New Energy XXI trades around par; new Horizon Pharma surges with shares; Yahoo! to price

By Rebecca Melvin

New York, Nov. 19 - Energy XXI (Bermuda) Ltd.'s newly priced 3% convertibles due 2018 traded mostly flat on their debut in the secondary market on Tuesday after the Hamilton, Bermuda-based oil and gas company priced an upsized $350 million of notes at the midpoint of coupon talk and cheap end of premium talk, according to market sources.

The new Energy XXI convertibles were seen last at 99.75 bid, 100.25 offered, after earlier trades in the 100 bid, 101 offered range on an outright basis. In the early going, a syndicate source also quoted the paper at 100 bid to 100.5 offered on a hedged basis.

Horizon Pharma Inc.'s newly priced 5% convertibles surged to 128 in tandem with a 36% spike in the underlying shares after the Deerfield, Ill.-based specialty pharmaceutical company issued $150 million of the five-year notes in a peer private placement, overnight deal.

Also in the primary market, Yahoo! Inc. launched a deal of five-year convertible bullets for $1 billion that were talked to yield 0% to 0.5%, with an initial conversion premium of 45% to 50%, according to a syndicate source.

The Yahoo deal was seen pricing after the market close, as was Blackstone Mortgage Trust Inc.'s $150 million of five-year notes talked to yield 4.75% to 5.25% with an initial conversion premium of 15% to 20% and ZAIS Financial Corp.'s $50 million of three-year exchangeables, which come with an 8% coupon and 15% premium.. Expected to price after the market close on Tuesday were Cardtronics Inc.'s $250 million offering of seven-year convertible senior notes talked at a 0.75% to 1.25% coupon and 22.5% to 27.5% initial conversion premium and Albany Molecular Research Inc.'s $100 million of five-year convertible senior notes that were talked to yield 2% to 2.5% with an initial conversion premium of 27.5% to 32.5%.

Back in established issues, Tesla Motors Inc. was mentioned as one of the day's traders in convertibles, with the shares of the electric carmaker up about $5.00, or 4%, in the early going.

The Tesla convertibles were said to have closed little changed on swap at 125.375 bid, 126.25 offered, versus an underlying share price of $126.09. Previously the Tesla convertibles were seen in the 128 context with the shares at $130.50, a New York-based trader said.

New Energy XXI hovers on par

Energy XXI's newly priced 3% convertibles due 2018 closed the day on their debut at 99.75 bid, 100.25 offered with the underlying shares of the oil and gas exploration and development company up 34 cents, or 1.3%, at $27.73.

Out of the chute, the bonds were heard at 100 bid, 100.375 offered by a New York-based trader. Shares were exhibiting strength at that point, trading up about $1.00, or 4%, at $28.49. The premium for the new deal was a relatively high 47.5%.

"I would guess they were flattish," an East Coast-based buysider said. "It was nothing enough to read anything into it."

The buysider said he liked the bond longer term because the company represents one of the good operators in the E&P space.

"A lot of the converts in the E&P space tend to be land-based or spec-oriented, with high risk, high reward. These guys are less so and have a good track record," the buysider said. "I think they are going to have a lot of shots on goal in the next year or two."

The $350 million deal was upsized from $300 million, and there is also a $50 million greenshoe, which was upsized from $45 million.

Pricing came at the midpoint of 2.75% to 3.25% coupon talk and at the cheap end of 47.5% to 52.5% premium talk.

Concurrently with the deal, Energy XXI subsidiaries repurchased about $76 million shares of common stock, or 2,776,200 shares at $27.39 each.

Proceeds of the bonds are earmarked for general corporate purposes, which may include working capital, capital expenditures or acquisitions.

Barclays, Citigroup Global Markets Inc. and Wells Fargo Securities LLC were joint bookrunners of the notes, which are non-callable but have takeover protection and net share settlement.

Horizon Pharma spikes

The new Horizon 5% convertibles were last seen on their debut Tuesday at 128 versus an underlying share price of $6.06. Shares of the Deerfield, Ill.-based specialty pharmaceutical company surged $1.59, or 36%, to $6.06.

The stock spike was attributed to the fact that part of the proceeds are being used to pay down expensive debt and to buy a complementary drug, which investors viewed positively, while short covering may have also played a part of the outsized move, a market source said.

The Horizon deal was a peer private placement, Reg. D deal, but was as close to a Rule 144A deal as is possible to be without actually being one, a market source said.

Proceeds will also increase working capital, all of which are benefits to the company.

There was limited borrowing in the stock, one source said, but there was some hedged participation, a syndicate source said.

On swap, assuming a delta in the mid 70% range, the new bond was up about four points.

The company was seen as "a decent credit" in the private label ATM space, with a credit spread of about 400 basis points above Libor attached to the deal, a market source said.

The company has good cash flow with growth opportunities and a good track record in the past two to three years, the market source said.

Yahoo on tap

Sunnyvale, Calif.-based Yahoo plans to bring $1 billion of five-year convertible senior notes, with pricing expected after the market close.

The Rule 144A deal was talked to yield 0% to 0.5%, with an initial conversion premium of 45% to 50%, according to a syndicate source.

Joint bookrunners include J.P. Morgan Securities LLC, Goldman Sachs & Co., Citigroup Global Markets, BofA Merrill Lynch and Morgan Stanley & Co. LLC.

The convertible notes, which mature Dec. 1, 2018, are non-callable, and they will be convertible into cash, shares or a combination of cash and shares.

Yahoo also announced an increase in its share buyback authorization by $5 billion.

Up to $200 million of proceeds from the bond issue will be used to repurchase shares of common stock from purchasers of the notes. A portion of proceeds will also be used to pay for convertible note hedge transactions, which Yahoo plans to enter into with initial purchasers of the bonds, with the aim of reducing potential dilution upon conversion of the notes.

Remaining proceeds will be used for general corporate purposes, which may include acquisitions and other strategic transactions, additional stock purchasers and working capital. Yahoo may also invest remaining proceeds into short-and long-term marketable securities.

Mentioned in this article:

Blackstone Mortgage Trust Inc. Nasdaq: BXMT

Albany Molecular Research Inc. Nasdaq: AMRI

Cardtronics Inc. Nasdaq: CATM

Energy XXI (Bermuda) Ltd. Nasdaq: EXXI

Horizon Pharma Inc. Nasdaq: HZNP

Tesla Motors Inc. Nasdaq: TSLA

Yahoo! Inc. Nasdaq: YHOO

ZAIS Financial Corp. NYSE: ZFC

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