Herbalife, Apptio on tap; secondary market ‘pathetically quiet’; ServiceNow active

By Abigail W. Adams

Portland, Me., March 20 – The convertible space was “pathetically quiet” on Tuesday, a market source said, after a light trading day on Monday.

However, the low trading volume may soon change with $125 million in new paper expected to price after the market close on Tuesday and $500 million in new paper expected to price before the market open Wednesday.

Apptio Inc. plans to price $125 million of five-year convertible notes after the market close Tuesday with price talk for a coupon of 0.875% to 1.375% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Herbalife Ltd. plans to price $500 million of six-year convertible notes prior to the market open on Wednesday with price talk for a coupon of 2.375% to 2.875% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

While there has been a solid influx of new paper into the market, recent deals were slow to trade on Tuesday.

After ending Monday below par, Zendesk Inc.’s recently priced 0.25% convertible notes due 2023 regained its footing and was wrapped around 101 in scattered trades on Tuesday.

With about $8.62 million on the tape by late afternoon Tuesday, Live Nation Entertainment Inc.’s 2.5% convertible notes due 2023 continued to be among the most actively traded names in the convertible space.

The new 2.5% convertible notes remained just south of 102.

ServiceNow, Inc.’s 0% convertible notes due Nov. 1, 2018 saw the heaviest trading volume on Tuesday.

The deep in-the-money convertible notes were trading just below parity as the Santa Clara, Calif.-based cloud computing software company’s stock saw high trading volume.

New paper

While a new deal from Apptio is in the works, it is not expected to have much impact on the secondary market.

The offering of $125 million from the Bellevue, Wash.-based technology business management software company is small and not one market sources were focused on.

“It’s too small,” a market source said. “And with six underwriters, it seems like there’s not going to be enough for the rest of the world.”

Herbalife, however, is preparing a $500 million offering of six-year convertible notes in an overnight deal.

Proceeds from the offering will be used to repurchase a portion of the company’s outstanding 2% convertible notes due 2019 in privately negotiated transactions with a limited number of holders.

In connection with the repurchase of the 2% notes, holders are expected to close or reduce their short positions in Herbalife stock, which will take place in a separately agreed to valuation period that is expected to begin the trading day following the pricing of the notes.

Herbalife will also terminate a portion of the capped call transactions entered into when the 2% convertible notes priced in 2014.

The Los Angeles-based global nutrition company announced on Feb. 28 plans to refinance a portion of the outstanding $1.15 billion of the 2% notes.

News also broke on Feb. 28 that Bill Ackman’s Pershing Square Capital Management had exited its short position in the company, which Ackman had previously accused of being a pyramid scheme.

The 2% convertible notes were wrapped around 120 in scattered trades on Tuesday. Herbalife stock closed Tuesday at $96.12, an increase of 0.35%.

‘Pathetically quiet’

The secondary market was once again quiet on Tuesday after starting the week off slowly on Monday. “There’s nothing really trading,” a market source said. “It’s really dead right now.”

Only about $87 million was on the tape early in the session and only about $254.41 million was on the tape by late afternoon, according to market sources.

The lack of activity on Monday was attributed to the tumult in equities with the Dow Jones industrial average closing Monday’s session down 335 points.

While the Dow rebounded slightly and closed Monday up about 116 points, or 0.5%, “there’s not much doing today,” the source said.

“There’s really been no event that would make a buyer sell something,” another source said.

Day Three

As the primary market prepares new paper from Herbalife and Apptio, the recent deals that made their market debut on March 16 were again slow to trade on Tuesday, their third day on the market.

Live Nation’s 2.5% convertible notes due 2023 continued to trade just south of 102 with stock up slightly. They were seen trading in the late afternoon at 101.7 versus an equity price of $44.25.

Live Nation stock closed Tuesday at $44.42, an increase of 0.84%.

There was about $8.65 million of the new 2.5% convertible notes on the tape by late afternoon.

Zendesk’s new 0.25% convertible notes saw even less trading activity with only $4 million on the tape by late afternoon.

After closing Monday just south of par, the new 0.25% notes strengthened on Tuesday, returning to the 101 range.

They were seen trading at 101.271 versus an equity price of $47.37 in the late afternoon. Zendesk stock closed Tuesday at $47.39, an increase of 3.13%.

ServiceNow active

ServiceNow’s soon to mature 0% convertible notes due Nov. 1, 2018 were the most actively traded of the day.

The 0% notes were trading just under parity as the company’s stock also experienced high trading volume.

The 0% notes traded in a range of 230 to 232 with the underlying equity trading in a range of $169.23 to $173.37. With a conversion ratio of 13.54, most trades were just below parity.

ServiceNow stock closed Tuesday at $172.11, an increase of 1.35%.

Analysts at KeyCorp upped their price target for ServiceNow stock to $194 from $165 on Tuesday.

Mentioned in this article:

Apptio Inc. Nasdaq: APTI

Herbalife Ltd. NYSE: HLF

Live Nation Entertainment, Inc. NYSE: LYV

ServiceNow, Inc. NYSE: NOW

Zendesk Inc. NYSE: ZEN

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