Convertibles wane with market; Nuance goes sub-par post-pricing; Citrix active on sale talk

By Stephanie N. Rotondo

Seattle, March 14 – Convertible bonds were following the broader markets lower in Tuesday trading.

In fact, even Nuance Communications Inc.’s new 1.25% convertible senior notes due 2025 – a $350 million deal that priced late Monday with an initial conversion premium of 30% – were not faring well. Its equity was also weaker on the day.

Prior to pricing, a market source said price talk was in the 1% area, with an initial conversion premium of 32.5%. The source said the bonds “modeled rich” at 99.

Elsewhere in the new issue space, the market was waiting for ON Semiconductor Corp. to price its $500 million offering of convertible senior notes due 2023.

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

Morgan Stanley & Co. LLC, BofA Merrill Lynch, Deutsche Bank Securities Inc., BMO Capital Markets and HSBC are the joint bookrunners.

The deal had not priced as of press time.

Away from the new issue, Citrix Systems Inc.’s 0.5% convertible notes due 2019 were initially lower, due to a Bloomberg report that said the company had engaged Goldman Sachs Group Inc. to work on a possible sale.

However, the notes managed to finish the session about unchanged.

Cobalt International Energy Inc. was another loser for the day, as the market reacted poorly to the company’s latest quarterly report.

The day’s generally softer feel was blamed on the Federal Open Market Committee, which began its two-day policy meeting on Tuesday. Though it is largely expected that the FOMC will opt to increase interest rates this month, investors are taking a pause ahead of the decision, sources reported.

A snowstorm in the Northeast that resulted in a State of Emergency being declared also resulted in many empty desks, thereby weighing on liquidity.

Nuance prices

Nuance Communications’ 1.25% convertibles ducked below par on Tuesday, after pricing late Monday.

The paper was seen hitting a low of 98.375 during the session.

Earlier in the day, a market source saw the issue trading actively, but with a 99 handle.

The company’s 1% convertible notes due 2035 were meantime seen hitting lows with a 93 handle, off at least a point on the day.

The underlying equity waned 15 cents to $16.94.

The notes will be convertible in certain circumstances into cash for the principal amount of the notes, and into cash, common stock, or a combination of the two for any excess conversion value.

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.

Holders can put the issue upon a fundamental change at par plus accrued interest.

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.

Nuance is a Burlington, Mass.-based provider of voice and language solutions for businesses and consumers.

Citrix considering a sale

Citrix Systems’ 0.5% convertibles dipped in early trading on Tuesday in the wake of reports the company had hired advisers to look into a possible sale of the company.

But the debt managed to finish steady on the day.

At the close, the notes were seen straddling 124, which was about unchanged from the previous round-lot trades.

In earlier dealings, the paper was off a shade, trading around 123.

The stock was down $2.91, or 3.43%, at $82.02.

According to the article, it might be difficult to find interested buyers, given the company’s large market valuation.

Market capitalization was $12.7 billion, based on the March 13 closing share price.

Citrix is a Fort Lauderdale, Fla.-based cloud computing company.

Cobalt comes in

Cobalt International’s 3.125% convertible bonds got hit Tuesday after the company reported a loss that was much wider than analysts had expected.

At one desk, the convertibles were pegged at 15.25 bid, 15.5 offered, down from 20 previously.

Another source placed the issue at 15.25, a loss of 4.5 points.

As for the equity, it declined a dime, or 18.74%, to $0.44.

For the quarter, the Houston-based oil and gas company reported a loss of $1.87 billion, or $4.47 per share. On an adjusted basis, the loss-per-share was 43 cents.

Revenue was $7.8 million.

Analysts polled by Zacks Investment Research had forecast a loss of 13 cents per share.

For the fiscal year, Cobalt posted a loss of $2.34 billion, or $5.69 per share. Revenue came to $16.8 million.

On March 1, the company said it had received a warning from the New York Stock Exchange that it could be delisted, given that the shares were trading below $1.00. The company has six months to regain compliance.

Mentioned in this article:

Citrix Systems Inc. Nasdaq: CTXS

Cobalt International Energy Inc. NYSE: CIE

Nuance Communications Inc. Nasdaq: NUAN

ON Semiconductor Corp. Nasdaq: ON

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