Twitter lower to flat as stock drops; IGI plunges outright, in line on swap; CalAmp on tap

By Rebecca Melvin

New York, April 29 – Twitter Inc.’s dual convertible bonds were lower in active trade on an outright basis and slightly lower on swap – but after expanding on swap late Wednesday, the paper was considered essentially in line on swap, after the San Francisco-based social media company reported disappointing earnings, market players said Wednesday.

United States Steel Corp.’s convertibles also fell on an outright basis, but were roughly in line on a hedged basis after the Pittsburgh-based steel maker reported a surprise loss and cut its full-year profit outlook, citing climbing imports related to the strong dollar.

U.S. Steel’s 2.75% convertibles were seen at 121 bid, 121.5 offered versus an underlying share price of $24.27. Previously the bonds were at 129 to 130. U.S. steel shares fell 11.6%.

IGI Laboratories Inc.’s convertibles were also seen down, but in line on swap. In fact, they fell a whopping 22 points on an outright basis after the Buena, N.J.-based specialty generic pharmaceutical company reported first-quarter revenue that missed estimates. In response, Oppenheimer lowered its rating on the shares to “perform” from “outperform.”

Iconix Brand Group Inc.’s convertible bonds also did fine although shares of the New York-based brand management company bounced back to end slightly positive after a lower start.

“Iconix opened lower and rallied back; the bonds are up on the day about 0.5 point,” a New York-based trader said.

“Convertibles generally outperformed on the day on a convert arb basis,” the trader said. There was increased volatility and no real deterioration on a credit basis, he said.

Meanwhile, salesforce.com Inc.’s convertibles were moving up with the underlying shares of the San Francisco-based cloud computing company amid chatter about a potential sale of the company.

“They are moving up with the stock; they are roughly in line, if anything,” a trader said, noting that there is a risk that the bonds could lose money in a takeout, depending on the bid, but that at these levels it wasn’t likely.

The salesforce 0.25% convertibles due 2018 traded up to as high as 129 and then slipped back to 123, from 119.7 previously, according to Trace data.

In the primary market, A. Schulman Inc.’s newly priced 6% convertible special stock jumped on an outright basis, and expanded on swap by 1.5 points to 2 points, a syndicate sources said.

The Akron, Ohio-based plastics and resins supplier priced $110 million of the perpetual special stock, or essentially perpetual preferred, at the rich end and beyond the rich end of talk.

A second deal from Echo Global Logistics Inc. was seen pricing late Wednesday and was higher in the gray market ahead of final terms being fixed. It was 102 bid 103 offered near the end of Wednesday’s trading session, a New York-based trader said.

After the market close CalAmp Corp. launched an offering of $125 million of five-year convertible senior notes that were seen pricing after the market close on Thursday.

In economic news, the U.S. gross domestic product slowed more than expected to a 0.2% seasonally adjusted annual rate for the first quarter, according to the Commerce Department. Economists had expected growth of 1% in the period.

That reading was down from 2.2% growth in the fourth quarter and 5% growth in the third quarter.

The weaker GDP was blamed on harsh weather, weaker exports, cheaper oil and disruptions at West Coast ports.

The Federal Open Market Committee released its latest policy statement Wednesday afternoon, noting that economic growth slowed during the winter months, and chalking it up – at least in part – to transitory factors including the weather and port disruptions. It said the pace of job gains had moderated and that the unemployment rate remained steady.

The latest read doused expectations that the Fed will begin to raise interest rates before the second half of the year.

Twitter moves in line

Twitter’s 0.25% convertibles due 2019 were quoted at 92.5 bid, 93 offered with the underlying stock at $40.00. Previously the paper was at par. A second level on the issue was given at 92.75 bid, 93.25 offered.

Twitter’s 1% convertibles due 2021 were quoted a little lower at 91.5 bid, 92 offered versus the same share price.

In the early going, a trader said that the Twitter bonds were down by 0.25 point to 0.5 point on swap but that the paper had expanded late Tuesday amid a big stock drop, so that “all in,” the hedged move could be considered in line, or flat.

A second trader noted that the bonds had previously been at par, “so it’s a 7-point move for the outrights.”

In addition, the bonds would have been expected to have “gotten a lot better” amid a 25% down move in the shares, so it was disappointing from both an outright and hedged perspective.

A lack of demand for the shares contributed to the bonds’ inability to perform better on a convertible arb basis, he said.

