New Proofpoint looks somewhat cheap; existing Proofpoint comes in small; Ironwood lingers

By Rebecca Melvin

New York, June 11 – Proofpoint Inc.’s planned $150 million of five-year convertibles looked about fair value to somewhat cheap ahead of final terms expected to be fixed late Thursday.

Valuations on the planned Proofpoint deal varied depending on credit spread inputs, which ranged from between 375 basis points over Libor to 450 bps over Libor among players queried, and vol. inputs ranged from 35% to 39%.

Proofpoint’s existing 1.25% convertibles due 2018 came in slightly on the heels of the new deal, slipping by about 0.125 point to 0.25 point, but holding up better than expected, a New York-based sellside analyst said.

Ironwood Pharmaceuticals Inc.’s new 2.25% convertibles, which debuted in the market on Wednesday, saw some follow-on trade after the Cambridge, Mass.-based pharmaceutical company priced $300 million of the seven-year senior notes at the rich end and through the rich end of talk

The Ironwood bonds edged up slightly, quoted at 101.25 bid, 101.75 offered at the close with the underlying shares at $12.45. That compared to late Wednesday when the bonds were closed at 101.25 with the stock at $12.44.

“Ironwood lingers,” a trader said.

The trader pointed to Synergy Pharmaceuticals Inc., which represents a “decent comp” for Ironwood. Synergy shares hit a 52-week high on Thursday and the convertibles continued to trade positively, quoted at the close at 170.625 bid, 171.625 offered.

“The bond has been a big performer this year,” the trader said of Synergy. They closed at 98 bid, 100 offered versus an underlying share price of $3.05 on Dec. 31.

Also among established issues, Citrix Systems Inc.’s 0.5% convertibles due 2019 traded up a few points on an outright basis in tandem with a pop in the underlying shares, after news that an activist investor is urging the Fort Lauderdale, Fla.-based cloud computing company to make changes, including buying back shares, selling some assets and cutting costs.

After the market close, Twitter Inc. announced its chief executive Dick Costolo is stepping down. The news caused shares of the San Francisco-based social-media company to pop in after-hours action.

“The stock is moving higher; outrights will be happy,” a New York-based analyst said.

There were no additional new deals launched in the U.S. primary market on Thursday, but internationally, Neopost, a Paris-based maker of postage meters and mailroom equipment, launched and priced €265 million of undated convertible bonds at par to yield 3.375% for its first seven years with a floating rate after that, and an initial conversion premium of 40%.

The Regulation S Neopost issue priced at the cheap end of talk.

Also internationally, pricing emerged on a five-year 0% exchangeable by Hyundai Heavy Industries Co. Ltd. The $221.6 million deal is exchangeable into shares of Hyundai Merchant Marine Co. Ltd., and the bond is guaranteed by the Korea Development Bank.

Proofpoint looks a bit pale

Valuations on the new $150 million Proofpoint deal were somewhat varied.

Using a credit spread of 375 bps over Libor and 37% vol. gets the paper 1.4% cheap at the midpoint of talk with reduced borrow, one market source said.

A second source used a much higher credit spread of 450 bps over Libor and 39% vol. at the midpoint of talk and got the deal to fair value at 100.38.

The underwriters were going out with a 400 bps spread and 35% vol., and one market source concurred with those inputs.

The new Proofpoint deal was talked to yield 0.75% to 1.25% with an initial conversion premium of 30% to 35%.

Shares of the Sunnyvale, Calif.-based security-as-a-service vendor ended down 99 cents, or 1.6% a $60.17.

The Rule 144A offering has a $22.5 million greenshoe and was being sold via joint bookrunners Credit Suisse Securities (USA) LLC and Citigroup Global Markets Inc.

The notes will be non-callable until June 20, 2018 and then provisionally callable if shares rise to 130% of the conversion price for a specified period. There is dividend and takeover protection via standard conversion rate adjustments.

Proceeds are expected to be used for general corporate purposes, including potential acquisitions and strategic transactions.

Existing Proofpoint slips

The Proofpoint 1.25% convertibles due 2018 were quoted last at 161.875 bid, 162.375 offered with the underlying shares at $60.17. On swap that was in about 0.125 point to 0.25 point, an analyst said.

Early on Thursday, the level was 164 bid, 164.50 offered versus an underlying share price of $61.16, which was also in 0.125 point to 0.25 point.

The indicative level on the old deal was decent, the New York-based sellside analyst said. They “have held up better than expected.”

Shares of the company were down $1.91, or 3%, at $59.25 at late morning.

The existing Proofpoint bond is a $201.25 million issue that priced in 2013.

Mentioned in this article:

Citrix Systems Inc. Nasdaq: CTXS

Hyundai Heavy Industries Co. Ltd. Korea: 009540

Hyundai Merchant Marine Co. Ltd. Korea: 011200

Ironwood Pharmaceuticals Inc. Nasdaq: IRWD

Neopost France: NEO

Proofpoint Inc. Nasdaq: PFPT

Synergy Pharmaceuticals Inc. Nasdaq: SGYP

Twitter Inc. Nasdaq: TWTR

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