ON Semiconductor improves; Nuance stays below par; Tesla to tap the market; Walter declines

By Stephanie N. Rotondo

Seattle, March 15 – ON Semiconductor Corp.’s $500 million of 1.625% convertible senior notes due 2023 were dominating trading on Wednesday.

The new issue – which came late Tuesday – was doing well, trading in a par to 101 context in early dealings.

The issue tightened as the day wore on, finishing in a par to 100.5 range.

The underlying stock, however, was off 18 cents at $15.22.

The deal came with an initial conversion premium of 35%. Initial price talk was for a 0.75% to 1.25% yield and a 35% to 40% conversion premium.

Morgan Stanley & Co. LLC, BofA Merrill Lynch, Deutsche Bank Securities Inc., BMO Capital Markets and HSBC ran the Rule 144A deal.

The initial conversion rate is 48.2567 shares per each $1,000 of notes, equal to an initial conversion price of $20.72 per share.

Proceeds will be used to repay a portion of the company’s outstanding debt under a term loan B facility and to pay related transaction fees and expenses.

The activity in the ON issue was taking attention away from Nuance Communications Inc.’s new $350 million of 1.25% convertible senior notes due 2025, a deal which priced on Monday.

Unlike ON, investors didn’t seem as excited about the Nuance deal, which fell below par in Tuesday trading.

Come Wednesday, the convertibles were pegged in a 98.25 to 98.5 context, in line with Tuesday’s closing price.

The company’s shares were unchanged day over day at $16.94. However, that was off from $17.04 at the open.

The initial conversion rate is 45.0106 shares per each $1,000 of notes, equal to an initial conversion price of $22.22 per share.

Nuance intends to use $99.1 million of the proceeds to repurchase stock via negotiated transactions with institutional investors participating in the offering. The remaining funds, combined with cash on hand, will be used to repurchase, redeem, retire or otherwise repay all of the outstanding 2.75% convertible senior debentures due 2031 – including a $17.8 million repurchase of the notes done concurrently with the offering.

Looking ahead, Tesla Inc. announced a $750 million offering of five-year convertible senior notes after the market closed.

Price talk is for a 1.875% to 2.375% yield and an initial conversion premium of 25% to 30%.

Goldman Sachs & Co., Deutsche Bank, Citigroup Global Markets Inc. and Morgan Stanley are the lead bookrunners. Barclays, BofA Merrill Lynch and Credit Suisse Securities (USA) LLC are also participating.

The deal is expected to price after the market closes on Thursday.

Concurrently with the bond offering, the company is also selling $250 million of common stock.

Elon Musk, chief executive officer, has agreed to purchase $25 million of the shares.

Ahead of the announcement, Tesla’s equity waned $2.27 to $255.73.

As for the broader markets, stocks were firm as the Federal Reserve announced it was raising interest rates.

The Fed’s Federal Open Market Committee began its two-day policy meeting on Tuesday. At its conclusion on Wednesday, the FOMC said it had upped rates to 0.75% to 1%.

Furthermore, the committee indicated that at least two more increases would be coming before the end of the year.

Walter wanes

Walter Investment Management Corp.’s 4.5% convertible notes due 2019 were losing ground on Wednesday following the company’s earnings release on Tuesday.

A market source saw the issue slipping to 51.25 bid, 51.75 offered, which compared to 55 previously.

A second source called the convertibles down nearly 13 points to 51.5.

The underlying stock did not fare to well either, dropping a dime, or 6.06%, to $1.55.

The Tampa, Fla.-based mortgage lender and servicer reported a $529 million loss for the year on Tuesday, equal to a loss of $14.71 per share.

Revenue was $995.7 million.

For the quarter, the loss was $22.2 million, or 61 cents per share, on revenue of $444.1 million.

The company noted that it took an $8.2 million goodwill impairment charge for the quarter.

In the earnings statement, Anthony Renzi, CEO since August, said the results were “not acceptable.”

As such, Renzi said the company was taking steps to address its issues. A shake-up on the leadership team has already been done, he noted.

The company has also hired Weil, Gotshal & Manges LLP and Houlihan Lokey to look into its de-leveraging options.

Mentioned in this article:

Nuance Communications Inc. Nasdaq: NUAN

ON Semiconductor Corp. Nasdaq: ON

Tesla Inc. Nasdaq: TSLA

Walter Investment Management Corp. NYSE: WAC

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