Unisys, CSG Systems gain outright, on swap with lower shares; planned NuVasive looks cheap

By Rebecca Melvin

New York, March 10 – Unisys Corp.’s newly priced 5.5% convertibles edged up on an outright basis and gained about 2.5 points on swap on Thursday, market sources said, after the Blue Bell, Pa.-based information technology company priced an upsized $190 million of the five-year senior notes at the cheap end and midpoint of talked terms.

CSG Systems International Inc.’s newly priced 4.25% convertibles traded up about a point as shares fell after the Englewood, Colo.-based business services company priced $200 million of the 20-year senior notes at mixed terms compared to initial talk.

Unisys traded more actively than CSG Systems. But they were both “doing pretty well” at late morning, a New York-based trader said.

“Unisys got a [Moody’s] downgrade and the stock got hammered yesterday, but it’s doing pretty well,” the trader said.

Moody’s Investors Service said it downgraded Unisys’ corporate family rating to B2 from B1 and gave the new convertible senior unsecured notes a B2 rating. The downgrade reflected the rating agency’s expectation that Unisys’ will continue to experience lower revenue and continued cash burn over the near term.

The two new deals accounted for the lion’s share of Thursday’s market activity.

Back in established issues, there was some trading of Chinese internet convertibles, but pricing moves were mild. Ctrip.com International Ltd.’s 1.25% convertibles due 2018 traded off 0.3 point at 120.5; Qihoo 360 Technology Co. Ltd.’s 0.5% convertibles due 2020 traded unchanged at 97.875; and Sina Corp.’s 1% convertibles due 2018 traded up 0.125 point to 97.925.

Traders were also sizing up a planned deal from NuVasive Inc. The $550 million offering of five-year convertibles was seen as cheap ahead of final terms expected to be set after the market close.

Unisys gains on swap

The new Unisys 5.5% convertibles traded at 100.45 at late morning, according to Trace data. Unisys shares were down about 5%, at $7.55, at around that time.

The swap gain for the new notes was about 2.5 points, a New York-based convertibles analyst said.

The 5% slip in shares was on top of a 28% slide for shares of the Blue Bell, Pa.-based information technology company on Wednesday after the new deal was launched.

The deal was upsized to $190 million from $150 million.

The five-year senior notes, which priced at the cheap end of coupon talk and at the midpoint of 20% to 25% talk for the initial conversion premium, also have an over-allotment option that was increased to $28.5 million from $22.5 million.

J.P. Morgan Securities LLC was the bookrunnner of the Rule 144A deal.

The bonds are non-callable with no puts. They have takeover protection, and settlement will be in cash, shares, or a combination of cash and shares at Unisys’ election.

In connection with the offering of the notes, Unisys entered into a capped call transaction with the initial purchaser of the bonds or one of its affiliates.

Proceeds will be used for general corporate purposes, which many include funding cost reduction and savings initiatives, pension plans, investments, repaying debt, and the cost of the capped call, or bond hedge.

CSG Systems to price

The new CSG Systems 4.25% convertibles traded up to 101.875, according to Trace data, with shares down $1.82, or 4.5%, at $39.08.

A syndicate source said the bonds added 1.5 points on swap by the market close, when shares went out at $36.50, representing a drop of $4.40, or 11%.

The Rule 144A deal was sold via bookrunners Stifel, Nicolaus & Co. Inc. and RBC Capital Markets LLC.

Pricing came toward the rich end of 4.125% to 4.5% coupon talk and at the cheap end of 40% to 42.5% premium talk.

There is a $30 million greenshoe.

The notes are non-callable for four years and then are 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 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.

About $106 million of 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.

Englewood, Colo.-based CSG provides billing and customer services for the cable, satellite, advanced internet protocol services, mobile and fixed wireline markets.

NuVasive looks cheap

“People will play it. It’s a big deal, and it looks pretty cheap; although the vol. assumption is pretty high,” a New York-based trader said about NuVasive’s planned $550 million convertibles deal.

The underwriters’ assumptions were for a credit spread of 400 basis points over Libor and 37% vol.

“That’s a little tight. I would put vol. closer to 30%,” the trader said.

NuVasive is a San Diego-based medical device company. Shares were up $1.43, or 3.3%, to $45.15 on Thursday.

The deal was expected to price after the market close, and terms were talked at a 2.25% to 2.75% coupon and a 30% to 35% initial conversion premium.

The majority of proceeds will be used to repurchase the company’s existing 2.75% convertibles.

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 are 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.

Mentioned in this article:

CSG Systems International Inc. Nasdaq: CSGS

NuVasive Inc. Nasdaq: NUVA

Unisys Corp. NYSE: UIS

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