New Fluidigm zooms higher in active trade; homebuilders mostly in line; Lam Research adds

By Rebecca Melvin

New York, Jan. 30 - Fluidigm Corp.'s newly priced 2.75% convertible bonds zoomed up in active trade on their debut in the secondary market on Thursday after the genomics company priced $175 million of the 20-year senior notes at the tight end of tightened talk.

Fluidigm was definitely the name of the day in terms of both traded volume and price, market sources said. The convertibles pushed up to about 108 with the underlying shares rebounding 11% from a drop on Wednesday.

"I am glad it traded so well. It priced right, it was cheap and people responded to that," a New York-based trader said, adding that Fluidigm did the deal for the right reason too: to raise money to fund an acquisition.

"That tends to be a win-win," he said.

Back in established issues, several homebuilder convertibles traded in line with overall weakness in the sector as shares slipped, but generally "held in" on the heels of the Federal Reserve's move Wednesday to continue tapering its bond-purchasing program, a policy that presumably boosts interest rates and mortgage rates.

The Fed said it would buy $65 billion of bonds per month starting in February, down from $75 billion. The purchases of both U.S. Treasuries and mortgage bonds will be cut back equally.

Toll Brothers Inc.'s convertibles traded slightly lower but in line with its underlying shares, in step with the trend. But KB Home bucked the trend, with shares of the Los Angeles-based homebuilder and financial services company adding 1% on Thursday, in a continued bounce from earlier in the week.

The KB Home 1.375% convertibles due 2019 changed hands at 104.154, according to Trace data, and ended the session at 103.25 bid, 103.75 offered with the underlying shares around $19.14, a trader said.

The technology sector was in rally mode on Thursday and Lam Research Corp.'s two convertible issues traded after the Fremont, Calif.-based semiconductor-equipment company reported earnings and revenue that beat estimates and guided the current quarter above consensus estimates.

Lam's 1.25% convertibles due 2018 changed hands at 120.057, which was up about 0.5 point, and Lam's 0.5% convertibles due 2016 traded at 113.447, which was up 1.6 points on the day. Lam shares dropped back to near the flat line after an initial pop on the earnings news.

Salesforce.com Inc.'s 0.75% convertibles due 2015 traded up to 285.81 on Thursday from about 271 as the underlying shares of the San Francisco-based cloud computing company surged $3.01, or 5%, to $60.97.

The broader markets recouped losses notched in a steep slide on Wednesday. "Everything did OK, Currencies did OK. The only thing that got hit was gold. But none of the miners were in focus, but they are holding up well," the trader said.

Equities recouped Wednesday's losses as investors were cheered by earnings reports and the Commerce Department's initial estimate on U.S. Gross Domestic Product that showed that the economy grew at a seasonally adjusted annual rate of 3.2% in the fourth quarter, which was in line with estimates.

The Nasdaq stock market rallied 71.69 points, or 1.8%, to 4,123.12; the S&P 500 stock index added 19.99 points, or 1.1%, to 1,794.19; and the Dow Jones industrial average put back on 109.82 points, or 0.7%, to 15,848.61.

Now traders are looking forward to the end of the month on Friday and anticipating what is in store for February. They are hoping for more deals like Fluidigm. "I think that the pipeline is robust," a trader said, adding that he expects to see sustained deal flow by mid-February.

New Fluidigm flood

Fluidigm's newly priced 2.75% convertible bonds ended their debut session near 107.75 bid, 108.75 offered with the underlying shares at $43.93, a syndicate source said.

A second market source said the ending mark was a touch higher with shares ending near their intraday highs at $44.58.

Shares jumped $4.62, or 11.6%.

Based on those moves, the bonds added 1.5 points to 2 points on a dollar-neutral, or hedged, basis, assuming a delta of about 70%.

The paper traded both on an outright and hedged basis, and the paper was absolutely flying around trading desks.

A combination of factors contributed to the deal's stellar performance, not the least of which is the fact that Fluidigm successfully secured financing that will be used to acquire DVS Sciences Inc. and that its fundamentals are strong.

In addition, the underlying shares behaved exceptionally well on Thursday, rallying back up 11.6% from a 10% drop on Wednesday. Wednesday's drop was probably related "to hedge funds overselling it," a trader said.

Another factor was high demand from investors for the deal, as repricing during market testifies to, a second trader said.

The bonds traded up initially to 106 to 107 when the shares were higher by $3.00, or 7.5%, to $42.96, and then continued to push higher from there with the shares.

Fluidigm launched the deal before the market open on Wednesday, saw price talk tightened during marketing, and priced after the close in an accelerated one-day marketing, even though two days were allotted for getting the deal done.

"It was cheap even with the repricing," the second trader said.

"The stock is on fire," a Connecticut-based trader said.

Fluidigm is a medical technology company focused on genomics and DNA research. It develops, makes and markets integrated microfluidic circuit systems.

Price talk on the Fluidigm deal was tightened during the session to a fixed 2.75% coupon and a 35% to 40% initial conversion premium. Initially the deal was talked to yield 2.75% to 3.25% with a 30% to 35% initial conversion premium.

The registered deal has a $26.25 million greenshoe and was being sold via bookrunner Piper Jaffray & Co.

The notes are non-callable for four years and then are provisionally callable for three years if the closing stock price is greater than 130% of the conversion price for at least 20 days out of 30.

There are investor puts in years seven, 10 and 15, as well as takeover and dividend protection.

About $119.7 million of proceeds will be used to fund the acquisition of DVS Sciences. Remaining proceeds will be used for research and development, commercialization of products, working capital and other general corporate purposes.

Toll Brothers holds in line

Toll Brothers' 0.5% convertibles due 2032 traded last at about 104 bid, 104.5 offered with the underlying shares at $36.15, a trader said.

Toll Brothers shares ended lower by 31 cents, or 0.9%, to $36.13.

That was about in line, the trader said.

It implies a credit spread of about 150 basis points over Libor and a 34% to 35% vol., "which is pretty rich right there," he said. "But the outright [investors] stepped in, wanting to take advantage of the right price."

They were all over the place, but right about in line with where they went out on Wednesday," the trader said.

"Homebuilders are still at some frothy valuations, but they are still trading," he said, noting that they tend to trade in tandem.

Other homebuilders with convertibles issues include Lennar Corp., Ryland Group Inc., Meritage Homes Corp., Standard Pacific Corp. and KB Home.

But KB Home is a little bit of a different situation, he said.

Mentioned in this article:

Fluidigm Corp. Nasdaq: FLDM

KB Home NYSE: KBH

Lam Research Corp. Nasdaq: LRCX

Salesforce.com Inc. NYSE: CRM

Toll Brothers Inc. NYSE: TOL

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