NuVasive flat on swap after positive quarter; Twitter slips as stock drops; Knowles on tap

By Rebecca Melvin

New York, April 27 – NuVasive Inc.’s newer convertible bonds, which priced last month, traded up on an outright basis but were flat, or in line, on a dollar-neutral basis after the San Diego-based medical device company reported positive earnings and guidance.

The NuVasive 2.25% convertibles due 2021 gained about 3 points outright to 114.25 as shares gained 5% to $52.00.

The bonds were very actively traded and did well on an otherwise rough day for the health care sector, a trader said.

It appears that biotech and technology sector securities are coming off as funds rotate back to the energy, metals and commodities sectors, the trader said.

NuVasive priced $650 million of the 2.25% bonds in March. The company’s older 2.75% convertibles due 2017, much of which was repurchased with proceeds of the new deal, were not actively traded.

Twitter Inc.’s convertibles were lower on an outright basis and down slightly on a hedged basis as the common shares plunged after the San Francisco-based social media company posted mixed quarterly results and disappointing guidance late Tuesday.

The Twitter 0.25% convertibles due 2019 traded at 87 versus an underlying share price of $14.99. That was down about 0.125 point to 0.25 point on a dollar-neutral, or hedged, basis, a New York-based trader said.

The Twitter 1% convertibles due 2021 traded down to 83.75 from about 85 on Tuesday.

Twitter shares dropped $2.89, or 16%, to $14.86 on Wednesday.

Twitter said that it expects second-quarter sales of between $590 million and $610 million, which is well below estimates for $678 million in sales for the current quarter.

The disappointing report was followed by a number of analyst share-price target cuts.

Elsewhere, Spirit Realty Capital Inc.’s two convertible bonds, which have been a focus of trade all week, edged a little higher again as the salubrious effects of S&P’s investment-grade ratings assigned to the convertibles continued to work to good effect.

Spirit Realty’s 3.75% convertibles due 2020 traded last at 107.63, which was up more than 0.25 point from late Tuesday, according to Trace data. Those bonds are up 6 points from 101.6 last Thursday.

Spirit Realty’s 2.875% convertible due 2019 were up a bit to 104.85 early Wednesday from 104.20 on Tuesday. Those bonds have gained about 4 points in the last four days.

Spirit shares were up about 2% to $11.45.

After the market close, Knowles Corp. launched opportunistic financing for $125 million of 5.5-year convertible senior notes. The Rule 144A deal was talked at a 3.25% to 3.75% coupon and a 27.5% to 32.5% initial conversion premium and was expected to price after the market close on Thursday.

In the broader markets, equities ended mixed, with the S&P 500 stock index and Dow Jones industrial average ending fractionally higher after early losses, but the tech-heavy Nasdaq stock market remaining down and closing off 25 points, or 0.5%, to 4,863.14.

The turnaround in the S&P and Dow coincided with the timing of the release of the Federal Open Market Committee’s new policy statement, which left the current short-term Fed Funds rate unchanged as expected but left open the possibility of a rate hike at its next meeting in June. The current short-term rate is 0.25% to 0.5%.

NuVasive in line on swap

NuVasive’s 2.25% convertibles due 2021, of which about $650 million priced in March, were seen higher at 114 bid, 114.75 offered, up from about 111 to 111.50 previously but in line, or flat, on a swap basis, against shares that were higher by $2.76, or 5.3%, to $54.42.

It was not obvious at first blush how the new bonds of 2021 traded on a swap basis, but assuming a 69% to 70% delta, they “nuked straight up,” a trader said.

The old 2017 bonds “are pretty much gone” and weren’t seen to have traded as the vast majority of the deal was repurchased with proceeds of the new deal.

“They trade tight,” a trader said of the new paper. “If you look at the valuation, they are not exactly cheap, so they just nuked straight up.”

NuVasive shares rose 5%. Pulling the securities higher was a solid earnings report, in which the company, which makes medical devices for minimally disruptive surgical treatments for the spine, beat earnings estimates and raised guidance.

“It was a tough tape for health care today,” a trader said. “The health care tape has not been so strong for the last few days as there has been rotation into energy and metals. “Tech, biotech has been rolling over and energy and commodities have been melting up,” he said.

Knowles to sell $125 million

Knowles, a supplier of advanced micro-acoustic, specialty components and human interface services, is offering $125 million of 5.5-year convertible senior notes that are being talked at a 3.25% to 3.75% coupon and a 27.5% to 32.5% initial conversion premium for pricing Thursday.

The notes are non-callable for life with no puts and, they have takeover protection. The company is also pricing the deal together with a call spread.

Proceeds will be used to reduce borrowings outstanding under Knowles’ term loan facility, with a portion earmarked to pay the cost of the call spread.

There is an $18.75 million greenshoe for the Rule 144A deal, which was being sold via bookrunning manager J.P. Morgan Securities LLC and joint lead manager BofA Merrill Lynch.

Co-managers include HSBC Securities (USA) Inc., Wells Fargo Securities LLC and PNC Capital Markets LLC.

Mentioned in this article:

Knowles Corp. NYSE: KN

NuVasive Inc. Nasdaq: NUVA

Spirit Realty Corp. NYSE: SRC

Twitter Inc. Nasdaq: TWTR

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