Carbonite new deal prices, trades above par; WebMD convertible bonds in focus on sale reports

By Stephanie N. Rotondo

Seattle, March 30 – Amid a “dearth of paper,” to use one sellside source’s words, Carbonite Inc.’s new $125 million issue of 2.5% convertible senior notes due 2022 were trading actively on Thursday.

The deal priced early Thursday, coming with a 32.5% initial conversion premium. The terms came in the middle of price talk for a yield of 2.25% to 2.75% and a conversion premium of 30% to 35%.

Barclays ran the books.

The convertibles did well upon pricing, though a source remarked that he thought it was “a little aggressive.”

“Investors are still gobbling up everything they can,” he said. Still, “it was successful, so it was good for the issuer and good for the underwriter.”

Aside from the new issue, WebMD Health Corp.’s 2.5% convertible notes due 2018 and 1.5% convertible notes due 2020 were being eyed, following reports on Wednesday that the company had started the formal process of selling itself.

A trader saw the 2.5% convertibles trading around 102, which was in line with the few trades seen late Wednesday.

The 1.5% convertibles were meantime hovering around 120, also about where they were late Wednesday.

The underlying equity was 50 cents weaker at $53.29.

In late-afternoon trading on Wednesday, both the convertibles and the common shares had improved in the wake of the sale reports.

The company had said in February that it was looking into its strategic alternatives, including a possible sale. That admission came in connection with the company’s earnings results and updated guidance for the current year.

The latter indicated that the company expected to see slower growth in 2017.

Carbonite deal expands

Carbonite’s new 2.5% five-year convertibles did well post-pricing, with market sources seeing the issue expanded 4 points to around 104.

One convertible bond trader said there was “lots of volume” in the new issue.

The stock, however, was down a dime at $19.40. Trading in the equity was well above average.

“It’s a small software deal, and everybody likes software,” one source commented. Plus, “they have no real debt to speak of.”

Still, the source deemed the 104 level “a little aggressive,” adding that, based on his models, he expected to see more of a 103 to 103.25 context. At 104, he called the spreads “a little tight,” and that it appeared it was a situation of “the bonds getting ahead of themselves.”

The deal includes an $18.75 million greenshoe.

Conversions will be settled in cash, stock or a combination of the two. The initial conversion rate is 38.7034 shares per each $1,000 of notes, equal to an initial conversion price of $25.84.

About $40 million of the proceeds will be used to repay all amounts outstanding under a revolving credit facility. Another $15 million will be used for common stock repurchases privately negotiated with purchasers of the new debt. Any remaining funds will be used for general corporate purposes, including potential acquisitions.

Carbonite is a Boston-based provider of cloud and hybrid data protection solutions for small and midsized businesses.

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