Symantec reoffers, prices deal at cheap end of talk; NPS unmoved by restructuring; Comverse slides

By Kenneth Lim

Boston, June 12 - The convertible bond market started the week slowly, with Symantec Corp.'s proposed $2 billion offering falling flat in the gray market.

Symantec's massive deal was quickly dismissed by the Street as too aggressive during price talk, and the dual-tranche offering was reoffered at 99.5 and priced at the cheap end of talk later in the day.

Meanwhile, convertible investors were unmoved when NPS Pharmaceuticals Inc.'s lost about a fifth of its value on reports that the biotech company was cutting back its investment in an osteoporosis drug amid regulatory delays.

Comverse Technology Inc.'s equity-sensitive convertible, however, fell with its stock after the company delayed its first-quarter report.

The convertible scene overall was a quiet affair, with equity markets ending the day lower.

"I was kind of annoyed with the market today," a sellside convertible bond trader said. "It's too quiet."

Other names seen trading on Monday included Allergan Inc.'s 1.5% convertible due 2026, which was flat against a modest decline in the stock after NPS Pharmaceuticals said it was ending an agreement with Irvine, Calif.-based Allergan to develop the eye drug Restasis. The convertible traded at 99.75 against a stock price of 103.25, while shares of Allergan (NYSE: AGN), a biotech company, closed at $102.19, down by 0.82% or 85 cents.

The Walt Disney Co.'s 2.125% convertible due 2023 slid by about half a point outright in line with a modest drop in the stock after opening-weekend ticket sales of the Pixer animated film Cars were lower than expected.

The convertible traded at 108.875 against a stock price of 29.875 on Monday. Disney stock (NYSE: DIS) slid 1.47% or 43 cents to end at $28.90.

Cars, the latest move by Disney-owned Pixar, raked in $62.8 million at box offices over the weekend, below Street expectations of around $70 million. Burbank, Calif.-based Disney is a diversified entertainment company.

SanDisk Corp.'s newest 1% convertible due 2013 changed hands at 91.5 versus a $53 stock price, in line with a 3.23% fall in the shares. SanDisk shares (Nasdaq: SNDK) closed at $50.58, down by $1.69.

SanDisk is a Sunnyvale, Calif.-based maker of flash memory cards.

"The entire equity market's just soft today," a convertible bond trader said.

Symantec deal meets early resistance

Symantec's proposed $2 billion of convertible senior unsecured notes were reoffered at 99.5 and priced at the cheap end of earlier talk on Monday after the market panned the deal as too aggressively marketed.

Under the revised talk, the $1 billion tranche of five-year convertibles were to be reoffered between 99.5 and 99.75, while the coupon was set at 0.75% and the initial conversion premium at 22.5%. Symantec originally planned to sell the five-year convertibles at par with a coupon of 0.25% to 0.75% and an initial conversion premium of 22.5% to 27.5%.

The $1 billion series of seven-year convertibles were reoffered at 99.5 with a coupon of 1% and an initial conversion premium of 22.5%. The seven-year paper was originally offered at par with a coupon of 0.5% to 1% and an initial conversion premium of 22.5% to 27.5%.

There is an over-allotment option of $100 million per tranche.

Citigroup, Morgan Stanley and UBS Investment Bank were the bookrunners of the Rule 144A offering.

The convertible was bid at 97 in the gray market before talk was revised, a convertible bond trader said. Symantec shares (Nasdaq: SYMC) closed at $15.63 on Monday, up by 1.49% or 23 cents, after the deal was announced.

"You can't blame them for trying!" the trader quipped.

A New York-based sell-side convertible analyst said the five-year convertible modeled around less than 1% cheap at the cheap end of initial talk, using a credit assumption of about 125 basis points over Libor and a volatility of 33%. The seven-year paper also was just slightly above par at the cheap end of talk.

Another sell-side convertible analyst had comparable valuations using a credit assumption of 125 bps over Treasuries and a 32% volatility.

"The credit is fine, it's a huge company, they generate a ton of cash, there's plenty of liquidity, they're not going to be extremely leveraged even with this deal," the analyst said. "They credit spread with this is the easy part...maybe it's a little complicated by the volatility assumptions."

The analyst doubted that the deal could be done at the original price talk terms.

"Normally you'd want to see a new deal coming in about 3% cheap at the cheap end of talk," the analyst said. "Now it's only about 1% cheap."

"Even as an outright, there's no coupon, it's a pretty big premium to investment value," the analyst said. "It's not the kind of deal an outright would be interested in."

A buy-side convertible analyst agreed that the low coupon would have taken away some of the interest in the convertible. "If you're an outright guy, there's not much yield advantage to this thing," the analyst said.

Even at the revised terms, the deal was not attractive if the investor was not excited about the stock, the analyst said.

Cupertino, Calif.-based Symantec said it will use the proceeds to buy back $1.5 billion of its common stock, some of which will be bought through private block trades, and to enter into convertible note hedge and warrant transactions. Symantec will also enter into separate warrant transactions with the underwriters, and those warrants will have a strike price about 75% above Symantec's stock price. Any remaining proceeds will be used as working capital and for general corporate purposes.

NPS shrugs off stock tumble

NPS Pharmaceuticals' 3% convertible due 2008 was quiet on Monday despite a sharp dive in the stock, with onlookers saying plans to trim development costs of a drug were positive for the company's credit.

The convertible did not trade on Monday, but last changed hands at about 85.5 on Friday when the stock closed at $5.58. NPS stock (Nasdaq: NPSP) closed at $4.54 on Monday, dropping by 18.64% or $1.04.

Salt Lake City-based NPS said Monday that it was stopping sales and marketing plans for its osteoporosis drug Preos and cutting its staff by 53% as it addresses issues raised about the drug by the U.S. Food and Drug Administration. The FDA has delayed approval for Preos on concerns about blood calcium levels among women who used the drug.

NPS, a biotech company, said its options for Preos include revising its approval application using data from existing studies or funding a new clinical trial. But if a new trial is required, NPS said it will conduct the new tests with a partner. Preos has already been approved in Europe as Preotact.

In the meantime, NPS will concentrate on its gastrointestinal drug teduglutide. The company expects the moves to reduce its cash burn for 2006 by between $135 million and $145 million, and expects to end 2006 with two years of cash, a year-end cash balance of between $114 and $124 million.

A sell-side convertible analyst said the move seemed like "a positive for the credit."

"It looks to me like management is on top of things and the management knows what it has to do," the analyst said.

While the moves announced Monday seem drastic, the restructuring means that NPS will stop spending money to commercialize Preos in the United States until it knows that the drug will be approved, the analyst said. "They're saying, 'We're going to cut all those costs, we're going to hunker down and spend as little as possible,'" the analyst said.

"They're telling bond holders, 'We're not going out of business,'" the analyst added.

Comverse slides on delayed report

Comverse Technology's zero-coupon convertible due 2023 fell about 10 points outright on Monday as the stock dived after the company delayed its first-quarter report amid a review of its stock options granting practices.

The convertible was seen at 124 against a stock price of $21 on Monday. Comverse stock (Nasdaq: CMVT) fell 13.11% or $3.09 to close at $20.48.

Comverse said Monday that it will not be able to file its first-quarter report on time, and will not seek a five-day extension as it will also be unable to meet the extension deadline. Comverse said it will file a new plan for filing its delinquent report to a Nasdaq panel, which will decide whether to delist Comverse stock because of the delays.

"They converts have traded down, I would imagine," a sell-side convertible analyst said. "They're pretty equity sensitive."

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