Arch Resources eyed; Caliber Home on deck; Inphi soars outright, drops dollar-neutral

By Abigail W. Adams

Portland, Me., Oct. 29 – The convertibles primary market returned to action with two deals slated to price after the market close on Thursday.

Arch Resources Inc. plans to price $125 million of five-year convertible notes.

While the deal looked cheap, it will have a limited audience, sources said.

Caliber Home Loans Inc.’s offering of $100 million three-year par of $50 convertible preferreds is also set to price after the market close.

The deal has been on the forward calendar for more than one week with the convertible preferreds pricing alongside the company’s IPO.

Meanwhile, there was an uptick of activity in the secondary space as convertible issuers saw large price movements following earnings reports and company related news.

While volume was light, Inphi Corp.’s 0.75% convertible notes due 2021 skyrocketed on an outright basis but plummeted dollar-neutral following news it would be bought out.

Arch Resources eyed

Arch Resources plans to price $125 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 4.75% to 5.25% and an initial conversion premium of 22.5% to 27.5%.

The deal had classic terms. “Reflecting risk, obviously,” a source said.

The deal was heard to be in the market with assumptions of 1,200 bps over Libor and a 40% vol., a source said.

Using those assumptions, the deal looked 7.5 points cheap at the midpoint of talk.

However, the mining company has a small market cap of $543 million and borrow on the stock may be difficult, a source said.

Another source felt the stock had an “OK” borrow.

However, the credit spread was conservative for a coal mining company on the verge of what many predict may be a Democratic sweep of Congress and the White House.

“This is dinosaur preservation,” the source said.

The deal is believed to be wall-crossed and will play to a limited audience, a source said.

Caliber Home on deck

Caliber Home’s offering of $100 million three-year par of $50 convertible preferreds is also set to price after the market close on Thursday.

The deal has been on the forward calendar for more than one week with the convertible preferreds pricing alongside the company’s IPO.

The preferreds are talked with a dividend of 6% to 6.5% and a threshold appreciation price of 17.5% to 22.5%, according to a market source.

The IPO is talked at a public offering price of $14.00 to $16.00.

Sole stockholder LSF Pickens Holdings LLC, an affiliate of Lone Star, is offering the shares sold in the IPO.

Proceeds from the convertible preferred offering will be used to repurchase shares from LSF Pickens in private transactions.

The deals come as equity benchmarks recover from Wednesday’s brutal sell-off, when equity benchmarks closed down more than 3%.

Inphi’s takeover

Inphi’s 0.75% convertible notes due 2021 skyrocketed on an outright basis but plummeted dollar-neutral following news Marvel Technology would acquire the company in a cash-and-stock deal.

The 0.75% notes traded as high as 247 in the late afternoon.

While the notes soared outright, they plummeted dollar-neutral.

The notes were contracted upwards of 8 points, a source said.

“It’s a big owie if you own them on swap,” a source said.

Inphi’s stock traded to a low of $128.63 and a high of $143.64 before closing the day at $140.60, an increase of 26.7%.

The consensus on the street is that the takeover would trigger the change-of-control put, sending the notes to the matrix to determine their takeout price, a source said.

And the matrix is not favorable to hedge players.

Marvell announced on Thursday that it was acquiring Inphi for cash and stock in a deal valued at $10 billion.

It is the second large M&A announcement in the semiconductor space of the week with Advanced Micro Devices announcing its buyout of Xilinx on Tuesday.

Mentioned in this article:

Arch Resources Inc. NYSE: ARCH

Inphi Corp. Nasdaq: IPHI

Royal Caribbean Cruises Ltd. NYSE: RCL

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