Qihoo higher on going-private proposal; Ctrip.com launches $1 billion deal; Synergy spikes

By Rebecca Melvin

New York, June 17 – Qihoo 360 Technology Co. Ltd.’s trio of convertible bonds traded actively on Wednesday and were higher on an outright basis as well as a little better on swap after word that an investor group including the chief executive has offered to buy the Chinese internet company for $77.00 per American Depositary Share.

All three Qihoo convertibles were up uniformly and a little better on swap, a New York-based trader said.

The news pulled other Chinese internet convertibles into play, including those of SouFun Holdings Ltd., which has been identified as a potential buyout target, and YY Inc., an online entertainment and gaming company.

After the market close, Ctrip.com International Ltd. launched an offering to price up to $1 billion of convertible senior notes in two tranches, including $500 million of notes due 2020 and $500 million of notes due 2025.

Ctrip shares were fractionally lower on the session at $75.41, while Qihoo, SouFun and YY were sharply higher.

Meanwhile, there was no gray market on the planned Restoration Hardware Holdings Inc. convertible for most of the session.

The Restoration deal, which was subject to three-day marketing and expected to price after the market close, was still talked at a 0.125% coupon and a 27.5% premium at the midpoint of talk, according to a syndicate source.

A separate source said he was hearing the deal was having a difficult time at current pricing.

A third market source said he heard the Restoration deal at “plus 2” offered, but no bid.

Back in established issues. Synergy Pharmaceuticals Inc.’s stock spiked by 68%, and the convertibles were significantly higher, after the New York-based biopharmaceutical company announced positive phase 3 trial results for its plecanatide constipation drug.

Ironwood Pharmaceuticals Inc., which recently priced a deal, saw those bonds at the end of the session at 97.875 bid, 98.625 offered versus an underlying share price of $11.81, a trader said.

The overall convertibles market was weak, which was a likely reason that the Restoration deal was struggling, one source said.

Things didn’t change much after the much-anticipated Federal Reserve policy statement and forward guidance, a convertibles trader said.

It was in line with expectations, he said. There were no major changes in the latest statement and no clear changes in the forward guidance of when the central bank may begin to raise rates, although two rate increases had already been forecast for this year.

The Fed officials kept its year-end 2015 median Fed Funds forecast at 0.625%. The bank said economic activity was expanding modestly after a weak start to the year, and that labor market underutilization was slightly improved, but that the level of inflation remained below objectives.

The bank also said that energy prices appear to have stabilized.

However, the bank’s GDP forecast was downgraded to 1.8% to 2% for the year from 2.4% to 2.7%.

For 2016, the bank lowered its year-end median Fed Fund forecast to 1.625%.

The Fed officials left the short term Fed Funds rate at near zero and unemployment was unchanged at 5.5%.

Qihoos active, higher

Qihoo’s 2.5% convertibles due 2018, which was the most actively traded Qihoo issue, was up to 99.125.

Qihoo’s 1.75% convertibles due 2021 traded at 93.227, and Qihoo’s 0.5% convertibles due 2020 were up to nearly 95.

Shares of the Chinese mobile software and services company finished the session at $70.15, which was up $4.10, or 6%.

On swap, the bonds were “a little better today after the group and CEO said they would take them private, a New York-based trader said.

On a takeout deal such as this, the bonds can be redeemed by holders at par.

Qihoo’s board will form a special committee to evaluate the offer, which represented a 16.6% premium over the closing share price of the ADRs on Tuesday.

The preliminary non-binding proposal letter, dated June 17, offers to acquire all of the outstanding class A and class B ordinary shares, including the class A shares that represent the ADSs.

The letter was from chairman and CEO Hongyi Zhou, Citic Securities Co. Ltd. or affiliates, Golden Brick Capital Private Equity Fund I LP, China Renaissance Holdings Ltd. or affiliates and Sequoia Capital China I LP or affiliates.

Synergy surges

Synergy’s 7.5% convertibles due 2019 were active and finished the day at 249.25 bid, 251.25 offered with the underlying shares at $7.78.

That share price gain was $3.14, or 68%.

Earlier in the session, the trader quoted the paper at 217.125 bid, 219.125 offered with the underlying shares at $6.75.

The positive data sent the convertibles and shares higher, the trader said.

In the study, the drug produced a satisfactory result in one-fifth of patients.

Ctrip.com on tap

Ctrip.com, a Shanghai-based travel services provider, plans to price up to $1 billion of convertible senior notes in two tranches.

The $500 million five-year tranche was seen pricing with a 0.75% to 1.25% coupon and a 42.5% to 47.5% initial conversion premium.

The $500 million seven-year tranche was seen pricing with a 1.5% to 2% coupon and the same 42.5% to 47.5% premium.

The Regulation S and Rule 144A notes are being sold via bookrunner J.P. Morgan Securities LLC, and pricing was expected Thursday after the market close.

Both tranches are non-callable for life. Holders can put the 2020 bonds on July 1, 2018, and holders can put the 2025 on July 1, 2020.

In connection with the pricing of the bonds, Ctrip.com plans to enter into convertible note hedge and warrant transactions, or a call spread.

Proceeds will be used to pay the net cost of the call spread and for general corporate purposes, including a concurrent repurchase of its ADSs and potential note retirement working capital and potential acquisitions of complementary businesses. Proceeds will also be used to pay the cost of a convertible note hedge transaction.

Mentioned in this article:

Ctrip.com International Ltd. Nasdaq: CTRP

Ironwood Pharmaceuticals Inc. Nasdaq: IRWD

Qihoo 360 Technology Co. Ltd. Nasdaq: QIHU

Restoration Hardware Inc. NYSE: RH

Synergy Pharmaceuticals Inc. Nasdaq: SGYP

SouFun Holdings Ltd. Nasdaq: SFUN

YY Inc. Nasdaq: YY

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