Wells Fargo overnight $3 billion floaters to come with 110.75% premium, warrant kicker

By Ronda Fears

Nashville, April 8 - Wells Fargo & Co. launched $3 billion of 30-year convertible floaters with a warrant kicker. The issue carries a 110.75% conversion premium and is expected to price for a yield to maturity of 3-month Libor minus 0.25% to 0.5%.

The Rule 144A deal was pricing overnight, via joint bookrunning lead managers Merrill Lynch & Co., Morgan Stanley and Goldman Sachs & Co. Merrill and Morgan also were designated structuring agents of the deal.

There was some confusion about the price talk, sources said, as another news service reported that the yield to maturity was expected at Libor minus 0.375% to Libor plus 0.125%.

According to the term sheet circulated by book-runners, however, the guidance for the yield to maturity was 3-month Libor minus 0.25% to 0.5%.

There will be a cash coupon paid for the first five years, then interest will accrue.

The conversion price is $100, putting the conversion premium at 110.75%.

If the stock price is $100 or less, the conversion rate will be 10 shares per bond. If the stock price exceeds the conversion price, then the conversion rate is 10 plus warrants, capped at 21.0748 shares per bond.

There is a contingent conversion trigger of 120% of the base conversion price, or if Wells Fargo senior credit is downgraded below A1 by Moody's Investors Service or below A- by Standard & Poor's, or if the bond's trading price is less than 98% of parity.

The issue will be non-callable for 5 years.

If after five years, Wells Fargo shares remain below $100, the bonds may be remarketed as zero-coupon straight debt. If not remarketed, there are put options in years 5, 10, 15, 20 and 25.

There also is a contingent interest trigger of 120%; there will be additional contingent interest of 0.0625% of the bond trading price per quarter if it is trading at 200% or more of the accreted price.

There is a $450 million greenshoe available

Wells Fargo said it expects to use proceeds for general corporate purposes, including to fund possible repurchases of its debt and equity securities.

The company is scheduled to report earnings next Tuesday.

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