Weatherford extends gains after strong debut; Alibaba mandatory trades a little below par

By Rebecca Melvin

New York, June 3 – Two mega deals that launched and priced this past holiday-shortened week remained the focus of trade in U.S. convertibles on Friday, and the pricing trends for those issues were intact from when they debuted in the secondary market on Thursday, market sources said.

Weatherford International Ltd.’s $1.1 billion 5.875% exchangeable continued to trade strongly in good volume, and Softbank Group Corp.’s $5.5 billion of 5.75% mandatory securities exchangeable into Alibaba Group Holding Ltd. shares continued to lag.

The Weatherford exchangeables traded up to near 112 with shares a little higher, compared to 108.25 to 108.75 near the market close on Thursday, and the Alibaba mandatory was seen a little below par.

WebMD Health Corp.’s $300 million of 2.625% convertibles, a recent deal that priced last week, changed hands at 102.8, which was down about a point and mostly in line versus shares of the Elmwood Park, N.J.-based provider of health information services, which were down $1.15, or 1.8%, at $64.47.

WebMD’s older 1.5% convertibles due 2020 traded down in line with the lower shares at 136.8 points.

TimkenSteel Corp.’s $75 million of 6% convertibles, which also priced last week, traded at 104.4 on Friday, according to Trace data. Shares of the Canton, Ohio-based steel products maker were slightly lower in the early going but ended the session unchanged at $9.46. That level was better compared to shares at pricing of the convertibles issue at $9.08.

Back in established issues, Immunomedics Inc.’s 4.75% convertibles fell below the range of recent levels as shares of the Morris Plains, N.J.-based biopharmaceutical company dropped 16% on news that its presentation for the American Society of Clinical Oncology was cancelled by ASCO because of a complaint that the company violated the embargo by reporting results reported by its chairman at a conference in April. Immunomedics’ shares fell 78 cents to $4.52. The Immunomedics convertibles were indicated down to 103 from nearly 116 previously.

Overall, the convertibles market was trading quietly in line with shares.

In the broader markets, equities were lower after the May U.S. jobs report missed expectations. The Labor Department said that non-farm payrolls rose by only 38,000 jobs last month and the unemployment rate fell to 4.7%.

According to two surveys, economists had been expecting payrolls to rise by 158,000 to 164,000 jobs and unemployment to hold steady or edge lower to 4.9%. In April, non-farm payrolls rose by 160,000 jobs and the unemployment rate held steady at 5%.

The Labor Department’s report also revised lower the last two months’ reports, saying employers hired 59,000 fewer workers in March and April than previously reported.

Views on when the Federal Reserve will decide to make another interest rate move upward were pushed out on the data. A potential June rate hike was taken off the table.

Weatherford extends gains

Weatherford’s convertibles were seen up at 111 and 112 during trade with shares of the international oilfield services company higher to more than $6.00 per share.

The move was higher compared to 108.375 bid, 108.875 offered with shares at $5.82 near the market close on Thursday. Thursday’s move was wider on swap by about 5 points, assuming a delta of about 70% to 75%.

“People were still focused on the new issues, and there is a little bit of carry over effect,” a New York-based trader said on Friday.

The shares, which closed up 23 cents, or 3.9% to $6.12, have performed well, the trader noted.

Piper Jaffray upgraded its rating on the shares to “overweight” from “neutral” and raised its price target to $8.00 from $7.20.

The trader said that upgrades and positive notes out on the heels of the new issue demonstrated that the market views the restructuring that the convertibles deal represents as a good decision.

The oilfield services company priced an upsized $1.1 billion of five-year exchangeable senior notes ahead of the market open on Thursday at par to yield 5.875% with an initial exchange premium of 40%.

The company had abandoned a similar deal last September after shares fell 17% in response to the deal launch.

The new registered, off-the-shelf deal was initially talked at $1 billion in size. The greenshoe was upsized to $165 million from $150 million.

Final terms were mixed compared to price talk, coming at the cheap end of 5.625% to 5.875% rate talk and at the rich end of 37.5% to 40% premium talk.

Softbank/Alibaba still lags

The Alibaba mandatories were seen a little below par. Shares closed down 68 cents, or 0.9%, at $76.62.

Alibaba’s unique deal structure as a mandatory exchangeable tied to Alibaba’s biggest shareholder may be causing potential players to stay away, one trader observed.

“There is the possibility that as more clarity emerges around the deal it might perform better,” the trader said.

The Rule 144A deal that is based on Alibaba’s American Depositary Shares priced at the cheap end of talked terms to yield 5.75% with an initial exchange premium of 17.5%.

The mandatory exchangeables were sold via Mandatory Exchangeable Trust, a newly formed, independent trust incorporated in the United States.

Under a collateral agreement, a wholly owned subsidiary of Japan’s Softbank Group Corp. called West Raptor Holdings LLC will initially pledge a number of ordinary shares underlying the maximum number of ADSs deliverable upon maturity of the exchangeables under the forward purchase agreement.

Mentioned in this article:

Alibaba Group Holding Ltd. Nasdaq: BABA

Immunomedics Inc. Nasdaq: IMMU

Softbank Group Corp. Japan: 9984

TimkenSteel Corp. Nasdaq: TMST

Weatherford International plc NYSE: WFT

WebMD Health Corp. Nasdaq: WBMD

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