Planned GNC deal looks cheap; NRG Yield off on earnings; Ctrip up outright post earnings

By Rebecca Melvin

New York, Aug. 4 – GNC Holdings Inc. launched a $250 million offering of five-year convertible senior notes on Tuesday that it planned to price after the market close.

The GNC deal looked cheap at the midpoint of price talk using a credit spread of 300 basis points over Libor and 34% vol., a New York-based trader said. At those inputs the deal for the Pittsburgh-based wellness retailer valued at about 103, or 3% cheap, he said.

“It’s not bad optically, and the credit is really good,” the trader said.

A second market source said that the credit was not necessarily great, but the fact that it’s a larger market capitalization company was positive.

Elsewhere, NRG Yield Inc.’s convertibles were down along with the underlying common stock of the Princeton, N.J.-based electricity generator after it posted second-quarter earnings and revenue that missed estimates.

Moving in the opposite direction was Ctrip.com International Ltd.’s convertibles, including the newer C and D bonds, which were higher after the Shanghai-based online travel company posted better-than-expected earnings. Ctrip shares were higher by about 10%.

Other names were moving in line, or flat, compared to their underlying shares, including SunEdison Inc.’s convertibles and those of Twitter Inc.

Etsy Inc., which is not a convertibles issuer, plunged in after-hours action despite posting earnings and revenue that were better than expected. The e-commerce company warned however that foreign exchange rates could negatively affect third-quarter sales growth.

Crude oil prices bounced back a bit but still remained well below $50 per barrel for West Texas Intermediate crude oil for September delivery.

Equities ended fractionally lower, near their session lows. The S&P 500 stock index closed down 4.72 points, or 0.2%, at 2,093.32, the Dow Jones industrial average lost 47.51 points, or 0.3%, at 17,550.69 and the Nasdaq composite stock index was off 9.84 points, or 0.2%, at 5,105.55.

Planned GNC looks cheap

GNC Holdings’ planned $250 million of five-year convertibles looked like standard issue but were appealing because there has not been a lot of standard issue convertibles of late. July was a quiet month in terms of issuance, with the year-to-date tally of U.S. convertibles falling below the same period of 2014 for the first time this year.

GNC plans to price the non-callable bonds with a 1.5% to 2% coupon and 30% to 35% initial conversion premium.

The Rule 144A deal looked about 3% cheap if priced at the midpoint of talk. But one source thought that it would come at the rich end.

The credit was viewed as fairly strong, although growth was a concern, he said.

The deal was being sold via bookrunner J.P. Morgan Securities LLC with co-manager UBS Securities LLC.

There is a $37.5 million greenshoe.

About $100 million of the proceeds will be used to repurchase shares of common stock from purchasers of the notes. Remaining proceeds will be used to reduce borrowings under its term loan facility.

Shares of the Pittsburgh-based wellness retailer gained $2.18, or 4.5%, to $50.89 on Tuesday.

NRG slumps on earnings

NRG’s 3.25% convertibles, which priced in June, were down at 92 bid versus an underlying share price of $17.85 at late morning. The bonds were later seen trading on Trace data at 90.6, which was down 2.9 points on the day.

The older NRG 3.5% convertibles were trading at 98.625 with the shares at about $18.00. The paper was also quoted at 98 versus an underlying share price of $17.85. The bonds were also seen changing hands at 96.1, which was down nearly 5 points on the day.

Shares plunged $2.83, or 15%, to $16.00 on Tuesday.

“The new ones just came a month ago. Eight points is a pretty big drop,” a New York-based trader said when the 3.25% convertibles were at 92.

He thought that the bonds were weaker on swap even though the shares put in a large drop.

For the quarter ended June 30, operating revenue rose to $217 million from $173 million in the year-earlier period, but cash available fell to $26 million from $43 million.

The company also lowered its full-year 2015 adjusted EBITDA guidance to $660 million from $690 million and lowered cash available for distribution guidance by $35 million to $160 million.

NRG Yield reported net income of $41 million and adjusted EBITDA of $187 million, and CAFD of $26 million. Second-quarter adjusted EBITDA was higher than the same period in 2014 by $46 million primarily as a result of the acquisition of the Alta Wind portfolio in the third quarter of 2014. Second-quarter CAFD was $17 million lower than the same period in 2014 primarily as a result of the timing of the Alta Wind debt service and additional corporate interest.

Ctrip jumps on earnings

Ctrip’s 1% convertibles due 2020, or the C tranche, traded up to 98 during the session with Ctrip shares around $78.50, which was up 10% on the day, a market source said.

The older Ctrip 1.25% convertibles due 2018 traded up 3.5 points to 117.4, according to Trace data.

Ctrip shares ended up at $78.57.

The online travel company beat earnings estimates on revenue that was in line with expectations and provided positive forward guidance on the third quarter.

“Ctrip beat earnings and those bonds are up 5%,” a market source said.

Mentioned in this article:

Ctrip.com International Ltd. Nasdaq: CTRP

GNC Holdings Inc. NYSE: GNC

NRG Yield Inc. Nasdaq: NYLD

SunEdison Inc. Nasdaq: SUNE

Twitter Inc. Nasdaq: TWTR

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