New Layne Christensen holds up on debut; planned ServiceNow looks cheap; Incyte on tap

By Rebecca Melvin

New York, Nov. 6 - Layne Christensen Co.'s newly priced 4.25% convertible notes edged above par on their debut in the secondary market on Wednesday after the Mission Woods, Kan.-based drilling, water and construction services company priced an upsized $110 million of notes toward the cheap end of 3.75% to 4.5% coupon talk and at the midpoint of 27.5% to 32.5% premium talk.

The Layne deal was initially talked at $75 million in size. The Rule 144A bonds closed at 100.375 bid, 101.125 offered versus an underlying share price of $16.88, according to a syndicate source. Shares fell 4%.

Sizing up the windfall of other new deals that launched late Tuesday was a large focus of the market on Wednesday.

ServiceNow Inc.'s $500 million of five-year convertible senior notes won accolades for its larger deal size and market sector. It was seen slightly cheap even though talk was for a 0% to 0.5% coupon and the initial conversion premium was high at 32.5% to 37.5%. ServiceNow shares lost about 3%.

Seacor Holdings Inc.'s $200 million of 15-year convertibles were seen nearly 2% cheap using a credit spread of 350 basis points over Libor and a 22% vol. at the midpoint of talk.

Seacor's existing 2.5% convertibles, which are in the money, were seen at 123 versus an underlying share price of $91.94 on Wednesday, according to a New York-based convertibles analyst.

Not much was heard on InvenSense Inc.'s $125 million of five-year convertibles, which were talked to yield 2% to 2.25% with an initial conversion premium of 32.5% to 37.5%. One source said that there was no stock available to borrow, which made it unappealing to hedged investors. Shares slipped 3.6%.

Back in the secondary market, earnings news continued to be a primary driver of trade. Tesla Motors Inc.'s convertibles were lower outright and down to lower on a hedged basis as shares slid 14.5% after the Palo Alto, Calif.-based electric car maker reported earnings that were better year over year.

DealerTrack Holdings Inc. traded up nearly 10 points on an outright basis to 127.814 with the underlying shares up more than 10% to $41.52 after the Lake Success, N.Y.-based auto software services company beat earnings and revenue forecasts and reaffirmed full-year earnings guidance while guiding full-year revenue above forecasts.

After the market close, Incyte Corp. launched an offering of $700 million of convertible senior notes that it planned to price in two equal five-year and seven-year tranches.

Layne Christensen edges higher

Layne Christensen's 4.25% convertibles due 2018 closed at 101.375 bid, 101.125 offered despite a 75 cents, or 4.3%, loss in the underlying shares to $16.89, according to a syndicate source.

They were trading a little bit above par at about 101 in the early going, while Layne shares were down nearly 2%.

The Rule 144A offering was initially talked at $75 million in size and pricing came toward the cheap end of 3.75% to 4.5% coupon talk and at the midpoint of 27.5% to 32.5% premium talk.

There is a $15 million greenshoe, and the deal's bookrunner is Jefferies & Co.

The bonds are non-callable for three years and then are provisionally callable if shares exceed 130% of the conversion price. There is also takeover protection and net share settlement.

Proceeds will be used to repay amounts outstanding under the company's revolving credit facility. Any excess proceeds will be used for working capital and general corporate purposes.

Tesla slips

Tesla's 1.5% convertibles due 2018 traded down to 143.625 at the close with the underlying shares down $25.65, or 14.5%, to $151.16.

That was down about 4 or 5 points on an outright basis, and they "didn't expand" on a dollar-neutral, or hedged, basis, a New York-based sellsider said.

Tesla's earnings actually beat Wall Street estimates, but the new report, as usual, shed new light on the business - the shares of which have been on a tear - and investors may be eyeing chinks in its armor such as a supply constraint related to the all-important lithium-ion battery cells that fuel the cars.