“It’s not a very widely held hedged name; it’s more an outright name, and outrights are on the fence right now whether they want to buy more Twitter stock,” he said

The move was opposite to what happened with SanDisk Corp., which saw its convertibles bump up 2 points on swap after its shares tanked because people were happy to buy more at the lower level, he noted.

Twitter shares traded down $3.76, or 8.9%, at $38.51 on Wednesday, which was on top of an 18% slide late Tuesday when the quarterly results were leaked early ahead of the closing bell.

The shares were previously around $50.00.

Twitter’s first-quarter revenue rose 74% to $436 million but missed estimates for $456 million.

Twitter revenue for the second quarter is now expected to be $470 million to $485 million, which is below the average of analysts’ forecasts for $538 million.

Twitter’s first-quarter net loss widened to $162 million from a loss of $132.4 million in the year-earlier period. Excluding some items, profit was 7 cents per share, which beat analysts’ estimates for 4 cents a share profit.

The company cut full-year guidance to $2.17 billion to $2.27 billion from its previous range of $2.3 billion to $2.35 billion.

IGI drops 22 points outright

The IGI 3.75% bonds fell about 22 points on an outright basis to $84.5 but were seen tracking in line on a hedged basis. The bonds were held on about a 65% delta starting out the day, a trader said.

Late in the session, the bonds were quoted 84.5 versus an underlying share price of $5.25.

“They are tracking in line,” a trader said.

Nevertheless, the bonds, which priced in December are now in the mid 80s after the $144 million deal priced at par, and they had been up at 108 or 109 prior to the earnings release.

One trader noted that hedged players would likely adjust their deltas after Wednesday’s stock drop, but he didn’t think it was necessary.

A. Schulman adds on swap

A. Schulman’s new 6% convertible perpetual preferreds were seen in the range of 103.75 to 105.375 during their debut Wednesday.

The preferreds moved around, adding 2% in the early going and coming off later, so the new perpetual preferreds ended the session around 102.

Shares closed in positive territory at $42.16, which was up 30 cents, or 0.7%.

“They traded well out of the gate,” a trader said of the new convertibles, and in this context, with the stock up about 30 basis points, the bonds are up 1.5 points to 2 points, he said.

The convertibles were fairly actively traded as the more equity-like structure of the convertible attracted more equity oriented investors.

Pricing of the registered deal came beyond the rich end of 6.5% to 7% talk on the dividend and at the rich end of 20% to 25% premium talk.

J.P. Morgan Securities LLC and BofA Merrill Lynch were joint bookrunners of the deal, for which there is a $15 million greenshoe. Co-managers were Commerz Markets LLC, BBVA Securities Inc., Citigroup Global Markets Inc. and RBS Securities Inc.

A. Schulman will be able to force conversion of the special stock after May 1, 2020 subject to a 150% stock-price hurdle.

Proceeds from the sale will be used to help fund the $800 million acquisition of HGGC Citadel Plastics Holdings, Inc.

If the acquisition is not completed, proceeds will be used for general corporate purposes, including debt repayment.

The special stock will rank senior to the company’s common stock and all future capital stock not specifically identified as ranking senior to or having parity with the special stock. The special stock will rank junior to any future capital stock identified as having seniority and will also be junior to all existing and future debt, including that of A. Schulman’s subsidiaries.

CalAmp to price

CalAmp, an Oxnard, Calif.-based developer and marketer of wireless communications products, plans to price $125 million of five-year convertible senior notes on Thursday after the market close. The notes were talked to yield 1.5% to 2% with an initial conversion premium of 32.5% to 37.5%, according to market sources.

The Rule 144A deal has a greenshoe for up to an additional $18.75 million of notes and was being sold via joint bookrunners J.P. Morgan Securities LLC and Jefferies & Co., with Canaccord as a co-manager.

The five-year notes are non-callable with no puts except a takeover put.

Proceeds are earmarked for general corporate purposes, which may include acquisitions, strategic transactions and working capital.

A portion of the proceeds will be used to fund the cost of convertible note hedge transactions, which will form part of a bond hedge.

Mentioned in this article:

A. Schulman Inc. Nasdaq: SHLM

CalAmp Corp. Nasdaq: CAMP

Echo Global Logistics Inc. Nasdaq: ECHO

Iconix Brand Group Inc. Nasdaq: ICON

IGI Laboratories Inc. NYSE: IG

Salesforce.com Inc. NYSE: CRM

Twitter Inc. Nasdaq: TWTR

United States Steel Corp. NYSE: X

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