel Corp. was active. The Intel bonds are typically held on an outright basis, one trader said, and in keeping with the theme that market players were making room for new issues, the Intel bonds – which are priced rich to the secondary market – were a logical candidate to be offered.

Endeavour International Corp. convertibles gained along with a big bounce in the underlying shares after the Houston-based oil and gas exploration and production company raised its second-quarter production guidance. The Endeavour 5.5% convertibles due 2016 traded up to 55 from 45 bid, 46 offered on Monday.

The new deals join Verint Systems Inc. on the calendar. The Melville, N.Y.-based security and surveillance company is pricing $300 million of seven-year convertibles late Thursday. Traders sizing up that deal on Tuesday said that using a credit spread of 350 basis points over Libor and a 28% vol., the deal looked about a point cheap at the midpoint of talk.

The Verint deal was not seen as terribly different from the type of deals that have been coming to the convert market recently.

“They are using the equity proceeds and convert to pay down existing debt, but it is like a lot of other stuff that has come and will get done,” a trader said.

Meanwhile the Verint deal has some extra draw due to its sector: security and surveillance. “It’s in a good space, and the stock action story has changed gears in growth,” a trader said.

Verint shares fell about 6% on the heels of the new convertibles announcement, and that was likely to attract further interest.

Equities ended narrowly mixed, with the Dow Jones industrial average edging up 2.82 points to 16,945.92, which represented its fourth straight record close.

Endeavour adds

Endeavour’s 5.5% convertibles due 2016 traded up to 55 from the mid 40s on Monday. Endeavour shares added 56 cents, or 54%, to $1.60 in heavy volume.

The company’s straight debt traded at 60 on Tuesday.

The shares bounced strongly on positive news from the North Sea oil and gas exploration and production company.

Although the company boosted Q2 production guidance, one trader thought Tuesday’s bounce was also related, or perhaps more related, to an insurance settlement and a $12.5 million forward sale of production contract, in addition to short covering.

“They hinted at the production boost in a conference call, so it wasn’t a total surprise,” the trader said.

Nevertheless, the company said Tuesday its second-quarter production will be more like 10,500 to 11,500 barrels of oil equivalent per day (boe/d) rather than its previous estimate of 9,000 to 10,000 boe/d.

“It’s good news, and short covering is likely involved,” a trader said.

This trader thought that although the convertibles jumped up to 55 on Tuesday, a more probable level for this paper is 50 to 53.

Parity is up only to 9 from 4. “It’s no big deal,” the trader said.

Exelon to price $1 billion

Exelon said it would sell $1 billion of equity units, or 20 million units at $50 each, at a 6.75% to 7.25% yield and 20% to 25% initial conversion premium.

The Chicago-based electric and gas utility is also pricing up to 50 million shares of its common stock.

Proceeds of both offerings will be used to finance a portion of the Pepco Holdings Inc. acquisition announced April 30 and for general corporate purposes.

There is a greenshoe for up to $150 million of additional equity units for the registered, off-the-shelf deal, which was being sold via bookrunners Barclays, Goldman Sachs & Co., Citigroup Global Markets Inc. and Wells Fargo Securities LLC.

Penn Virginia’s $250 million

Penn Virginia, an oil and gas driller based in Pennsylvania, said it is pricing $250 million of convertible perpetual preferred shares at par of $10,000 that were pricing ahead of the market open Wednesday and talked at fixed price points of 6% yield and 30% initial conversion premium, according to a syndicate source.

The Rule 144A deal has an over-allotment option for up to $37.5 million additional shares.

RBC Capital Markets is lead left bookrunner.

The preferreds are non-callable for five years, and then they are provisionally callable if shares exceed 130% of the conversion price.

Proceeds will be used to finance the acceleration of its development program in the Eagle Ford Shale with remaining proceeds being used to increase its lease acquisition effort in the Eagle Ford Shale.

J2 Global to price

J2 Global plans to price $300 million of 15-year convertible senior notes talked to yield 3% to 3.5% with an initial conversion premium of 42.5% to 47.5%. The registered deal has a $45 million greenshoe and was being sold via BofA Merrill Lynch, Citigroup Global Markets Inc. and Wells Fargo Securities LLC.

The notes are non-callable for seven-years until June 20, 2021, with puts in years 2021 and 2024.

The bonds will be cash settled.

Proceeds are intended for general corporate purposes, which may include acquisitions or payment of notes.

TCP Capital to price

TCP Capital plans to sell $100 million of five-year convertible senior notes that were talked to yield 4.75% to 5.25% with an initial conversion premium of 12.5% to 17.5%. The Rule 144A deal has a $15 million greenshoe, and was being sold via Citigroup Global Markets Inc., BofA Merrill Lynch, and Deutsche Bank Securities Inc.

The notes are non-callable. They have net share settlement.

Proceeds are to repay amounts outstanding under its revolving credit facilities and to make investments in portfolio companies and for other general corporate purposes, including payment of operating expenses.

Mentioned in this article:

Endeavour International Corp. NYSE: END

Exelon Corp. NYSE: EXC

Intel Corp. Nasdaq: INTC

J2 Global Inc. Nasdaq: JCOM

Penn Virginia Corp. NYSE: PVA

TCP Capital Corp. Nasdaq: TCPC

Verint Systems Inc. Nasdaq: VRNT

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