Dycom edges up in gray market; BroadSoft bringing new deal; Icahn bid for Vivus eyed

By Rebecca Melvin

New York, Sept. 9 – Dycom Industries Inc.’s planned offering of $400 million of six-year convertible senior notes was trading a little higher in the gray market on Wednesday ahead of final terms expected to be fixed after the market close.

The Dycom bonds were seen around 100.75 bid, 101 offered in the gray market with the Dycom common shares down 2% at the end of the day, a New York-based trader said.

BroadSoft Inc. launched a new deal early Wednesday that was also expected to price after the market close, but those bonds were not seen in the gray market.

The BroadSoft deal was considered too small at $175 million in size to attract a broad swathe of investors, and also the existing BroadSoft 1.5% convertibles were seen cheaper than the new deal, a New York-based trader said.

With part of the proceeds, BroadSoft planned to repurchase $60 million of the old issue. The old issue was also quiet.

Also pricing after the market close on Wednesday was a $700 million mandatory convertible deal by Stericycle Inc.

Back in secondary dealings, a wider range of issues were trading in the early going and volume was higher than in recent sessions, but as early equity market strength faded, ending in better than 1% losses for the major indices, the convertibles session lacked follow through as well.

Vivus Inc.’s 4.5% convertible senior notes due 2020 were not heard to have traded even though the underlying common stock surged by more than 30% in the early going after Icahn Enterprises LP announced a cash tender offer for the 2020 convertibles.

One trader said that the Vivus convertibles were quiet because the Icahn bid was low at 68 per bond and because the deal requires that a minimum of 51% of the issue be tendered.

Given the low bid – which nevertheless was higher than the 60 level at which the bonds had been most recently seen – there were doubts that the 51% threshold could be met, a trader said.

Elsewhere, Theravance Inc.’s 2.125% convertibles were indicated lower at about 77 from 82, according to a pricing source, and the common shares of the San Francisco-based biotechnology company sank 21% after results from a study of patients with chronic obstructive pulmonary disease failed to show results were statistically significant.

Theravance and its partner GlaxoSmithKine plc disclosed that topline results from its broad study of survival benefits for Breo in patients with COPD failed to meet its primary endpoint showing meaningful improvements versus placebo.

Despite missing the primary endpoint, the company believes the full data set will be beneficial and informative to the respiratory and cardiovascular scientific community, Eric Dube, GSK senior vice president and head of global respiratory franchise, said in a release.

In the broader markets, equities gave up initial gains to end with losses of more than 1%. It wasn’t immediately clear what took markets lower, but the reversal continued a trend of heightened volatility.

“I couldn’t see anything,” a New York-based trader said regarding why markets slipped.

The Dow Jones industrial average fell 239.11 points, or 1.5%, to 16,253.57, the S&P 500 stock index lost 27.47 points, or 1.4%, to 1,942.04, and the Nasdaq Composite index dropped 55.40 points, or 1.2% to 4,756.53.

As for what was driving the convertibles market, a trader said, “I think investors were just digesting the new deals.”

Dycom edges up in gray

Dycom’s planned $400 million convertibles deal was trading in the gray at a small premium to par, a New York-based trader said. He quoted the paper at 100.75 bid, 101 offered.

“It’s going to be a long-only trade; it’s not going to be a hedge fund trade, the trader said, citing the current stock price, which was seen as slightly rich relative to comparables and a valuation that was not compelling to hedged players.

“It’s not priced for hedge funds and doesn’t model well,” he said.

He suggested that given the stock price level, even some long only players wouldn’t be involved.

Nevertheless, the deal was expected to come at least at the midpoint of price talk or maybe even a little rich because the Dycom deal represents the first new paper that the market has seen in several weeks.

“The market is starved for paper,” the trader said.

Palm Beach Gardens, Fla.-based Dycom is a provider of specialty contracting services. Its offering of six-year senior notes was talked to yield 0.5% to 1% with an initial conversion premium of 27.5% to 32.5%.

The non-callable notes were being sold via joint bookrunners Goldman Sachs & Co. and BofA Merrill Lynch.

Proceeds of the deal will be used to redeem Dycom’s 7.125% senior subordinated notes due 2021, to repurchase $50 million of Dycom common stock and to pay the cost of a call spread.

In connection with the pricing of the notes, Dycom has authorized the repurchase of up to $75 million of its common stock in privately negotiated transactions or in open market transactions and intends to use a portion of the proceeds to refund the repurchase.

BroadSoft quiet

With part of the new deal’s proceeds, BroadSoft will buy back $60 million of its existing 1.5% convertibles due 2018, which was a $120 million issue when priced in 2011.

The existing BroadSoft 1.5% convertibles were seen last at 102.88, according to Trace data, but weren’t heard in trade early Wednesday.

“People are in negotiations to repurchase half of the deal,” so it didn’t trade meaningfully, a trader said regarding the 1.5% convertibles.

The old deal is cheaper than the new deal, he said.

The new deal was not heard in the gray market Wednesday after the company launched it ahead of the open. It plans to price $175 million of seven-year convertible senior notes to yield 0.75% to 1.25% with an initial conversion premium of 20% to 25%.

The Rule 144A deal, which has a $26.25 million greenshoe, was being sold via bookrunners Goldman Sachs, Barclays and Jefferies & Co.

Concurrently with or following the pricing of the notes, BroadSoft plans to use a portion of the proceeds to repurchase up to $60 million of its existing 1.5% convertible senior notes due 2018. Additionally, the company plans to use up to $25 million of proceeds to repurchase shares of common stock.

Remaining proceeds are earmarked for general corporate purposes, including acquisitions of or investment in complementary businesses, products or technologies.

The Gaithersburg, Md.-based software maker enables fixed-line, mobile and cable service providers to deliver voice and multimedia services over their IP-based networks.

Vivus under microscope

“I’ve been dissecting VVUS all morning, literally,” a New York-based trader said.

Vivus shares pulled back from an initial surge after Icahn Enterprises announced a cash tender offer for the Vivus 4.5% convertible senior notes due 2020.

The Vivus shares ended up about 12.5% after a better than 30% surge.

Icahn is bidding 68 for the bonds, and the minimum tender position is 51%.

The question was will holders sell given that the price was seen as essentially a recovery value, a trader said. “There’s no guarantee that it will happen.”

“The tender was viewed as opaque and risky and no one is relying on the bid,” he said.

There was a similar tender for a European issue, and the company pulled it, he added.

“Icahn has to pay 80,” he said.

The offer ends at 5 p.m. ET on Oct. 7.

Mentioned in this article:

BroadSoft Inc. Nasdaq: BSFT

Dycom Industries Inc. NYSE: DY

Stericycle Inc. Nasdaq: SRCL

Theravance Inc. Nasdaq: THRX

Vivus Inc. Nasdaq: VVUS

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