Discounted NorthStar edges up from issue; Airbus prices; Micron drops, but improves on swap

By Rebecca Melvin

New York, June 26 – NorthStar Realty Finance Corp.’s new 4.625% stock-settlable notes traded a little bit above issue at 99.625 bid, 99.75 offered on Friday after the New York-based commercial real estate investment trust priced $300 million of the 18-month notes at 99.5% of par and beyond the cheap end of talk, a New York-based trader said.

The NorthStar issue, which gives the REIT the option to convert the notes into shares of its European unit pending a spin-off and listing of that unit, is essentially a straight bond that converts into stock at maturity, the trader said.

“It has 0% delta and no equity sensitivity,” he said.

The notes traded somewhat actively at Deutsche Bank Securities Inc., which was bookrunner for the deal, but not actively among other players, a source said.

Also pricing on Friday was a Regulation S deal by Airbus Group SE for €500 million of seven-year, 0% convertible bonds, issued at 102% of par and with a 62.5% initial conversion premium. The deal came at the rich end of talked terms.

In established issues, Micron Technology Inc.’s convertibles traded down on an outright basis, but were up on a dollar-neutral, or hedged, basis with shares of the Boise, Idaho-based chipmaker sharply lower following earnings that missed estimates and a weak outlook.

Chinese internet issues were also in trade and were a little better with the underlying shares of the companies lower, a trader said.

Vipshop Holdings Ltd.’s 1.5% convertible notes due 2019 traded around 127, which was flattish to slightly better on a dollar-neutral basis given the lower stock price. They also changed hands at 126, according to Trace data.

Qihoo 360 Technology Co. Ltd. shares were lower by 3.5%, but shares of Ctrip.com International Ltd., which priced dual tranches of convertibles last week, were down only 0.8%.

Overall the market was busier than it had been for much of the week.

“There were some big movers. Micron was moving and so was Vipshop,” a trader said.

Discounted NorthStar firms

NorthStar’s 4.625% convertibles due Dec. 15, 2016 traded at 99.625 bid, 99.75 offered, which was up just slightly from their discounted 99.5 issue price.

NorthStar Realty Europe Corp., a subsidiary of Northstar Realty Finance Corp., priced $300 million of senior stock-settlable notes that are guaranteed by NorthStar Realty Finance Corp. and NorthStar Realty Finance Ltd.

“They are essentially straight bonds that can settle in stock at maturity,” a trader said.

Pricing of the Rule 144A deal came beyond the cheap end of 4% to 4.5% coupon talk.

It was sold by bookrunner Deutsche Bank Securities Inc.

Subject to conditions, including the planned spin-off of NorthStar Realty Europe and listing of its common stock, NorthStar Realty Europe may elect to settle all or part of the notes in NorthStar Realty Europe common stock in lieu of cash, in which case the number of shares delivered per note will be based on a 4% discount to NorthStar Realty Europe’s stock price during an averaging period preceding the maturity date.

They can be settled 100% in shares or partially in shares. The company has full flexibility, a syndicate source said. There are certain trading conditions in the spun-off stock. In order to settle the bond in stock liquidity levels must be met and there is a minimum stock price threshold.

The spin-off is expected to occur in the second half of 2015.

The bonds are callable under certain conditions with a make-whole call feature for the present value of flows, including principal and any future interest expense.

Proceeds will be used for general corporate purposes, which may include funding acquisitions, including additional European commercial real estate and other assets, and repayment of NorthStar Realty Finance debt, including amounts outstanding under its corporate revolving credit facility that accrues interest at Libor plus 350 basis points and is due on Aug. 5, 2017.

Micron expands on stock drop

Micron’s 3% convertibles due 2043 were quoted at 94.25 versus an underlying share price of $20.50.

The Micron bonds were down on an outright basis from about 102, but they were up about a point on swap assuming a delta of about 70%, a trader said.

Micron’s 1.625% convertibles due 2033, or the E tranche, were seen down about 25 points at 184 from 219.5, according to Trace data.

Micron’s 2.125% convertibles due 2033, or the F tranche, were down to 186 from 221.7.

Micron shares were down $4.36, or 18%, to $19.66.

Late Thursday the company reported weak earnings for the fiscal third-quarter ended June 4 and a weak outlook, citing lower demand for its chip products for personal computers.

Net income was $620 million, or $0.54 per share, compared to net income of $941 million, or $0.81 per share, for the second quarter of fiscal 2015.

Revenue for the third quarter was $3.85 billion, which was down 3% from the year-earlier quarter, and down 8% sequentially.

“In the fiscal third quarter, Micron experienced market headwinds driven primarily by weakness in the PC sector,” chief executive D. Mark Durcan said in a release.

Looking ahead, the company said it expects revenue of $3.45 billion to $3.7 billion, which was below analysts’ expectation of $4.16 billion.

Vipshop sees better buyers

Vipshop’s 1.5% convertibles due 2019 traded around 127 which was a point or two lower on an outright basis, but a little better on swap with the stock lower.

Vipshop shares ended down 67 cents, or 3%, at $21.97.

“VIPS was up a little bit with the stock off, and people thinking they may be back in the index,” a trader said.

The trader was referring to activity prompted by expectation that the issue might be added to the Thomson Reuters convertibles indices, and if that occurs demand will be higher especially among European outright investors, he said.

Mentioned in this article:

Airbus Group SE Paris: AIR

Ctrip.com International Ltd. Nasdaq: CTRP

Micron Technology Inc. NYSE: MU

Northstar Realty Finance Corp. NYSE: NRF

Qihoo 360 Technology Co. Ltd. Nasdaq: QIHU

Vipshop Holdings Ltd. Nasdaq: VIPS

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