Electronic Arts opens higher on strong demand, rich pricing; Intel, AMD trade before earnings

By Kenneth Lim

Boston, July 15 - Electronic Arts Inc.'s new convertibles traded up modestly Friday after arriving at the rich end of price talk, while the rest of the convertible market had a quiet day in response to an uneven session for equities.

Intel Corp. and Advanced Micro Devices, Inc. saw some activity ahead of earnings due after the weekend, while pharmaceutical bellwether Amgen Inc. followed its stock lower on the day.

Convertibles were down for most of the day as equities went through a choppy session, oscillating between positive and negative territory before landing in the black.

The high volatility kept investors mostly on the sidelines.

"Convertibles didn't do much at all today," one trader said. "Equities were all over the place, and volumes were low so it was kind of hard to get a handle on things."

The bulk of the market seemed content to call it a week and hope for some calm after the weekend.

"You can't get anything done today," the trader said. "I hope it gets better, but honestly I'm not getting my hopes up too much."

Down week for converts

Convertibles declined outright by 2.4% over the week ended July 14, said Barclays Capital's research team of Manoj Shivdasani, Venu Krishna and Piyush Anchliya in a note.

Investment-grade convertible names actually improved by 1.02% amid the past week's flight to quality trades, while the high-yield sector was down by 0.07%. Spreads to Treasuries widened overall, while market volatility increased.

"Valuations on HY names strengthened, though on very light volumes," the analysts wrote.

One trader noted that although convertibles were dragged lower by equities, they still managed to outperform stocks.

"But that's what converts are supposed to do," the trader said. "I guess they're working like they should."

Electronic Arts up on debut

Electronic Arts' new 0.75% convertibles due 2016 gained about 1.5 points outright but stayed flat on a market-neutral basis after pricing at the rich end of talk.

The notes were marked at 101.375 bid, 101.625 offered versus a common stock price of $23.51 Friday after being sold at par. The common stock closed at $23.60, up by 0.38% or $0.09.

The $550 million deal priced with an initial conversion premium of 35%. Price talk was at a coupon of 0.75% and an initial conversion premium of 32.5% to 35%.

There is an over-allotment option for an additional $82.5 million.

J.P. Morgan Securities LLC and Morgan Stanley & Co. Inc. were the bookrunners of the Rule 144A offering.

Proceeds will be used to pay part of the company's $1.3 billion cash-and-stock bid for PopCap Games, Inc. and to fund convertible note hedge transactions. If the PopCap deal is not completed, the proceeds will be used for general corporate purposes.

Electronic Arts is a Redwood City, Calif.-based video game maker.

The deal found strong demand during marketing as the current risk-averse environment helped to support demand for securities from issuers with strong credit, a sellside analyst said.

"There's obviously strong demand for paper like this because the company has basically no debt," the analyst said. "They've got $1.6 billion of cash, and this convert is going to be the only piece of debt on the balance sheet."

The simple structure of the offering, which is non-callable, may also have helped the deal to move.

"It's a very clean structure," the analyst said. "No calls, no puts, a five-year bullet."

The potential acquisition of PopCap could also be positive on an outright basis.

"I think it will diversify their revenue streams," the analyst said.

Intel, AMD earnings in focus

Intel and AMD convertibles saw some action on Friday with investors possibly setting up ahead of the companies' earnings announcements scheduled for the week ahead.

Intel's 3.25% convertibles due 2039 eased a point outright to 121 versus a common stock price of $22.28, while AMD's 6% convertibles due 2015 eased an eighth of a point to 101.5 against a $6.45 common stock price.

Santa Clara, Calif.-based Intel and Sunnyvale, Calif.-based AMD are semiconductor chip makers.

Intel's common stock closed the day at $22.37, up by 0.45% or $0.10, while AMD shares slipped 0.16% or a penny to close at $6.43.

Both companies are reporting earnings after the weekend, and Friday's buying could be some investors hoping to set up before the announcements, a trader said.

"There's some optimism about tech names right now, so I guess that's just kind of where investors are looking at the moment," the trader said.

The past week's equity selloff could have given bargain hunters an opportunity to pick up some extra paper, the trader added.

"Could be some investors looking to buy on dips," the trader said.

Amgen slips with stock

For most other convertibles, Friday's session was generally just following whatever the underlying equities were doing.

Amgen, usually one of the most traded convertible names, saw its 0.375% convertible due 2013 lose an eighth-point to trade at par versus a common stock price of $55.

Amgen shares eased 1.13% or $0.63 to close at $55.05 on Friday.

Amgen is a Thousand Oaks, Calif.-based drug maker.

"We're at the mercy of equities right now," a sellsider said. "We're holding up better than equities, but we're still down."

Mentioned in this article

Advanced Micro Devices, Inc. NYSE: AMD

Amgen Inc. Nasdaq: AMGN

Electronic Arts Inc. Nasdaq: ERTS

Intel Corp. Nasdaq: INTC

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.