Upsized Nuance edges up in trade; planned Inphi looks cheap; Teva on tap; Pandora launches

By Rebecca Melvin

New York, Dec. 2 – Nuance Communications Inc.’s newly priced 1% convertibles edged up in active trade on Wednesday after the upsized $588 million of 20-year senior notes were released for secondary dealings.

The new Nuance bond broke at about 100.5 and closed around 101. The issue accounted for roughly one-third of trading action in the convertibles market, according to Trace data.

There were $100 million of Nuance 1% bonds that traded out of about $336 million total, a New York-based trader said.

Nuance shares were flat to higher throughout the session and ended slightly higher despite weakness that hit the overall equities market. The bond may have expanded slightly.

Also in the primary market, market players were sizing up a planned $150 million offering of five-year convertibles from Inphi Corp., a Santa Clara, Calif.-based chip company, that was expected to price after the market close after being launched late Tuesday.

The new Inphi deal looked about 2% cheap, using a credit spread of 400 basis points over Libor and 35% vol. at the midpoint of price talk, a Connecticut-based trader said.

The Inphi deal was talked at a 0.875% to 1.375% coupon and a 32.5% to 37.5% initial conversion premium.

Inphi shares were down on the heels of the deal launch. In the early going they were off about 5%, but they closed down 8% amid overall equity market weakness.

Also set to price after the market close was Teva Pharmaceutical Industries Ltd.’s $3.375 billion mandatory convertible preferred deal, which launched on Monday. That deal looked very cheap, with a Connecticut-based market source valuing it at 103.7, using a 2 skew and credit spread of 200 basis points over Libor.

Neither deal was seen in the gray market ahead of final terms being set on Wednesday, a trader said.

Meanwhile Oakland, Calif.-based internet radio service Pandora Media Inc. launched an offering of $300 million of five-year convertible senior notes after the market close that were talked to price with a coupon of 1.75% to 2.25% and an initial conversion premium of 25% to 30%.

Morgan Stanley & Co. LLC is the Pandora deal bookrunner.

In the broader markets, equities sold off sharply into the close, leaving the S&P 500 stock index down 23.12 points, or 1%, at 2,079.51, the Dow Jones industrial average down 158.67 points, or 0.9%, at 17.729.68 and the Nasdaq composite index down 33.08 points, or 0.6%, at 5,123.22.

Oil prices were also lower with West Texas intermediate crude oil for January delivery sliding 4%, or $1.75, at $40.10.

New Nuance edges up, active

The new Nuance 1% convertible was a major focus of trade on Wednesday. It traded late in the day at 101 with shares up about 0.4%.

The deal broke around 100.5 and was seen trading at 100.25 in the early going but gained more steam later in the session.

The deal was oversubscribed by three times and was sold to a combination of outright and hedged investors, a syndicate source said.

The bonds mature in 2035, but with a put in year seven, investors were treating the paper as a seven-year bullet. Its contingent interest feature, which kicks in after year seven, is being ignored by investors and acts rather as a tax deduction for the company, the syndicate source said.

Ahead of pricing, Nuance looked to be slightly cheap at about 100.5 at the midpoint of price talk, using a credit spread of 200 bps over Libor and 30% vol.

Nuance, a Burlington, Mass.-based provider of voice and language software, plans to price $550 million of 20-year senior convertible notes after the market close on Tuesday.

Bookrunners were Barclays and Morgan Stanley.

Proceeds are being used to repay all outstanding term loans under its existing senior credit facility. Remaining proceeds and cash on hand will be used to repurchase about $200 million of shares of its common stock concurrently with the pricing of the debentures in transactions with initial purchasers, and to repurchase existing debt.

Inphi, Teva pricing Wednesday

Inphi and Teva Pharmaceutical were pricing a combined $3.525 billion of convertible paper on Wednesday, with the lion’s share of that being the $3.375 billion Teva mandatory deal, which was talked yield 6.75% to 7.25% with an initial conversion premium of 17.5% to 22.5%.

Teva is also pricing an equally sized stock deal. Proceeds from the offerings will go toward the cash portion of its purchase price for previously announced acquisition of Allergan plc’s generic pharmaceuticals business and for the pending acquisition of Rimsa and for general corporate purposes.

The $40.5 billion Allergan deal is expected to close in the first quarter.

Joint bookrunners of the offerings are Barclays, BofA Merrill Lynch, Citigroup Global Markets Inc., Morgan Stanley, BNP Paribas, Credit Suisse, HSBC, Mizuho Securities, RBC Capital Markets and SMBC Nikko.

Teva is a global pharmaceutical company based in Petach Tikva, Israel.

Inphi plans to price $150 million of five-year convertible bonds to yield 0.875% to 1.375% with an initial conversion premium of 32.5% to 37.5%. Morgan Stanley and J.P. Morgan Securities LLC are joint bookrunners of the deal, and Stifel, Nicolaus & Co. Inc. is a co-manager.

Pandora to price $300 million

Pandora launched a Rule 144A offering of $300 million of five-year convertible senior notes after the market close on Wednesday. It was talked to price with a coupon of 1.75% to 2.25% and an initial conversion premium of 25% to 30%, according to market sources.

The notes are non-callable for three years and provisionally callable after two years with a conversion make-whole table if shares exceed 130% of the conversion price.

The notes will be convertible into cash, shares or a combination of cash and shares.

In connection with the pricing of the notes, Pandora expects to enter into one or more capped call transactions. The strike price of the capped call transactions will initially correspond to the initial conversion price of the notes.

A portion of the proceeds from the notes will be used to pay the cost of the capped call transactions with remaining proceeds for general corporate purposes including growth opportunities.

Mentioned in this article:

Inphi Corp. Nasdaq: IPHI

Nuance Communications Inc. Nasdaq: NUAN

Pandora Media Inc. NYSE: P

Teva Pharmaceutical Industries Ltd. NYSE: ADS: TEVA

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