Tibco Software, Wabash National price at rich end of talk; NetApp trades 'in' slightly

By Rebecca Melvin

New York, April 17 - Activity in the convertible bond market picked up Tuesday from Monday's languid pace, but only somewhat, market players said.

Even though there were two new deals in the market getting the once over ahead of pricing after the market close, secondary action was decidedly listless.

Tibco Software Inc. priced an upsized $525 million of 20-year convertible notes at the tight, or rich, end of talk to yield 2.25% with an initial conversion premium of 52.5%.

The Tibco deal was seen in the gray market at 102 ahead of final terms being fixed, and market participants had positive feedback on the name, which was favored for being a profitable, solid credit, with no other outstanding debt to speak of, sources said.

Wabash National Corp. priced $150 million of six-year convertible notes at the tight, or rich, end of talk to yield 3.375% with an initial conversion premium of 35%, a syndicate source said.

There was no gray market heard in that smaller Wabash deal, but there was definitely appetite for it, a trader said.

"It's a wider credit, with a different story, and with other senior debt coming with it," the trader said, but there were no current borrow problems and it was in demand.

Secondary action muted

Back in the secondary market, action was muted. Two larger, liquid issues seeing decent volume, but on no identifiable catalyst, were NetApp Inc., which was weaker by about 0.125 point from Monday, and SanDisk Corp., which traded in line with their underlying shares, a New York-based trader said.

Bankrupt digital photography company Eastman Kodak Co. was also seen in trade and its distressed convertible bonds were lower by 0.5 point to 0.75 point at 29.5, amid no particular news, a Connecticut-based trader said.

Earnings news and other headlines did little to boost trade, sources said.

Cheniere Energy Inc.'s convertibles were quiet after the Houston-based natural gas distributor received federal approval to construct a major natural gas export facility in the lower United States and the underlying shares popped.

GMX Resources Inc.'s two convertible bonds didn't trade in size on Tuesday despite news that its first-quarter output climbed as it produced more from oil-yielding wells. The underlying shares jumped in early trading but came in during the session for a slightly lower close.

Lincare Holdings Inc.'s 2.75% convertibles, or the B paper, were also quiet after the Clearwater, Fla.-based home health care company reported flat first-quarter earnings that exceeded analysts' estimates. The B convertibles traded outright at the end of the day at 108.61, a trader said.

"It's just slow; no one seems to be doing anything. People are just sitting on the sidelines, maybe waiting for the Spanish 10-year bond auction Thursday that may give a big indication of where things are heading," a New York-based trader said.

A second trader said, "With $400 million bonds trading, we did see a little pick up today. But things have been slow for a while."

The second trader thought trading action might perk up on Wednesday with the release for secondary dealings of the Tibco and Wabash new issues.

Tibco upsizes, prices

The upsized $525 million of Tibco convertible senior notes had a solid book of both outright and hedged investors, a syndicate source.

The paper priced to yield 2.25% with an initial conversion premium of 52.5%. The premium is much higher than the recent norm for convertible bond issues, but the deal modeled at an attractive valuation, nevertheless, sources said.

The Rule 144A deal, which was initially talked to be $500 million in size, was "highly successful," and the best pricing achieved for a non-investment-grade issue in a number of years, a syndicate source said.

Market players said the paper looked cheap. One analyst said the company was a particularly strong credit, with essentially no debt on its balance sheet and a $6 billion market capitalization.

"There is no debt apart from this debt and a $100 million in revolvers," the analyst said.

The Palo Alto, Calif.-based business software and services company competes with even larger companies and may even be a takeover target at some point, the analyst said.

With the new convertible, Tibco joins a select group of technology companies that have no other debt besides convertible debt. The other companies including Intel Corp., Micron Technology Inc., Lam Research Corp. and NetApp Inc.

These companies are volatile and with a convertible, they can monetize the volatility, the analyst said.

NetApp slips, GMX quiet

NetApp's 1.75% convertibles due 2013 traded last at 134.056 versus an underlying share price of $40.58, a trader said.

Shares of the Sunnyvale, Calif.-based data storage company gained 65 cents, or 1.6%, to $40.44 during the session in light volume.

The NetApp convertibles have been trading on an 85% delta, and continued to trade on an 85% delta on Tuesday, a trader said.

"People like it because of the liquidity and they like the story and they have a brand new product cycle with which it can be very competitive with EMC," the trader said.

The SanDisk 1.5% convertibles were also trading and were last at 108 versus an underlying share price of $41.42.

NetApp and SanDisk are both large, $1 billion deals, and market players like them for lack of anything else of interest to trade, he said.

GMX's 5% convertibles due 2013, of which there is only $64 million left outstanding, have not traded in a round lot in April, and for that reason it was difficult to judge where the bonds stand in terms of pricing.

One source said he guessed the shorter-dated GMX bond to be in the 75 bid, 80 offered range.

The longer-dated GMX 4.5% convertibles due 2015 also haven't traded in a round lot in all of April but were seen at 47 bid, 47.5 offered.

Shares of the Oklahoma City-based oil and natural gas exploration and development company slipped 2 cents, or 1.4%, to $1.42 on Tuesday.

Mentioned in this article:

Cheniere Energy Inc. NYSE: LNG

Eastman Kodak Co. Pink Sheets: EKDKQ

GMX Resources Inc. Nasdaq: GMXR

Lincare Holdings Inc. Nasdaq: LNCR

NetApp Inc. Nasdaq: NTAP

SanDisk Corp. Nasdaq: SNDK

Tibco Software Inc. Nasdaq: TIBX

Wabash National Corp. NYSE: WNC

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