Magma $150 million overnight convertible talked at 0% yield, up 27-33%

By Ronda Fears

Nashville, May 15 - Magma Design Automation Inc. launched $150 million of five-year 0% convertibles with price talk of a 27% to 33% initial conversion premium, via lead manager Credit Suisse First Boston.

The bond is expected to price at par.

The issue will be noncallable for life.

Similar to Silicon Valley Bancshares, Magma said it will use a portion of proceeds for the net cost of entering into convertible note hedge and warrant transactions with the initial buyers to limit potential dilution from conversion of the notes.

"It's a way for the hedge funds to monetize volatility and short the stock and make money on the deal," said a buyside source who runs an outright convertible fund.

"It's good for the hedgies."

There also is a $30 million greenshoe available.

Remaining proceeds would be used to repurchase stock and general corporate purposes. Pending such uses, the company intends to invest proceeds in investment grade obligations and interest-bearing money market instruments.

Magma, based in Cupertino, Calif., provides chip design software.

Magma shares closed up $1.50, or 6.18%, to $18.05.

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