Nuance flat to lower on swap after improved guidance; Colony Financial, Emergent on tap

By Rebecca Melvin

New York, Jan. 22 - Nuance Communications Inc.'s two convertible bond issues added on an outright basis early Wednesday but were seen flat to lower on a dollar-neutral, or hedged, basis after the Burlington, Mass.-based speech-recognition software company preannounced first-quarter earnings that were better than expected. Shares jumped 8%.

Cemex SAB de CV's trio of convertibles were also trading actively and they were higher outright but flat to slightly higher on a dollar-neutral basis.

Just Energy Group Inc.'s newly priced Regulation S deal, bearing a 6.5% coupon, was said to be trading actively in the 101 bid, 102 offered range on an outright basis in trades by mostly U.K.-based trading desks.

The Toronto-based North American energy retailer priced $150 million of 5.5-year convertible bonds in a Regulation S deal geared toward European investors. The $200,000 par bonds have a 6.5% coupon and a 22.5% initial conversion premium.

After the market close, the U.S. primary market came alive, with Colony Financial Inc. launching an overnight deal of $200 million of seven-year convertible senior notes, and Emergent BioSolutions Inc. planning $200 million of seven-year convertible senior notes that were expected to price after Thursday's market close.

The U.S. convertible primary market has gotten off to a slow start for 2014 with only one previous deal launching and pricing. Market conditions on Wednesday were not especially favorable, a syndicate source said. Instead, the fact that earnings season is in full swing encouraged the issuers to launch.

Nuance flat to lower on swap

Nuance's 2.75% convertibles due 2031, which are the newer bonds, traded up 1.17 points to 99.296, according to Trace data.

Nuance's older 2.75% convertibles due 2027, which are typically more illiquid, were also in trade and changed hands at 105.5, which was up 0.625 point, according to Trace data.

The bonds looked to have contracted on a dollar-neutral basis by about 0.25 point to 0.5 point if market players were using a delta in the 30% range.

Higher or lower deltas would have made the bonds perform differently. And a Connecticut-based trader said early Wednesday that the Nuance bonds were flat on a dollar-neutral basis.

Nuance shares surged $1.16, or 8%, to 16.05 on Wednesday.

Spurring the pricing moves was Nuance's earnings preannouncement late Tuesday that it now expects first-quarter revenue of between $487 million and $491 million and net income 23 cents per share to 24 cents per share. That compares to previous guidance of $477 million to $487 million and net earnings of 18 cents to 21 cents a share.

Analysts were expecting net income of 21 cents a share and revenue of $483.56 million.

Nuance also announced that it has appointed Bill Robbins as executive vice president of its worldwide sales. He joins Nuance from [24]7.

Cemex trades

Cemex's 4.875% convertibles due 2015 traded up 1.5 points in early action to 124.9, according to Trace data. The bonds were also active and higher by several points on Tuesday.

Cemex's 3.75% convertibles due 2018 were up 3.7 points at 147.5.

The Cemex 3.25% convertibles due 2016 traded in line dollar neutral at 140.5 bid, 140.75 offered versus an underlying share price of $12.95, a New York-based trader said after the market close. Earlier the 3.25% convertibles were up 2.77 points at 141.98.

Cemex shares had been as high as $13.17, or up 2.5% on the day, but they pared early gains to end up a dime, or 0.8%, to $12.95.

The bonds were seen pretty much "unchanged or up small on a dollar-neutral basis," a New York-based convertibles analyst said.

Cemex is a high delta name. The A convertibles trade on a 70% delta, and the B series trades on a delta of 80%.

New Just Energy adds

Just Energy's newly price 6.5% convertibles due 2019 traded up to 101 bid, 102 offered with the underlying shares lower by 5.5%, a syndicate source said.

The bonds traded on an outright basis on desks in the U.K. predominantly.

Shares of the Toronto-based North American energy retailer ended the session on the New York Stock Exchange down 68 cents, or 9%, at $7.03.

There was "some good liquidity, and the bonds were up a couple of points," the syndicate source said.

