Rexnord mandatory convertible preferreds price, trade up; Workday plummets post-earnings

By Stephanie N. Rotondo

Seattle, Dec. 2 – The convertible primary market saw some action on Friday as Rexnord Corp.’s anticipated $350 million offering of series A mandatory convertible preferreds hit the tape.

The $50-par issue came with a 5.75% coupon and a 20% initial conversion premium.

Price talk was for a yield of 5.5% to 6% and a premium of 17.5% to 22.5%.

Upon pricing, the issue was “basically trading around $50.75,” according to a trader at mid-morning.

The trader also noted that the new issue was taking up a fair bit of the day’s volume.

However, the preferreds eventually came off those early highs.

“[The stock] broke down and the preferred followed,” a trader said, seeing the issue at $50.17.

The equity underlying the issue retreated 72 cents, or 3.41%, to $20.27.

The deal has a $52.5 million over-allotment option.

Credit Suisse Securities (USA) LLC, Barclays, Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. ran the books.

The issue will automatically convert to common stock on Nov. 15, 2019 with an initial reference price of $20.99 and a threshold appreciation price of $25.19. The conversion rate will equate to 1.9851 shares to 2.3821 shares per each depositary share.

Upon a fundamental change, the conversion rate may be adjusted. Holders may also be entitled to a make-whole premium.

The preferreds are not redeemable.

Proceeds will be used to repay $169.6 million – or $195 million, if the over-allotment option is fully exercised – of an outstanding term loan. Remaining funds will be used for general corporate purposes.

Rexnord is a West Milwaukee, Wis.-based industrial company comprising two strategic platforms: Process and motion control, and water management.

Workday wanes

In secondary trading, Workday Inc. was busy in the wake of the company’s earnings release late Thursday.

The news didn’t do any favors for the convertible bonds, or the equity for that matter.

At the bell, the 1.5% convertible notes due 2020 were pegged in a 114 to 115 context, down about 6.5 points outright. The 0.75% convertible notes due 2018 declined 8 points to 108 bid, 109 offered.

Those levels compared to quotes of 115 bid, 115.75 offered on the 1.5% convertibles and 108.25 bid, 108.5 offered on the 0.75% convertibles at mid-afternoon.

In even earlier dealings, a trader saw the 0.75% convertible bonds at 106.25 bid, 106.5 offered and the 1.5% convertible notes at 111.25 bid, 111.75 offered.

He noted that the equity was off $13.00 at mid-morning. The shares ended at $71.45, off $10.15, or 12.44%.

“These are small coupons that trade at a high delta,” he added. “Over the course of the day, the prices are a lot wider than that.”

For instance, he said, the 1.5% convertibles had traded between 111 and 113.5 by mid-morning.

The latest quarterly results showed net loss widening 47% to $114.1 million, or 57 cents per share. Revenue improved 34% to $409.6 million, but costs were up 38% at $519.5 million.

On an adjusted basis, the company reported earnings per share of 3 cents. Analysts had expected a loss of 4 cents on revenue of $433.6 million.

The cloud-based human resources software company acknowledged that economic and political uncertainties were weighing on its bottom line, as it was forced to push back several deals.

For the full fiscal year, Workday anticipates revenue of $1.560 billion to $1.563 billion.

Mentioned in this article:

Rexnord Corp. NYSE: RXN

Workday Inc. NYSE: WDAY

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