New ServiceNow slips below par; old ServiceNow steady; Dycom expands as shares tank

By Rebecca Melvin

New York, May 24 – ServiceNow Inc.'s new 0% convertibles traded down in first-day trading on Wednesday after the Santa Clara, Calif.-based cloud-based IT company priced $750 million of the senior notes.

“They did poorly right out of the gate. They are a loser on swap,” a New York-based trader said.

The new ServiceNow convertible was last at 99.875 bid, 100.375 offered versus the closing share price of $103.00, according to a syndicate source.

That was little changed from a late-morning market of 99.5 bid. 99.75 offered, when shares were lower at $102.36. ServiceNow shares closed higher by $1.30, or 1.3% at $103.00.

The struggle for this bond is that it was priced too aggressively, the trader said.

ServiceNow’s older 0% convertibles due 2018, which will be repurchased with proceeds of the new deal, were holding in on Wednesday and were about unchanged at 141. Those bonds had come in somewhat on Tuesday but were steady on Wednesday.

Back in established issues, Dycom Industries Inc.’s 0.75% convertibles due 2021 tanked on an outright basis but expanded on a dollar-neutral, or swap, basis after the Palm Beach, Fla.-based provider of skilled contract workers lowered guidance for next quarter, market players said.

The Dycom convertibles traded down about 12 points to trade at 115.25, sources said. That represented an expansion on a hedged basis of about 1.5 points on swap if holders went into the day on a 75% hedge.

The hedge on the paper was adjusted to 70% after the slide, a New York-based trader said.

Dycom shares skidded $19.08, or 18%, to $88.97.

The slide came despite its fiscal third-quarter earnings that beat estimates and was attributed to weaker-than-expected guidance for the fourth quarter.

Dycom said it expects total contract revenue for its fiscal fourth quarter to range from $780 million to $810 million, including about $25 million of revenue from acquired businesses that were not owned for the full period. But that compared to $850 million of revenue that analysts were expecting. The company sees fourth-quarter earnings coming in at $1.35 to $1.50 per share, which is lower compared to estimates for $1.79 per share.

ServiceNow drags

ServiceNow’s 0% convertibles due 2022 were last seen 99.875 bid, 100.375 offered against a share price of $103.00.

ServiceNow’s older 0% convertibles due 2018 traded at 141, which was little changed.

ServiceNow shares closed up $1.30, or 1.3%.

Market players agreed that the underwriters seemed to push the pricing on the aggressive side.

Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and RBC Capital Markets were the joint bookrunners for the $750 million deal of 0% five-year convertible senior notes on Tuesday.

The initial conversion premium was 32.5%.

The profile of the new ServiceNow bond is different from the older bond, which trades about 3 points over parity even after cheapening on Tuesday.

The older bond makes sense if holders are bullish on the common stock and not concerned with downside protection, a trader said.

“They are two very different profiles, probably for two different investors,” the trader said.

Mentioned in this article:

Dycom Industries Inc. NYSE: DY

ServiceNow Inc. NYSE: NOW

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