Digital River gains on debut; Equinix higher, in line; Energy XXI, Green Plains on tap

By Rebecca Melvin

New York, Oct. 27 - Digital River Inc.'s newly priced 2% convertibles Wednesday moved up a point out of the chute after the upsized $300 million issue priced beyond the rich end of coupon talk late Tuesday.

The deal was initially talked at $250 million in size. There was a lot of action in the notes before the open, and they were heard mid-afternoon at 101.5625 bid, 101.8125 offered versus a share price of $37.85, according to a syndicate source.

At around noon ET, the new Digital convertibles were 100.875 bid, 101.125 offered versus a share price of $37.50, a New York-based sellside trader said.

Equinix Inc.'s convertibles were higher in line, dollar neutral, after the Foster City, Calif.-based data center service provider's earnings posted after the close Tuesday lifted underlying shares by 8%.

A lot of CommScope Inc. bonds traded right around parity after confirmation that the Carlyle Group is taking the company private as per CommScope's heads up on Monday.

An upside earnings surprise from Amgen Inc. was "a non-event," a sellsider said, with those bonds trading much as they typically do, and convertible market volume in general dropped off considerably from Tuesday.

"We probably did 60% of what we did yesterday. It was super quiet in terms of volume," the sellsider said.

Thursday will bring third-quarter earnings reports from convertible issuers, including Omnicare Inc., Barrick Gold Corp. and Bunge Ltd., among others.

Primary picks up

In the primary market, after the market close, Energy XXI (Bermuda) Ltd. launched an offering of $200 million of convertible perpetual preferred stock that was talked to yield a dividend of 5.625% to 6.125% and a 17.5% to 22.5% initial conversion premium.

In addition, Green Plains Renewable Energy Inc. launched an offering of $60 million of five-year convertible senior notes.

The Energy XXI deal was being sold via UBS Securities LLC, BNP Paribas Securities Corp. and RBS Securities Inc., and the Green Plains deal was being sold via Credit Suisse and Jefferies.

In the broader markets, equities ended mixed after earlier pressure. Concern that the Fed's quantitative easing program may be a lot more tame than some had predicted overshadowed positive data on durable-goods orders and the housing market.

U.S. manufactured durable goods orders posted their biggest rise since January after a spike in orders for civilian aircraft and aircraft parts. Overall, durable goods orders rose 3.3% in September to a seasonally adjusted $199.16 billion, more than the expected 2.5% rise.

New-home sales in September continued to rise from bottomed out levels, increasing 6.6% to a seasonally adjusted annual rate of 307,000, more than consensus estimates of a 4.2% increase.

Digital River trades up a point

Digital River's newly priced 2% convertibles traded last at 101.5625 bid, 101.8125 offered versus a share price of $37.85, according to a syndicate source.

Around noon ET, the new Digital convertibles were 100.875 bid, 101.125 offered.

They went up at a 26.5% to 27% delta, sources said, with theoretical delta more like 60% to 65%.

A syndicate source said that most allocations went to hedge funds, although his knowledge was anecdotal as he has not seen allocations yet.

Before trading on swap started, the top tick in trades was 102.

The 2% notes priced beyond the rich end of talk for the coupon and at the rich end of talk for the initial conversion premium, which was 27.5% to 32.5%.

At the midpoint of talk, the deal was seen at fair value at 104, using Libor plus 550 basis points and a 35% vol., a New York-based sellsider said Tuesday.

Using the same credit spread of 550 bps over Libor, but a lower vol. of 30%, the deal had a fair value at 101.62.

On Tuesday ahead of fixing final terms, the deal was quiet in the gray market.

The Rule 144A offering has a $45 million over-allotment option.

The conversion ratio is 20.3537 shares per $1,000 principal amount, which is equivalent to a conversion price of $49.13.

Morgan Stanley & Co. Inc. and Bank of America Merrill Lynch were the joint bookrunners of the deal, with Piper Jaffray & Co. acting as the co-manager.

The notes will be non-callable for five years and have put options in years five, 10 and 15.

The company plans to use up to $35 million of the proceeds to repurchase shares and the remainder for general corporate and strategic purposes.

Eden Prairie, Minn.-based Digital River is a provider of electronic commerce outsourcing services.

Digital River formerly had a 1.25% convertible due 2024, which was putable in 2009. Otherwise, the software service company has no other debt.

Equinix moves higher, in line

Equinix's 2.5% convertibles due 2012 traded at 103.25 versus a share price of $80.00, according to a New York-based sellside analyst.

The Equinix 3% convertibles due 2014 traded at 100.25 versus the same price.

The Equinix 4.75% convertibles due 2016 weren't heard in trade.

The 3% convertibles looked "pretty much in the middle," a sellsider said. "Maybe is was down one cent on a dollar-neutral basis, and the 2.5% were up maybe 0.25 point to 0.5 point on a dollar-neutral basis."

The Equinix issues weren't that active in trade, he said.

Since a plunge in the shares earlier in the month when the company announced that it was not renewing a lot of its long-term contracts, the convertibles have remained better on a dollar-neutral basis.

For its earnings release on Wednesday, the data center services provider reported a 40% plunge in its third-quarter earnings due to higher costs but said the outlook is better, boosting shares by $6.41, or 8.4%, to $83.00.

Equinix said it earned $11.2 million, or 24 cents a share, in the just concluded quarter, which missed the consensus estimate by 2 cents and compared to $18.8 million, or 47 cents, in the year-earlier quarter.

But revenue was up 45% to $330.3 million, which was slightly over what analysts expected.

For 2010, the company expects revenue of just under $1.22 billion.

For 2011, the company expects that revenue will top $1.5 billion, which is slightly higher than the $1.49 billion analysts were expecting.

In early October, the company said it expected third-quarter and full-year revenues to fall below the company's previous outlook.

CommScope at parity

CommScope's 3.25% senior notes due 2015 traded at 131 versus a share price of $31.35 on Wednesday, which was up compared to Monday when the paper traded at 127.75 versus a share price of $30.05 on rumors of being taken private.

"A lot of those bonds traded; but, in terms of pricing it was pretty much in line with the $31.50 stock price. The stock was trading 9 cents below the offer price, and the converts don't move around a lot in terms of price at this point," a New York-based sellside analyst said.

There was good two-way flow, he said, moving the same as the stock would move, up or down a penny or so.

"Basically you know parity at the deal price, and the bonds should be right around there," the sellsider said.

The Hickory, N.C., communications cable maker agreed to be acquired by the private equity firm Carlyle Group for about $3.36 billion. CommScope also reported third-quarter earnings.

The company's shares gained $1.19, or nearly 4%, to $31.41.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Barrick Gold Corp. NYSE: ABX

Bunge Ltd. NYSE: BG

CommScope Inc. Nasdaq: CTV

Digital River Inc. Nasdaq: DRIV

Energy XXI (Bermuda) Ltd. Nasdaq: EXXI

Equinix Inc. Nasdaq: EQIX

Green Plains Renewable Energy Inc. Nasdaq: GPRE

Omnicare Inc. NYSE: OCR

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