All about converts » Convert New Issue Analysis

08-06-14 Empire State Realty Trust (ESRT)

convertarb — Wed, 06 Aug 2014 23:26:36 +0000

$250m (+37.5m) sen unsec cb coming tonight from GS. Terms: 5y, 2⅛-2⅝% up 22½-27½%, full pctns. UOP=repay revolver/mortgage debt. $1.6bn office/retail REIT based in NY/CT (30 properties).

Stk +25% from 10/13 IPO.

Space=underperformer; SRC (retail REIT) 5/7y came 05/14 (2⅞& 3¾up 22.5% respectively). They are still ~100 w/15% premo. EXR (self storage REIT) came 06/13 2⅜% up 30% now x/par w/16% premo w/4y left ! PFcash=231m, debt=1418m ($250m cb, balance mtg & t/loan), LTMebitda=287m, lev=4.9x. 5y 1st lien t/loan (signed 10/13)=L+135. We’d assume L+225 for cb. ADV=809k, no leaps, 1y 100/200d=15/17%. We’d use 17%.Theo=98.4/100.1/101.9 REIT space is cheap but out of favor (SRC/EXR/STWD all examples) Cos IG pursuit poss future catalyst,o/wise prefer aforementioned

08-06-14 Synchronoss Technologies (SNCR)

convertarb — Wed, 06 Aug 2014 22:58:45 +0000

$200m (+30m) sen unsec cb coming tomorrow from CS/JPM. Terms: 5y ¾-1¼% up 32½-37½%, full pctns. UOP=repay $40m rev/gcp.$1.7bn provider of on-demand transaction mgt solutions & cloud based software activation services 4 connected devices.

On-demand biz= top 5 custies=77% rev w/VZ & AT&T each representing >10%.

PFcash =235m, debt=200m, LTMebitda=109m, fcf=15m, lev=1.8x.Revolv being paid down=L+225.

We’d assume L+350. ADV=410k, no leaps, 1y 100/ 200d=41/44%.Given low ADV we’d assume 35%.Theo=100.1/102.1/104.1 Another decent cap structure set up 4 h/funds; Elevated stk eval (@ all time high & +66% from 02/14 low) w/solid b/sheet, low lev Less obvious 4 o/r’s given magnitude of stk move already. scndry weaker at mo BUT being small, cheap & tech w/bring ON the DEMAND

08-01-14 Qihoo (QIHU)

convertarb — Fri, 01 Aug 2014 23:27:56 +0000

$900m (+135m) sen unsec cb coming tomorrow from CS/CITI.

Terms: >$300m, 6y, ¼-¾% up 35-40%, 3y put >$300m, 7y, 1½-2% up 32½-37½%, 5y put,full pctn.

UOP=gcp.$12bn internet security biz w/stk +35% since 1st CB came 08/13 ($600m, 2½% up 40% w/stk @ 79.26). These are -1.5pts > announcement & now back out L+420 (40vol) for 2.1yrs. PFcash=1.8bn, debt=1.5bn (all cb), LTMebitda =190m, fcf=205m, g/lev=7.9x.
Credit +ve 4 existing we’d assume L+350 for 2.1y, L+400 for (3y) & L+500 for (5y). ADV=3m, 01/16 same strike calls ~45iv, 1y 100/200d=54/57%, despite an argument against, we’ll assume flat term structure & 40%.
Theo= 103.5/105.2/106.9 104.3/106.5/108.6.Poss o/r rotation from old 2 new (expect outperformance). Add Index & these are good

07-09-14 Macquarie Infrastructure Company (MIC)

convertarb — Wed, 09 Jul 2014 23:29:17 +0000

********** $250m (+37.5m) sen unsec cb coming Weds night from BARC/JPM/WFC.

Terms: 5y, 2⅞-3⅜% up 17½-22½%, full pctns (div>.95). Cncrrnt 10m stk offering. UOP=acq remainder of IMTT. $3.5bn diversified infrastructure biz; Airport (63 US airports), Marine (10 US & 2 Canadian ports) & Nat Gas/Solar sevicing w/stk +19% from 01/14 low.

PFcash=124m,debt=2.03bn,LTMebitda=448m,fcf=200m (Co states acq has been CF acretive but provides no nos),net lev=4.25x.We’d assume L+200 & BBB- (exp rating).

ADV=270k, no leaps, 1y 100/200d =17.5/18.5%. We’d assume 17% for 5y. Theo=99.9/101.4/102.9. REIT type play (co pays out 80-85% fcf thru div)=high div/low vol so not exciting 4 hf’s HOWEVER, this won’t be driven by them. Small IG rated play w/cpn, nice optics, high floor w/appeal to L/Only.

06-24-14 Palo Alto Networks (PANW)

convertarb — Tue, 24 Jun 2014 23:34:04 +0000

$500m (+75m) sen unsec cb coming tonite from JPM/CITI/RBC. Terms 5y,0-½ up 35-40%, full pctns.UOP=note hedge/acq/gcp.$6bn global network security provider founded in ’05. Stk +40% since 05/14 low (+7% on back of solid 3Q results;Rev +49% yoy, billings +46% & the highest new customer acq vs any prev qtr. It also agreed to settle w/JNPR (paying $75m cash & $100m in PANW stk/warrants) resolving any o/s patent litigation. CB w/be the only debt so we will assume L+300 for 5y. ADV=1.4m, 01/17 same strike calls=37iv bid, 1y 100/200d=53/44, we’d assume 37% for 5y. Theo=98.8/100.7/ 102.6. Classic cap structure play 4 h/f (over bght eqty vs solid b/sheet) & an eqty growth story/poss m&a play 4 l/only (superior next/gen tech). Model already stretched o/wise a SECURE play.