Just Energy priced $150 million of 5.5-year convertible bonds at par of $200,000 to yield 6.5% with an initial conversion premium of 22.5%. There was a good mix of hedged and outright investors, with the European accounts mostly long only and the American-based funds mostly hedged.

The Canadian-based company issued a U.S. dollar-denominated convertible in the European convertible market to meet its specific "company requirements," the syndicate source said.

Just Energy is paying down existing convertibles with the proceeds, and essentially refinancing, and it also wanted to tap into the euro market, where it would have access to a new investor pool and diversity away from Canadian investors, the syndicate source said.

In Europe, there is "a lot of demand, and investors are very hungry for diversified names. There had been a lot of property companies bringing issuance and investors are actively looking for issuers and not limiting to the property sector," the syndicate source said.

ISM Capital LLP and Mackie Research Capital Corp. were joint bookrunners and joint lead managers of the Regulation S offering.

A $25 million over-allotment option was exercised simultaneously with the $125 million base deal.

The bond has significant "investor protections," the syndicate source said, regarding characteristics of this bond.

The takeover protection is a strong feature of the bond given that the company may be a takeover target and the convertible may become an event driven play, he said.

There is also dividend protection, via a conversion price adjustment for cash dividends above the company's historical 10% dividend.

The bonds also have a hyper feature, which is the payment of incremental shares once the share price moves above the conversion price. This feature has been seen in U.S. convertible bonds like those of Stillwater Mining Co., the Billings, Mont.-based producer of palladium and platinum, but it remains a feature that is untested in European bonds, the syndicate source said.

As the stock price goes up the conversion price falls, but once the share price is above conversion you get a reset.

The hyper feature helps allay concerns related to a stock that currently yields 10%, he said.

The bonds are non-callable with no puts.

Proceeds will be used to redeem Just Energy's outstanding C$90 million of 6% convertible debentures due Sept. 30, 2014, to make market purchases for cancellation of convertible debentures from other series, to pay down the company's credit line and for general corporate purposes.

The company plans to list the bonds on the Official List of the UK Listing Authority and the Professional Securities Market of the London Stock Exchange.

Based in Toronto, Just Energy is a North American retailer of natural gas and electricity to residential and commercial customers.

Emergent to price

Emergent BioSolutions said after the market close that it planned to price $200 million of seven-year convertible senior notes. The bonds were seen pricing Thursday after the market close at a coupon talked at 2.625% to 3.125% and an initial conversion premium talked at 27.5% to 32.5%.

The Rule 144A offering has a $30 million greenshoe and was being sold via BofA Merrill Lynch and J.P. Morgan Securities LLC.

The bonds are non-callable for three years and then are provisionally callable if shares exceed 130% of the conversion price. There are no puts.

Proceeds will be used to finance a previously announced acquisition and for general corporate purposes.

Emergent may terminate conversion rights after Jan. 20, 2017 if the last reported sale price of Emergent's common stock has been at least 130% of the conversion price for at least 20 out of 30 consecutive trading days.

There is no "sinking fund" provided for the notes, which means that Emergent will not be required to redeem or retire the notes periodically.

Rockville, Md.-based Emergent is a biopharmaceutical company that develops immunobiotics for use against biological agents and infectious diseases.

Colony Financial to price

Colony Financial launched an overnight offering of $200 million of seven-year convertible senior notes after the market close that was talked to yield 3.625% to 4.125% with an initial conversion premium of 10% to 15%, according to a syndicate source.

There is a $30 million greenshoe for the registered, off-the-shelf deal that was being sold via Morgan Stanley & Co. LLC, BofA Merrill Lynch, Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc.

The bonds are non-callable for five years and then are provisionally callable if shares exceed 130% of the conversion price.

Proceeds will be used to repay amounts outstanding under its secured revolving credit facility, with remaining proceeds intended to acquire its target assets and for working capital and general corporate purposes.

Santa Monica, Calif.-based Colony Financial is a real estate investment trust.

Mentioned in this article:

Cemex SAB de CV NYSE: CX

Colony Financial Inc. Nasdaq: CLNY

Emergent BioSolutions Inc. NYSE: EBS

Just Energy Group Inc. NYSE: JE; Toronto: JE

Nuance Communications Inc. Nasdaq: NUAN

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