American Realty wavers in active trade; Red Hat up on earnings; ServiceNow ‘up a little’

By Rebecca Melvin

New York, Dec. 19 – American Realty Capital Properties Inc.’s convertibles, which have been a feature of trade for much of the past week, were weaker in active trade early Friday but regained ground by day’s end.

The American Realty convertibles had traded lower with weaker shares after a former executive filed a lawsuit against the company on Thursday related to an ongoing accounting scandal swirling around the New York-based real estate investment trust.

Red Hat Inc.’s 0.25% convertibles due 2019 charged higher and shares were up by 10% after the Raleigh, N.C.-based open-source software company reported third-quarter results that beat estimates.

Elsewhere, ServiceNow Inc.’s 0% convertibles due 2018 were in trade and little changed, although still a little higher on the week, a New York-based convertibles sellsider said.

The ServiceNow bonds were seen at 113 bid, 114 offered against shares of the San Diego-based cloud IT services company that were at $69.00, up 92 cents, or 1.3% on the day.

Earlier this week, RBC Capital Markets upgraded ServiceNow to a top pick from “outperform” and raised its share price target to $80.00 from $70.00.

Convertibles continued to notch improvements in tandem with better bidders after being hurt on Tuesday by seemingly indiscriminate selling.

Investors had been attempting to reduce absolute risk heading into year-end. But on Thursday and Friday, many decided it was time to step in and take advantage of beaten down paper.

Equities gained for a third straight day following the Federal Reserve’s latest policy statement following a regularly scheduled two-day meeting, in which central bankers reassured markets that it would not phase out of accommodative practices on a fast track and that near zero interest rates could hold for some time.

No new issues launched or priced in the U.S. primary market for the week.

American Realty wavers

American Realty’s 3% convertibles due 2018 traded down to 86 in the early going Friday but tacked back points to trade positively at 87.5 late in the day. On Monday, the bonds fell to as low as 88.25, which was off more than 4 points, but they recovered to about 90 by day’s end, against a share price of $8.23, which was down 8.5%.

American Realty’s 3.75% convertibles due 2020 traded at 85.5 late on Friday, which was down from 86 to 87 on Thursday but at the top of its range for Friday trades.

Shares of the REIT were off 5 cents to $8.02 on Friday, after falling 4% on Thursday.

Lisa P. McAlister, former chief accounting officer, alleged that she was fired from the company in October because of her statements that changes in accounting practices were an attempt to hide disappointing financial performance.

The suit follows news on Monday that three top executives at the firm resigned, including managing partner and founder Nicholas S. Schorsch, in connection with “intentional” accounting errors that came to light in October.

On Monday, American Realty Capital’s 3% and 3.75% convertibles fell on surprising news that three of the New York-based real estate investment trust’s top executives have resigned from the firm.

At the end of October, the bonds dropped to the low 90s from the high 90s after news of the accounting errors and resignations of its chief financial officer and McAlister.

Red Hat gains

Red Hat’s 0.25% convertibles traded at 115.7 on Friday, which was up 2.5 points on the day, according to Trace data.

Red Hat shares surged 10.6% to $68.04.

The Red Hat convertibles, of which $805 million priced in early October, had slumped to 106.75 versus a share price of $58.23 at the close on Tuesday, which was down about a point on a dollar-neutral basis.

Red Hat had net income $47.9 million, or 26 cents per share, in the quarter that ended Nov. 30. That was down from $52 million, or 27 cents a share, a year ago when it booked a $4 million tax benefit.

Excluding non-recurring items, earnings were 42 cents per share in the latest quarter, which was better than expected.

Revenue was $455.9 million for the period, which was up from $396.5 million in the year-earlier period. Analysts had expected $450.9 million.

Mentioned in this article:

American Realty Capital Properties Inc. Nasdaq: ARCP

Red Hat Inc. NYSE: RHT

ServiceNow Inc. NYSE: NOW

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