06-24-14 Scorpio Tankers (STNG)

convertarb — Tue, 24 Jun 2014 23:31:49 +0000

$250m (+50m) sen unsec CB coming tonight from UBS/BAML. Terms:5y 2⅛-⅝% up 27½-32½%, S/C at 130% 3y, full pctns (ratio adj>0).

UOP=$150m stk buy back/gcp. $1.7bn product tanking biz (owns 21 tankers as of 03/31/14). Co founded in ’09, IPO’d @ $13 in 03/10 & is now -26% from 11/13 high. Solid b/sheet; As of 1Q14, $200m cash+$1.3bn liq(which can be used 2 finance up 2 60% of contract px). 6y $35m retail note (issued 05/14) ~L+475. CB is pari & s/ dated HOWEVER retail mkt will skew pricing. We’d assume L+500.

ADV= 1.2m, no leaps, 1y 100/200d=35/31vol. We’d assume 30% & -1% brw. Theo=98.7/100.5/102.4. JEF has a $12 target post robust Q1 no’s & focus on returning capital 2 stk holders over expanding its fleet. Good story BUT CB eval leaves a STiNG in its tail.

06-24-14 Mercadolibre (MELI)

convertarb — Tue, 24 Jun 2014 23:31:00 +0000

$300m (+30m) sen unsec cb coming tonight from GS/JPM/DB. Terms: 5y, 2¼-2¾% up 32½-37½%, full pctns. UOP=note hedge/gcp. $4bn LatAm e-commerce biz & largest online mkt/auction platform thru its MercadoLibre Marketplace. Founded in 1999. it operates in 13 Latam countries (as of 12/31).Stk -36% since 10/13 high (EBAY =17% stake) & Venezuala’s currency deval was a factor (accounts 417% earnings). Despite this, earnings growth was +16.75 in LTM & exp 2 be +24% p.a 4 next 5yrs.Main risk=AMZN/EBAY entering mkt Credit wise, we’d assume L+500. ADV=660k.01/16 samestrike calls= 38/42iv, 1y 100/200d=40/41%.Brw=1-3% so we’d assume 2%. We’d dsnt vol to 35%.Theo=98.5/100.2/102. LatAm growth play (& not CHINA)

w/appeal2 many so this won’t need to go to AUCTION !

06-18-14 Restoration Hardware (RH)

convertarb — Wed, 18 Jun 2014 23:34:54 +0000

300m (+50m) sen unsec cb ocming tonight from GS, BAC. Terms: 5y 0-0.5% up 30-35%, full pctns. UOP=gcp/repay debt.$3.2bn domestic home furnishing retailer. Founded in ’79, it currently operates

70 retail stores & 17 outlets within NA/Canada. Stk +53% from 02

/14 low & +42% alone last week (strong Q1). JEF rates stk a BUY with an $88 target. PFcash=136.8m, debt=300m (assuming revolv is paid down), LTMebitda=88m, Net lev=1.9x. We’d assume L+325 4 5y.

ADV=945k, 01/16 same strike calls ~35iv bid, 1y 100/200d=45/44%.

We’d assume 35%. Theo=97.3/99.2/101.2. -VES=striking option post

+42% move, low cpn on un-rated credit & stretched valuation, but

pricing will be driven by demand for under represented retail

sctr. Like the product; not v cheap but could be v popular.

06-17-14 J2 Global (JCOM)

convertarb — Tue, 17 Jun 2014 23:36:43 +0000

$300m (+45m) sen unsec cb coming tonight from BOA/CITI/WFC.Terms =15y, 3-3½ up 42½-47½%, H/C 7y, puts 7,10y, full pctns. UOP= acq/gcp/reapy sen debt.$2.3bn cloud based biz services & digital media provider founded in 1995.PFcash=499m, debt=550m, LTMebitda =230m, fcf=177m,gross lev=2.4x. Conundrum=We would have assumed a tighter spread BUT it’s $250m structurally sen(sub guarantees) 8% str8 ~108.75=L+394 OAS to ’16 call (although v/illiquid).We’d assume B+ & L+400.ADV=340k, no leaps, 1y 100/200d=32/34%.Despite 7y/low ADV, we’ll be generous & use 30%. Theo=98.7/100.7/102.8.

$3.2bn of world issuance just yday & >13deals within last 2 wks & scndry mkt cheapening as if more is to come. If it is the case mkt w/be able 2 be more selective. Px’ing streched on this one

06-17-14 Acorda Therapeutics (ACOR)

convertarb — Tue, 17 Jun 2014 23:36:09 +0000

$300m (+45m) sen unsec cb coming tomorrow from JPM. Terms: 7yr, 1¾-2¼% up 27½-32½%, S/C 3y @ 130%, full pcnts. UOP=gcp/acq.

$1.4bn biotech founded in ’95. Develops therapies 4 MS, spinal cord injuries (SCI) & nervous system disorders. Main drug=Ampyra (approved 01/10, improves walking 4 MS patients). Rest=Zanaflex

(spasticity) & Qutenza (neuropathic pain). Pipeline=1xPH3,2xPH2,

3xPH1 & 2xpre-clinical. PFcash=565m,debt=303.3m,LTMebitda=43.6m,

gross lev=6.9x.We’d assume L+500.ADV=414k, no leaps, 1y 100/200d =44/39. Low ADV/7y = we’ll dscnt to 35%. Theo=98.5/100.6/102.8.

From small ACORns grow oak trees; deal will appeal 2 both hedge & l/only. A good story/improving credit play in an under issued biotech space. Little more needs to be said