Convertibles quiet ahead of holiday; new Infinera gains outright, on hedge; Titan flat

By Rebecca Melvin

New York, May 24 - The convertible bond market quieted Friday ahead of the long holiday weekend in observance of Memorial Day.

"It's very quiet. It seems like a lot of people are taking off early," a Connecticut-based trader said.

But there was a new deal released to the secondary market after pricing late Thursday that traded up.

Infinera Corp.'s newly priced 1.75% convertibles added on an outright and dollar-neutral, or hedged, basis on Friday after the upsized $135 million of five-year convertibles priced on the rich end of talked terms.

With the stock down 3%, the bonds were 101 bid, 101.75 offered, which represented a 2-point expansion on a 75% delta hedge, traders said. The stock pared losses by more than half to end the day down by only 1.3%. The bond was still seen around 101.5 late in the session.

Titan Machinery Inc. was trading down in line with underlying shares, or flat, after the Fargo, N.D.-based agricultural and construction equipment company preannounced a fiscal first-quarter loss that sent the underlying shares sharply lower.

Salesforce.com Inc. shares slumped 5%, but the convertibles were not heard in trade after the San Francisco-based cloud computing company reported a lackluster outlook for the current quarter along with fiscal first-quarter results that were in line with expectations.

Meanwhile the convertibles of Exide Technologies, a small deal that comes due in September, traded at 13 during the session as shares of the Milton, Ga.-based battery maker and recycler tumbled 43% to $0.4498. That paper collapsed in early April on word that the company hired Lazard as a financial adviser.

Stocks started out lower, turned around by midday but ended in the red for a second straight day.

A second market source said, "The market is very quiet. I think the long weekend has started."

The source was referring to markets being closed on Monday in observance of Memorial Day.

Stocks ended mixed after a weaker week on uncertainty regarding the Federal Reserve's intentions regarding its current accommodative bond-buying policy, and whether it will begin to taper off stimulus measures sooner rather than later.

The Dow Jones industrial average edged up 8.6 points to 15,303.20; the S&P 500 stock index edged lower for a third straight day, slipping another 0.91 point to 1,648.60, and the Nasdaq stock index was nearly flat, down just 0.27 point to 3,459.14.

New Infinera gains on hedge

Infinera's newly minted 1.75% convertibles traded up to 101 bid, 101.75 offered with the underlying share price of $8.83. That was about 2 points higher on a dollar-neutral, or hedged, basis assuming a 75% delta with the shares down about 3%.

When the stock improved a little bit, the market was seen at 101.5 versus a share price of $9.00, according to a syndicate source around midsession.

The new deal was upsized to $135 million from $100 million and priced on the rich end of talked terms, which was for a 1.75% to 2.25% coupon and a 32.5% to 37.5% premium.

"The market is very strong," the syndicate source said of the new Rule 144A deal.

There is a $15 million greenshoe. Joint bookrunners were Morgan Stanley & Co. LLC and Goldman Sachs & Co.

The notes are non-callable with no puts. They will be settled in cash, shares or a combination of cash and shares at Infinera's option, and they have contingent conversion subject to a price hurdle of 130%. The securities also have takeover protection.

Proceeds are expected to be used for general corporate purposes, including working capital and potential strategic projects.

Sunnyvale, Calif.-based Infinera is an optical networking equipment, software and services company.

Before pricing, the deal was seen 101 bid, 102 offered Thursday in the gray market.

Titan flat on hedge

Titan's 3.75% convertibles due 2019 traded between 95.5 bid, 96.5 offered versus an underlying share price of $20.00 in the early going Friday.

That represented about a 1.8-point decline on an outright basis, but it was moving in line, or flat, on a hedged basis if using a 45% delta.

Titan shares fell $2.10, or 9%, to $20.40.

Spurring the drop was Titan's preannouncement that it expects to report a loss for the first quarter ended April 30 of $0.7 million to $1.2 million. That compares to pre-tax income of $12.4 million in the same period last year.

Preliminary pre-tax income is expected to be about $7 million less than the company previously anticipated, reflecting about $3.5 million less from the agriculture segment and $3.5 million less from the construction segment.

The preliminary loss per diluted share for the first quarter of fiscal 2014 is expected to be in the range of 1 to 3 cents, compared to net income of 36 cents in the first quarter of last year.

The company also updated its full-year guidance, adjusting annual earnings per share to a range of $1.70 to $2.00, which was down from the previous range of $2.00 to $2.30.

The pullback reflected lower operating margins in the construction segment.

The company said its previous revenue range of $2.35 billion to $2.55 billion still stands.

Titan chairman and chief executive David Meyer said, "Both segments of our business were impacted by the abnormally late spring weather, which extended through the end of our first quarter. We expect the agriculture segment revenue that was delayed in the first quarter will be realized in the coming quarters because we believe the revenue impact in the first quarter will be realized in the coming quarters" because it was primarily a timing issue.

Salesforce quiet

Salesforce's 0.75% convertibles due 2015, or the older issue, traded down nearly 8 points on an outright basis to 210. The newer Salesforce 0.25% convertibles due 2018 were not heard in trade.

Salesforce shares fell $2.44, or 5%, to $43.25 in extremely heavy action.

Salesforce reported a net loss for the period ended April 30, but on an adjusted basis earnings totaled 10 cents per share, which was in line with estimates on higher revenue.

Excluding items, Salesforce said it lost $67.7 million, or 12 cents per share, in its fiscal first quarter ended April 30, compared to a loss of $19.5 million, or 4 cents per share, in the same period last year. Revenue rose 28% and was slightly better than expected.

For the current quarter, Salesforce predicted its adjusted earnings will be 11 cents to 12 cents per share on revenue of $931 million to $936 million. Analysts were expecting adjusted earnings of 12 cents a share on revenue of $935 million.

Mentioned in this article:

Exide Technologies Nasdaq: XIDE

Infinera Corp. Nasdaq: INFN

Salesforce.com Inc. NYSE: CRM

Titan Machinery Inc. Nasdaq: TITN

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