Planned LinkedIn premium cut during marketing; American Realty better; energy shares up

By Rebecca Melvin

New York, Nov. 5 – Convertibles players were sizing up LinkedIn Corp.’s planned $1.15 billion offering of five-year convertible senior notes on Wednesday. The deal was seen slightly cheap, and then a little cheaper still after the range on the talked initial conversion premium was revised lower to 35% to 40% from 40% to 45%, sources said.

The LinkedIn deal was seen worth about 103 at the new terms at the midpoint of talk, using a credit spread of 175 basis points over Libor and 35% vol., according to a Connecticut-based trader.

At original terms, the deal was seen worth about 101, he said.

Recent convertible issues of related companies were lower in the secondary market on the back of the LinkedIn deal, including Yahoo! Inc., Red Hat Inc., Citrix Systems Inc. and Twitter Inc., a New York-based trader said.

American Realty Capital Properties Inc.’s convertibles regained ground for a second straight day following a slide last week that continued on Monday after the New York-based real estate company announced accounting errors that render its financial results unusable going back to 2013. The company is also under investigation by the Securities & Exchange Commission.

Elsewhere, energy names were stubbornly quiet despite a surge in the shares of many coal producers and E&P companies.

The U.S. midterm elections result, which will put Republicans at the helm of both the House of Representatives and the Senate, bode well for energy, particularly coal names, a New York-based trader said.

But while coal is a possible beneficiary, “there’s still the EPA and a systemic downturn anyway,” the trader cautioned.

Still coal names, including Alpha Natural Resources Inc., were silent. “I don’t even think it traded today,” a distressed trader said. “I haven’t looked at it in a long time.”

Shares of Alpha Natural, a Bristol, Va.-based coal producer, gained 35 cents, or 17%, to $2.43.

When asked why coal names didn’t trade, a second source said, “They are so beaten down.”

Meanwhile, traders continued to look at numerous earnings reports from convertibles issuers. Tesla Motors Inc.’s 0.25% convertibles were down a little during the session with shares off about 3%. But after the market close, Tesla shares rose 5% in response to the electric car maker’s third-quarter earnings report.

The company posted a wider net loss but beat estimates and reported that it delivered 7,785 vehicles during the quarter, which was slightly less than the 7,800 car-delivery estimate.

Equities were mostly higher with the S&P 500 stock market adding 11.47 points, or 0.6%, to 2,024.57 and the Dow Jones industrial average adding 100.69 points, or 0.6%, to 27.484.53, but the Nasdaq stock market slipped 2.91 points to 4,620.72.

In addition to the U.S. midterm elections, in which Republicans gained control of the Senate and added to their majority in the House of Representatives, there was positive economic data.

According to the ADP employment report, U.S. private employers added 230,000 jobs in October, which was greater than economists expected. In addition the payrolls processing company’s report revised up September’s private payrolls to 225,000 from the previously reported 213,000.

LinkedIn looks a little cheap

LinkedIn’s price talk was 0% to 0.5% for the coupon and 35% to 40% for the initial conversion premium.

One market source said that he thought the vol. could be higher, which would make the deal a little cheaper. But a third source concurred with 35% vol.

Some said the deal would have to come on the cheap end of talked terms, but one source said, “We’ve seen deals like this come fair and get done since the play is in the stock.”

The Mountain View, Calif.-based business social networking service was planning to price $1.15 billion of five-year convertibles after the market close.

The proceeds are earmarked for general corporate purposes and to pay the net cost of convertible hedge and warrant transactions, or a call spread.

The Rule 144A deal has a greenshoe of $172.5 million and is being sold via joint bookrunners Goldman Sachs & Co., J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC. Allen & Co. is a co-manager.

The notes are non-callable with no puts. There is takeover and dividend protection.

American Realty improves

American Realty’s 3% convertibles traded up a couple of points to 91.375, a Connecticut-based trader said.

The American Realty Capital 3% convertibles traded up to that level as well.

The levels marked the second straight day of gains for the securities as shares also rose, adding back 56 cents, or 6.9%, to $8.71.

“ARCP has been active and that one has been going higher,” a trader said.

On Monday the 3.75% convertibles had traded down to 84.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

American Realty Capital Properties Inc. Nasdaq: ARCP

Citrix Systems Inc. Nasdaq: CTXS

LinkedIn Corp. Nasdaq: LNKD

Red Hat Inc. Nasdaq: RHT

Tesla Motors Inc. Nasdaq: TSLA

Twitter Inc. Nasdaq: TWTR

Yahoo! Inc. Nasdaq: YHOO

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