Three deals launch in convertibles market; Unisys is 100.25 bid; CSG Systems looks cheap

By Rebecca Melvin

New York, March 9 – Two new deals were being sized up in the convertibles market during the trading session on Wednesday, and a third new deal launched after the market close. Together the new paper will boost the U.S. primary market tally to about $2 billion, up from $1 billion so far this year.

Unisys Corp.’s planned $150 million offering of five-year convertible senior notes was bid in the gray market at 100.25, ahead of final terms expected to be fixed after the market close, a New York-based trader said.

Unisys shares slumped on active trade on the heels of the convertible deal launch, skidding 28%.

CSG Systems International Inc. also dipped its toe into the convertibles primary market with an offering of $200 million of 20-year convertibles. This paper was seen about 3.75% cheap, according to a New York-based trader.

That’s “good on the surface, but it’s a small deal and average daily volume of the stock is also small, so the bonds will be illiquid and tough to trade,” the trader said.

Both deals were expected to price after the market close.

NuVasive Inc. launched a $550 million offering of five-year convertibles that was expected to price late Thursday. The majority of proceeds will be used to repurchase its existing 2.75% convertibles. Shares of the San Diego-based medical device maker were unchanged in after-hours trade.

There was not a lot of gray market in the Unisys and CSG deals, and trading was quiet in the established secondary market, a New York-based trader said.

“It’s quiet today. I don’t know if people are looking at the new deals or what, but very little is trading,” he said.

Unisys shares plunge

Unisys shares fell $3.06, or 28%, to $7.97 in extremely active trade after the convertibles deal was launched. That move was indicative of hedge fund players getting involved in the deal, a New York-based trader said.

There were 10.5 million shares traded on the New York Stock Exchange, and given the deal size, conversion ratio and delta, only 10 million shares were needed to hedge the deal, the trader said.

“Clearly it’s a hedge fund-focused trade, as you can see given the lovely equity performance,” the trader said, referring to what was in fact an ugly slide in the shares.

The $150 million Unisys deal was talked to yield 5% to 5.5% with an initial conversion premium of 20% to 25%.

“It’s a pretty boring business and it’s a small deal and there is not a lot of outright interest. It’s geared toward hedge funds and not the most attractive pricing, so we will see how well it trades,” he said.

The Rule 144A offering has a $22.5 million greenshoe and was being sold via bookruner J.P. Morgan Securities LLC.

Proceeds will be used for general corporate purposes, which may include cost reduction and savings initiatives, obligations under its benefit pension plans, investments in next-generation services and technologies and repaying existing debt and to pay the cost of the capped call transaction the company intends to enter in connection with the offering.

Unisys intends to enter into the privately negotiated capped call transaction with the initial purchaser or one of its affiliates, covering, subject to customary anti-dilution adjustments, the number of shares of Unisys' common stock that will initially underlie the notes.

The transaction is expected to reduce potential dilution to Unisys’ common stock and/or offset potential cash payments Unisys is required to make in excess of the principal amount upon any conversion of notes. If the initial purchaser exercises its option to purchase additional notes, Unisys may enter into an additional capped call transaction.

The IT services provider is based in Blue Bell, Pa.

CSG Systems to price

Using a credit spread of 500 basis points over Libor and 25% volatility, the CSG Systems deal looked attractive, a trader said.

The CSG Systems notes were talked at a 4.125% to 4.5% coupon and a 40% to 42.5% initial conversion premium. Shares of the Englewood, Colo.-based business services company were up more than 6% on the heels of the launch and ahead of pricing late Wednesday.

CSG, which provides business services to mostly communications companies, will use the proceeds to repay existing convertibles that mature in 2017.

The Englewood, Colo.-based company is selling the bonds privately under Rule 144A via joint bookrunners Stifel, Nicolaus & Co. Inc. and RBC Capital Markets LLC.

There is a $30 million greenshoe.

The 20-year notes are non-callable for four years and then provisionally callable for two years if the stock price exceeds 130% of the conversion price. After that the notes are freely callable. There are puts on March 15, 2022, March 15, 2026 and March 15, 2031.

There is standard takeover protection and dividend protection for dividends above $0.185 per share per quarter. The notes will be settled in cash, shares or a combination of cash and shares.

Up to $125 million of the proceeds will be used to repurchase a portion of CSG Systems’ existing 3% convertible senior notes due 2017 with remaining proceeds to be used for general corporate purposes.

NuVasive launches

NuVasive, a medical device company focused on developing minimally disruptive surgical treatments for the spine, plans to price $550 million of five-year convertible senior notes that were talked to yield 2.25% to 2.75% with an initial conversion premium of 30% to 35%, according to market sources.

The Rule 144A deal has a $100 million greenshoe and was being sold via joint bookrunners BofA Merrill Lynch and Goldman Sachs & Co.

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

There is full dividend protection and protection for investors upon a change of control.

In connection with the pricing of the notes, NuVasive expects to enter into convertible note hedge and warrant transactions with affiliates of one or more of the initial purchasers.

Proceeds will be used to repurchase up to $325 million of NuVasive’s existing 2.75% convertible notes, to purchase the bond hedge and for general corporate purposes.

Mentioned in this article:

CSG Systems International Inc. Nasdaq: CSGS

NuVasive Inc. Nasdaq: NUVA

Unisys Corp. NYSE: UIS

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