Morning Commentary: RingCentral convertibles active on buyback; Splunk jumps on earnings

By Abigail W. Adams

Portland, Me., Aug. 24 – It was an active start to the day in the convertibles secondary space with buybacks and earnings-related news sparking activity in outstanding issues.

Equity indexes were mixed at the opening but sank into negative territory as the session progressed with the Dow Jones industrial average down 23 points, or 0.51%, the S&P 500 index down 0.51%, the Nasdaq Composite index down 0.91% and the Russell 2000 index down 0.58% shortly before 11 a.m. ET.

There was $93 million in reported volume about one hour into the session with RingCentral Inc.’s buyback of its 0% convertible notes due 2025 and 0% convertible notes due 2026 driving volume.

Splunk Inc.’s 1.125% convertible notes due 2025 made large gains in active trade as stock soared double digits on the heels of earnings.

RingCentral buyback

RingCentral’s convertible notes were active as the company executed the buyback planned with proceeds from its debut high-yield bond issuance.

RingCentral announced Thursday that it had entered into privately negotiated transactions to repurchase $130 million in principal of its 0% convertible notes due 2025 for $122 million and $41 million in principal of its 0% convertible notes due 2026 for $35 million in cash.

The buyback price for the 0% convertible notes due 2025 was 94; the price for the 0% convertible notes due 2026 was 85.5, according to a market source.

The 0% convertible notes due 2025 were trading around 92 but bumped up to 93 after RingCentral announced its high-yield offering.

The 0% convertible notes due 2026 were trading on an 83-handle heading into Thursday’s session with little movement in price after the refinancing deal was announced.

The convertible note repurchases were funded with proceeds from RingCentral’s $400 million of 8.5% senior notes due 2030 (B1/BB/BB), the company’s first capital raise in the high-yield market.

RingCentral has been on an ongoing campaign to retire its 0% convertible notes due 2025 with the company repurchasing $461 million of the initial $1 billion issue for $425 million in cash in May.

However, the decision to issue straight debt with an 8-handle to take out notes with a 0% coupon left many market players scratching their heads.

Splunk’s earnings

Splunk’s 1.125% convertible notes due 2025 were making large gains in early trade as stock popped double digits on the heels of a better-than-expected earnings report.

The notes jumped 4.5 points outright with stock up about 13% with the notes topping par for the first time since mid-July.

The 1.125% notes were changing hands at 101.625 versus a stock price of $112.52 early in the session, according to a market source.

There was $12 million in reported volume.

Splunk’s stock was trading at $112.62, an increase of 12.70%, shortly before 11 a.m. ET.

The software company posted a large earnings beat post-close on Wednesday with earnings per share of 71 cents versus analyst expectations for earnings of 47 cents and revenue of $910.5 million versus analyst expectations for revenue of $888.5 million.

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