New Nvidia trades right around par; new Stanley Black & Decker adds on swap; Nuance drops

By Rebecca Melvin

New York, Nov. 26 - Nvidia Corp.'s newly priced 1% convertibles due 2018 ended right at par on Tuesday after a slightly weaker start on their debut in the secondary market after the Santa Clara, Calif.-based graphics processor company priced $1.3 billion of the five-year notes at the midpoint of talked terms.

Given the size of the deal, one trader thought the Nvidia deal did pretty well. It traded actively, he said, and it outperformed Yahoo! Inc.'s $1.25 billion deal that slipped on hedge on its debut in the secondary market last week.

Stanley Black & Decker Inc.'s newly priced 6.25% mandatory equity units added more than a point on both an outright basis and dollar-neutral, or hedged, basis after the New Britain, Conn.-based provider of power hand tools priced $300 million of the units at the midpoint and rich end of talked terms.

The convertibles primary market has been hot in November, with about $6.3 billion in new issuance in 19 deals having priced so far, and making it the biggest month for new issuance to date for 2013. A couple of 2013 months saw $5 billion in issuance, but most months were lower at $2 billion to $3 billion or less.

With a total of nearly $43 billion of new issuance for the year so far, 2013 is on par with the convertible issuance level of 2010 and stronger than 2011 and 2012, according to Prospect News data.

One syndicate source said he expected new issuance to remain stronger for the next year and a half due to low rates and strength in the equity markets.

Low rates have been one of the factors blamed for low convertibles issuance, however.

One trader explained, "On a relative basis, straight paper is cheaper in a low-rate environment, but if you have low rates and high stock prices, then the company has two factors to consider. If the stock goes down after it issues, then it has cheap issuance: perhaps it's a five-year, 3% bond instead of a five-year, 8% bond. The 500 basis points difference is the embedded option. If it's worthless to the buyer and at maturity the company simply pays off the bond, then the company did great."

"Think of the company making two statements, one is maybe my stock, or the market, is too high. Second, maybe rates will go up, and I've borrowed cheaper than I could have in a next few months," the New York-based trader continued.

Back in the secondary market, Nuance Communications Inc.'s newer convertible fell to about 95 along with a slide in the underlying shares after the Burlington, Mass.-based speech-recognition software company reported a sold fiscal quarter but forecast fiscal 2014 results that were below expectations.

Equity markets ended in record territory again, but only just barely. The Dow Jones industrial average eked out a 0.26 point gain to 16,072.80, the S&P 500 stock index added 0.27 point to 1,802.75, while the Nasdaq stock market moved up 23.18 points, or 0.6%, closing above 4,000 for the first time in three years, or at 4,017.75.

In economic data, consumer confidence slipped unexpectedly in November to 70.4, a seven-month low, from 71.2 in October. A separate report from the Commerce Department showed applications for new home construction hit a five-year high in October. The Case-Shiller housing index showed signs of recovery in the housing market. Home prices in the 20 cities measured rose the most in the 12 months through September since February 2006.

Market action is expected to tail off Wednesday, when Hanukkah begins Wednesday night, and ahead of a financial markets close on Thursday for the Thanksgiving holiday.

New Nvidia trades at par

Nvidia's newly priced 1% convertibles due 2018 traded at 100.375 bid, 100.625 offered with shares of the Santa Clara, Calif.-based graphics processor company trading as high as $14.67 in the early going. Initially, the new bonds were seen a little weaker before the market open at 99.875 bid, 100.125 offered.

"They are right smack dab on par," a New York-based trader said at the end of the session.

Nvidia shares edged up 13 cents, or 0.8%, to $15.64.

The trader said that the new Nvidia deal outperformed the new Yahoo! deal because of the appeal of its credit worthiness. "It's a stronger credit. People are comfortable with it," the trader said, quoting the credit at 125 basis points to 135 bps over Libor.

The Sunnyvale, Calif.-based internet search, content and communications company priced an upsized $1.25 billion of the five-year notes at the rich end of talked terms.

Some sources saw Nvidia's credit a little wider. A second New York-based trader said at 200 bps over Libor and 26% vol., the paper modeled at par versus its Tuesday night close of $15.51.

The $1.3 billion Nvidia deal priced at the midpoint of talked terms for a 1% coupon and a 30% premium.

Goldman Sachs & Co. was the bookrunner of the Nvidia deal, which has an over-allotment option for up to an additional $200 million of notes.

The notes are non-callable for life, with no puts except a change-of-control put, or takeover protection.

Proceeds are expected to be used to buy back shares, to fund dividend payments and for general corporate purposes.

A portion of the proceeds will also be used to pay the cost of capped call transactions. The strike price on the warrants will initially be about $27.14, which boosts the initial conversion premium of the notes from the issuer's perspective to 75%.

New Stanley adds

Stanley Black & Decker's newly priced 6.25% mandatory equity units were quoted last at 101.75 bid, 102.25 offered when the underlying shares were up about 35 cents at $81.00.

Earlier the new units were seen at 101.5 bid, 101.9 offered, a New York-based syndicate source said, when the company's shares slipped about 15 cents to $80.50.

Another source said the market was 101.5 bid, 101.875 offered versus a share price of $80.75.

A syndicate source said the new units were up about 1.625 points on the day on swap.

Stanley Black & Decker priced $300 million of mandatory equity units, or 3 million units at $100 each, with a 6.25% distribution rate and initial conversion premium of 22.5%.

Stanley Black & Decker also priced $400 million of fixed-to-floating rate junior subordinated debentures due 2053 concurrently with the units offering.

The units consist of junior subordinated notes due Nov. 17, 2018 and contracts to purchase common stock. They were sold via Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC as joint bookrunning managers.

Co-managers included Barclays, BofA Merrill Lynch, Goldman Sachs, HSBC Securities (USA) Inc., Morgan Stanley & Co. LLC, RBC Capital Markets LLC, RBS Securities Inc. and Wells Fargo Securities LLC.

The purchase contracts will be settled in stock only. There is takeover protection.

Proceeds will be used for general corporate purposes, including repayment of short-term borrowings.

A portion of the proceeds, or $9.7 million, is also being used to pay the cost of capped call transactions. The warrant strike on the warrant transactions is $112.91, which boosts the premium from the issuer's perspective to 40%.

Stanley Black & Decker plans to list the corporate units on the New York Stock Exchange under the symbol "SWH."

Nuance slides

Nuance's 2.75% convertibles due 2031 changed hands at 95.36, according to Trace data.

Shares of the software company fell $2.89, or 18%, to $13.10 in ultra-heavy volume.

The company reported a quarterly loss that was in line with expectations but warned that fiscal 2014 would be lower than expected as margins continue to be hurt by a shift to a subscription-based business model.

Nuance forecast adjusted profit of $1.05 to $1.15 per share and adjusted revenue of $2.03 billion to $2.09 billion for the year ending September 2014.

The forecast was lower compared to the $1.41 per share of earnings that analysts were expecting and in line with the analysts' forecast of $2.08 billion revenue for the year.

The latest quarter was in line with lowered estimates. The company reported a net loss of $32.3 million, or 10 cents per share, in the fourth quarter, compared to a profit of $117.6 million, or 36 cents per share, in the year-earlier period.

Excluding items, the company earned 30 cents per share on revenue of $489.6 million.

Mentioned in this article:

Nuance Communications Inc. Nasdaq: NUAN

Nvidia Corp. Nasdaq: NVDA

Stanley Black & Decker Inc. NYSE: SWK

Yahoo! Inc. Nasdaq: YHOO

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