New Sybase, THQ up in trading; Arris adds with stock down; Symantec, Omnicare slip on results

By Rebecca Melvin

New York, July 30 - The newly priced Sybase Inc. 3.5% convertible moved up smartly on their secondary market debut Thursday, as did the new THQ Inc. 5% convertibles, but the latter wasn't overly active because of its small deal size, market sources said.

Sybase's existing 1.75% convertibles gained about 1.5 points on a slightly higher stock price to 145.562 versus $35.90, compared to 144 on Wednesday.

The warm reception to the new paper came amidst a winning streak in convertibles as players chase both distressed and high-grade issues higher. But several earnings disappointments on Thursday also caused activity to the downside.

As investors' confidence has improved, some distressed issues have gained by 50% or more recently, and investment-grade convertibles are also better - albeit more modestly - with credit spreads tightening.

But another aspect has to do with "chasing things so that you don't get left out," a New York-based sellside analyst said.

"The bids don't have to be tied to anything fundamental; they are chasing things because they don't want to underperform their benchmarks, which are going up," he said. But if third-quarter earnings don't follow through, there is going to be a snap back to the downside, he predicted.

Arris Group Inc. gained about a point as its shares slipped ahead of the cable, phone and television services developer's second-quarter earnings report, which showed higher profit on slightly lower sales.

But Symantec Corp. convertibles dropped about 6 points versus a 14% slump in their underlying shares, also on an earnings disappointment.

Omnicare Inc. convertibles slipped as its shares fell 14% in heavy volume after it reported a drop in second-quarter outlook and cut its outlook.

Sybase jumps to more than 104

The newly priced Sybase 3.5% convertibles due 2029 jumped right away to 103.5 and 104.5 in the session. They stuck at 104 as people rejigged allocations for most of the session, and ended at about 104.625 bid versus a share price of $35.90.

The shares were up a bit, which may have put the issue a little bit over fair value, a sellside analyst said.

The Sybase issue was handsomely upsized to $350 million from an originally expected $250 million after the close Wednesday.

The deal came at the rich end of talk, which was for a yield of 3.5% to 4% and the conversion premium at 30% to 35%.

There is a $50 million greenshoe, which is unchanged from the original amount.

The Rule 144A deal was sold via joint bookrunners Merrill Lynch and JP Morgan.

The convertibles will be non-callable for five years until Aug. 20, 2014, with puts on Aug. 15, 2014, Aug. 15, 2019, and Aug. 15, 2024 or in the event of a fundamental change.

Of the proceeds, $70 million will be used to buy back common shares, and the remainder to repurchase the company's existing 1.75% convertible subordinated notes due 2025.

The existing convertibles become callable/putable in February/March 2010.

Dublin, Calif.-based Sybase is a wireless software company focused on mobile and wi-fi technologies.

THQ also adds

The newly price THQ 5% convertibles due in 2014 settled at 103.375 bid, 104.375 offered, according to a syndicate source.

The gain came despite a 3.4% drop in their underlying shares to $6.48.

"It did well for us," the syndicate source said, who wasn't aware of how much traded during the session.

But there was a lot of liquidity in the stock, he said, so he imagined that there was a fair amount of trading.

Given the smallish $90 million, other sources said they hadn't seen it in trade.

"It was probably put away somewhere and you'll never see it," a sellside analyst said.

Pricing came at the midpoint of talk for the coupon, which was 4.75% to 5.25%, and at the tight end of talk on the premium, which was 20% to 25%.

There is an over-allotment option of up to an additional $10 million of notes.

The Rule 144A deal was sold via bookrunner Morgan Stanley.

The notes are non-callable for three years, and then provisionally callable subject to a price hurdle of 150%.

THQ intends to use proceeds for general corporate purposes.

THQ is a developer and publisher of video games based in Agoura Hills, Calif.

Arris adds a point

Arris' 2% convertible senior notes due 2026 traded last at about 104.60, which was up from about 103.625 on Wednesday, or the last round lot at 103.75 on Tuesday.

That was up 0.875 point to a point even though its underlying shares fell 65 cents, or nearly 5%, to $12.86.

"It's a high delta name, that pushed out and got rich," a sellsider said of the Suwanee, Ga.-based company.

Arris reported a second-quarter profit of $22.9 million compared to $7.8 million in the same quarter a year earlier. Revenue slipped 1% to $278.5 million, however.

Symantec drags on earnings

Symantec 0.75% convertibles due 2011 traded down about 6 points to 101.5 against a stock price of $14.78. The common stock fell 14% or $2.46.

"It was an earnings story," a sellsider said of the price action.

The Cupertino, Calif.-based security and storage software maker posted disappointing earnings and revised its third and fourth quarter forecast.

The stock was hit hard and the bonds were down accordingly, the sellsider said.

Symantec reported late Wednesday earnings of $73 million, compared with earnings of $172 million during the same period a year prior.

Revenue fell 13% to $1.43 billion from $1.65 billion.

Revenue from the storage and server management segment fell 17% during the quarter while revenue from the consumer business fell 4%.

Mentioned in this article:

Arris Group Inc. Nasdaq: ARRS

Omnicare Inc. NYSE: OCR

Sybase Inc. NYSE: SY

Symantec Corp. Nasdaq: SYMC

THQ Inc. Nasdaq: THQI

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