Tesla earned 12 cents per share on revenue of $603 million. The company delivered 5,500 Model S units during the quarter.

Analysts had been expecting Tesla to earn 11 cents on $534.64 million in revenue.

Three deals on tap

ServiceNow, a San Diego, Calif.-based cloud-based IT services company, was seen as 1.7% cheap at the midpoint of price talk, assuming a credit spread of 200 bps over Libor and a vol. of 35%, according to a New York-based convertibles analyst.

A second source disputed the 200 bps credit spread and thought it should be closer to 400 bps.

The analyst said that so-called "cloud companies" like this one, which provide cloud-based information services, are in demand. And this one in the medium term could be a takeover candidate.

"It could be. There is no news, but when people value these, it's a factor," the analyst said.

The deal was talked to yield 0% to 0.5% with an initial conversion premium of 32.5% to 37.5%.

ServiceNow is being brought by Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and BofA Merrill Lynch.

Seacor, the Fort Lauderdale, Fla.-based offshore oil, gas and marine equipment company, is bringing $200 million of 15-year convertibles talked to yield 3.25% to 3.75% with an initial conversion premium of 32.5% to 37.5%.

The existing Seacor bond is a 14-year instrument with two years of call protection and four years to the put. It is slightly better than fair value, an analyst said.

The new Seacor was seen 1.75% cheap at the midpoint of talk, assuming a 350 bps credit spread and 22% vol.

If that credit spread was deemed a little excessive, a valuation using 400 bps over Libor made the new Seacor paper fair value at 99.25.

The bonds were talked to yield 3.25% to 3.75% with an initial conversion premium of 32.5% to 37.5%.

The Rule 144A deal has a $30 million over-allotment option and was being sold via Goldman Sachs & Co. and Deutsche Bank Securities Inc.

The notes are non-callable for five years and putable in years seven and 10.

Proceeds are for general corporate purposes and to pay the net cost of a call spread, including convertible note hedge and warrant transactions.

Finally, InvenSense, a San Jose, Calif.-based maker of motion tracking devices in consumer electronics, planned to price $125 million of five-year convertible senior notes that were talked to yield 2% to 2.25% with an initial conversion premium of 32.5% to 37.5%.

The Rule 144A offering has an over-allotment option for up to an additional $18.75 million and was being sold by Goldman Sachs as bookrunner.

The bonds are non-callable.

Proceeds are intended for general corporate purposes, including capital expenditures and working capital, and also to pay for the cost of convertible note hedge transactions as part of a call spread that is intended to raise the initial conversion premium from the issuer's perspective.

Incyte to price

Wilmington, Del.-based Incyte, a biopharmaceutical company, plans to sell $700 million of convertible senior notes in two tranches in a deal reminiscent of the BioMarin Pharmaceuticals Inc. $680 million of convertibles priced in two tranches Oct. 8.

Incyte plans to price a $350 million five-year tranche with a 0.625% to 1.125% coupon and 35% to 40% initial conversion premium and a seven-year tranche with a 1.5% to 2% coupon and a 35% to 40% premium.

Goldman Sachs, JPMorgan and BofA Merrill Lynch are joint bookrunning managers.

Entities affiliated with Julian C. Baker, a company director, have indicated an interest in purchasing up to $500 million of the notes.

Up to $500 million of the proceeds will be used to repurchase or retire a portion of the company's 4.75% convertible senior notes due 2015, through open-market transactions, negotiated transactions or otherwise.

Remaining proceeds will be used for research and development and other general corporate purposes.

Mentioned in this article:

DealerTrack Holdings Inc. Nasdaq: TRAK

Incyte Corp. Nasdaq: INCY

InvenSense Inc. Nasdaq: INVN

Layne Christensen Co. Nasdaq: LAYN

Seacor Holdings Inc. NYSE: CKH

ServiceNow Inc. NYSE: NOW

Tesla Motors Inc. Nasdaq: TSLA

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