ServiceNow holds up on debut; InvenSense adds; planned Incyte looks cheap; earnings eyed

By Rebecca Melvin

New York, Nov. 7 - ServiceNow Inc.'s newly priced 0% convertibles edged up in early action Thursday but faded some into the close after the San Diego, Calif.-based cloud-based IT services company priced $500 million of the five-year paper at the tight end of talked terms late Wednesday.

The ServiceNow 0% convertible was last seen at 100.25 bid, 101 offered with the underlying shares down 3.6%, at $51.80. Earlier they were 101.5 bid, 102 offered with a trade at 101.625 versus a share price of $53.73, which was Wednesday's close, according to market sources.

Seacor Holdings Inc. and InvenSense Inc. also priced deals late Wednesday at the tight end and beyond the tight end of talked terms. But only InvenSense saw an upsizing.

InvenSense's 1.75% convertibles due 2018 were seen at 101.25 bid, 102 offered versus an underlying share price of $15.80. The shares ended up much higher than that level on the day, however.

The new Seacor 3% convertibles due 2028 were not heard in trade.

A major focus of the day was Incyte Corp., which was expected to price $700 million of convertible senior notes in five- and seven-year tranches after the market close. The deal was seen 3 to 4 points cheap, according to a Connecticut-based trader, and other market sources said the paper was expected to do well, although there was no gray market in the name and no offers.

Elsewhere, the market was driven by company-specific earnings news. One source said he was "buried under earnings."

Chiquita Brands International Inc. traded off some as the underlying shares of the Charlotte, N.C.-based fresh produce company fell 7.7% on disappointing earnings.

Central European Media Enterprises Ltd.'s convertibles were 2 to 3 points higher however on shares that were 6.6% lower.

Overall, market players were happy to see the new issuance, although the latest deal from Incyte wasn't seen as being broadly allocated.

"I think it's going to do well, but people are not going to get many bonds," an East Coast-based buysider said, indicating that Julian C. Baker, a company director, and entities affiliated with Baker were expected to be purchasing up to $500 million of the notes.

A second market source said that it was more difficult in general to get in on deals. "They don't give out the stuff and get it out among the people as much as they used to," the market source said.

But he thought that a change may be in the offing. More paper is being issued because it is the end of the year, he said, and issuers want to get financing in before year-end amid the potential for significant changes with Janet Yellen coming in as the new chairman of the Federal Reserve in January.

ServiceNow adds

ServiceNow's 0% convertibles were 100.25 bid, 101 offered toward the end of the session with the underlying shares down 3.6% at $51.80.

Earlier, the new bonds were 101.5 bid, 102 offered, and a syndicate source said they were 101.625 versus a share price of $53.73, which was Wednesday's close, out of the chute.

ServiceNow shares ended down $1.94, or 3.6%, to $51.79.

The actual pricing of the company's deal was not too far off of expectations, but it did as well coming at the rich end of talk as one analyst valued it at on the midpoint of talk.

He saw the ServiceNow bonds 1.7% cheap at the midpoint of price talk, assuming a credit spread of 200 bps over Libor and a vol. of 35%.

Pricing of the Rule 144A offering came at the rich end of talked terms, which was for a 0% to 0.5% coupon and 32.5% to 37.5% premium.

The deal has a $75 million greenshoe and was sold via bookrunners Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, BofA Merrill Lynch, RBC Capital Markets and Wells Fargo Securities LLC.

The bonds are non-callable for life with no puts. They have takeover protection, net share settlement and contingent conversion.

In connection with the offering, ServiceNow entered into convertible note hedge and warrant transactions with one or more of the initial purchasers of the notes or their respective affiliates and will use a portion of the net proceeds from the offering to pay for the net cost of the call spread. The warrant strike is $107.46, which boosts the effective initial conversion premium of the bonds to 100% from the issuer's perspective.

Proceeds are earmarked for general corporate purposes, including potential acquisitions and strategic transactions, and to pay the cost of the convertible note hedge transactions.

InvenSense adds

The InvenSense 1.75% convertibles due 2018 traded at 101.25 bid, 102 offered versus an underlying share price of $15.80 on Thursday.

Shares of the San Jose, Calif.-based maker of motion tracking devices in consumer electronics strengthened after early weakness, ending up 7 cents at $15.99.

The Rule 144A offering was upsized to $150 million in size from an initially talked $125 million, and the greenshoe was upsized to $25 million.

Pricing came through the tight end of coupon talk, which was 2% to 2.25%, and at the tight end of 32.5% to 37.5% premium talk.

Goldman Sachs & Co. was the bookrunner of the non-callable bonds.

Proceeds are intended for general corporate purposes, including capital expenditures and working capital, and also to pay for the net cost of convertible note hedge and warrant transactions. This call spread boosts the initial conversion premium from the issuer's perspective to 80%.

Seacor quiet

Seacor's newly priced 3% convertibles due 2028 were not heard in trade.

Seacor shares gained $1.86, or 2%, to $93.50 on Thursday.

The Fort Lauderdale, Fla.-based offshore oil, gas and marine equipment company priced $200 million of 15-year convertibles senior notes through the tight end of coupon talk, which was 3.25% to 3.75%, and at the tight end of 32.5% to 37.5% premium talk.

The Rule 144A offering has a $30 million over-allotment option and was sold via Goldman Sachs and Deutsche Bank Securities Inc.

The notes are non-callable for five years and are putable in years seven and 10. There is contingent conversion and net share settlement.

Proceeds will be used for general corporate purposes.

Incyte to price

Wilmington, Del.-based Incyte, a biopharmaceutical company, plans to sell $700 million of convertible senior notes in two tranches that were seen cheap but not widely available due to allocations going to company affiliates.

"Obviously, people like it," a New York-based trader said, guessing that the deal would go to 101 but adding that there were no offers in the gray market.

Incyte plans to price a $350 million five-year tranche with a 0.625% to 1.125% coupon and 35% to 40% initial conversion premium and a seven-year tranche with a 1.5% to 2% coupon and a 35% to 40% premium.

Goldman Sachs, JPMorgan and BofA Merrill Lynch are joint bookrunning managers.

Entities affiliated with Julian C. Baker, a company director, have indicated an interest in purchasing up to $500 million of the notes.

Up to $500 million of the proceeds will be used to repurchase or retire a portion of the company's 4.75% convertible senior notes due 2015, through open-market transactions, negotiated transactions or otherwise.

Remaining proceeds will be used for research and development and other general corporate purposes.

Chiquita slips

Chiquita's 4.25% convertibles due 2016 were seen at 96.875 bid, 97.25 offered, which was slightly lower than the prior day but more than a point lower from recent levels.

"They had been 0.25 point on the sale side from where they had been the prior day, but they had traded at 98.5 not too long ago," a New York-based trader said.

The bonds trade on an outright basis. But Chiquita shares moved lower on earnings, falling 78 cents, or 7.7%, to $9.41.

The company missed third-quarter earnings estimates by 15 cents and also missed revenue estimates.

Also trading were Central European's bonds, which were up on the day by about 2 points, trading between 88.375 and 89.125.

Mentioned in this article:

Central European Media Enterprises Ltd. Nasdaq: CETV

Chiquita Brands International Inc. NYSE: CQB

Incyte Corp. Nasdaq: INCY

InvenSense Inc. Nasdaq: INVN

Seacor Holdings Inc. NYSE: CKH

ServiceNow Inc. NYSE: NOW

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