Invacare bond drops below par as shares slip; Vodafone launches £2.9 billion mandatories

By Rebecca Melvin

New York, Feb. 18 – Invacare Corp.’s new 5% convertibles initially traded “OK” on Thursday after the bonds were released for secondary market action following pricing of the $130 million of five-year senior notes. But pricing faded with the underlying shares later in the session.

The Invacare 5% convertibles were last seen at 98 after earlier trades at 100.5 to 101, market sources said. Invacare shares also weakened on the session, closing down 44 cents, or 3.4%, to $12.37. Earlier the shares were only fractionally lower. On the heels of the deal launch, the shares dropped 24% on Wednesday.

Also in primary action, London-based Vodafone Group plc launched an offering of £2.9 billion of mandatory convertible bonds that were expected to price next week. The Vodafone deal is coming in tranches of 18-month and three-year maturities.

The coupon on the shorter-dated Vodafone tranche was talked at 1.2% to 1.5%, and the coupon on the longer-dated tranche was talked at 1.7% to 2%. The premium will be based on a conversion price that is approximately the spot price for the shares of the London-based telecommunications company.

Back in the U.S. secondary market, convertibles were mostly mixed in mild trading. Volume was about average, an East Coast-based buysider said shortly before midday.

Nvidia Corp.’s 1% convertibles due 2018 jumped on an outright basis along with shares of the graphics chip maker after the company reported better-than-expected quarterly results and guided current-quarter revenue above estimates.

The Santa Clara, Calif.-based chipmaker reported earnings of $207 million, or 35 cents a share, compared with $193 million, or 35 cents per share, in the year-earlier quarter. Excluding items, earnings were 52 cents per share, which was much higher than the 32 cents per share that analysts expected.

Revenue rose to $1.4 billion, which also beat a $1.3 billion top line estimate. Meanwhile, Nvidia guided revenue for the current quarter to $1.26 billion, plus or minus 2%, which was a bit over the $1.23 billion forecast.

The 1% Nvidia convertibles gained more than 10 points to about 155 with shares up 9% at $30.04.

On the negative side, Palo Alto Networks Inc.’s 0% convertibles due 2019 fell about 7 points to 127 in tandem with a nearly $10.00, or 7%, drop in the underlying shares following a note out by JMP Securities that said that Palo Alto faces a “challenging sales environment” and that shipping checks look “rushed.” Shares closed at $123.06.

Meanwhile, Whiting Petroleum Corp.’s 1.25% convertibles traded up more than 2 points to a still-dismal 38.5. And SunEdison Inc. was mostly weaker after news that Hawaiian Electric Co. has canceled contracts with the renewable energy company and that it may face a fee of at least $2.45 million after missing deadlines related to solar farms it is developing in Hawaii.

SunEdison also provided an update on its strategy to refocus its solar materials operations on asset-light proprietary technologies while maintaining its solar panel supply business.

The SunEdison 2% convertibles due 2018 traded at 18.5.

New Invacare drops below par

Invacare’s newly priced 5% convertibles traded last at 98 after earlier trades at 100.5 to 101.

Invacare shares slipped 3.4% after starting the session fractionally lower.

Trading in the new bond was not overly active. “I count 20 trades on the tape total. That’s not that much,” a New York-based trader said at the end of the session.

Earlier in the day a trader said, “I think they traded OK. I wasn’t active in it but I heard it par-and-a-half to 101.”

After the bond was launched one source noted that there would be quite a bit of hedged participation in the bond, but it wasn’t clear how allocations went. A syndicate source could not be reached for comment.

Shares of Elyria, Ohio-based Invacare, a maker of non-acute health care products, hit a 52-week low on Wednesday, closing down $4.03, or 24%, to $12.81.

The new bond priced at the cheap end of 4.5% to 5% coupon talk and at the rich end of 25% to 30% premium talk.

The conversion price is $16.65, which is 30% over the $12.81 closing price on Wednesday but only 19 cents below the $16.84 closing share price on Tuesday.

The notes are non-callable with no puts and will mature on Feb. 15, 2021. They have takeover protection.

In connection with the pricing of the notes, the company entered into privately negotiated convertible note hedge and warrant transactions, or a call spread, with JPMorgan Chase Bank, NA, London Branch and one or more financial institutions. The strike price of the warrants is initially $22.4175, which represents a premium of 75% on the notes from the issuer’s perspective.

J.P. Morgan Securities LLC was the bookrunner of the deal, which has a $20 million greenshoe.

Co-managers were PNC Capital Markets LLC, KeyBanc Capital Markets Inc., Oppenheimer & Co. Inc. and Wells Fargo Securities LLC.

Vodafone mandatory

The initial conversion price for the Vodafone mandatory bond will be determined on the basis of the higher of the £2.1730 closing price of ordinary shares on the London Stock Exchange on Wednesday and the average of the daily volume-weighted average price of shares for three days starting on Feb. 19.

A syndicate source said it is an unusual structure.

The mandatories will be cash settled, and the deal is being priced together with the purchase of cash-settled call options on Vodafone’s ordinary shares from J.P. Morgan Securities plc and Morgan Stanley & Co. International plc, which are the bookrunners of the mandatories.

Proceeds are earmarked for general corporate purposes and for the purchase of the call options.

Mentioned in this article:

Invacare Inc. NYSE: IVC

Nvidia Corp. Nasdaq: NVDA

Palo Alto Networks Inc. Nasdaq: PANW

SunEdison Inc. Nasdaq: SUNE

Vodafone Group plc London: VOD

Whiting Petroleum Corp. NYSE: WLL

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