Morning Commentary: Palo Alto active on earnings; Transocean’s new convertible notes expand

By Abigail W. Adams

Portland, Me., Feb. 27 – Palo Alto Networks Inc.’s 0% convertible notes due 2019 saw a flurry of trading activity early in Tuesday’s session after the Santa Clara, Calif.-based network and enterprise security company beat analyst expectations in its second-quarter earnings report.

The notes were trading in a range of 161 to 164 as stock was up 4.5%. Palo Alto stock continued to make gains in high-volume trading early in Tuesday’s session, surpassing its average daily trading volume less than an hour after the opening bell.

The notes were solidified around 150 last week.

Palo Alto reported non-GAAP net income of $91.5 million, or 97 cents per diluted share, in the second-quarter after the market close Monday. The consensus estimate was for non-GAAP net earnings of 79 cents per share.

GAAP net loss for the second-quarter was $34.9 million, or 38 cents per diluted share, compared to a net loss of $60.6 million, or 67 cents per diluted share, in the second quarter of 2017.

Palo Alto changed its non-GAAP tax rate in the second-quarter to 22% from 31% as a result of the tax bill, which added 11 cents to the non-GAAP earnings per share, according to a company release.

Transocean Inc.’s recently issued 0.5% convertible notes due 2023 expanded 3 points on a dollar-neutral basis, a market source said. The new notes traded up to 116 on an outright basis early in Tuesday’s session as stock was up to $9.86, an increase of 1.96%.

Transocean’s 0.5% convertible notes have expanded since their debut and are up on the takeout language, a market source said.

The Zug, Switzerland-based offshore drilling contractor issued $853.8 million of the 0.5% convertible bonds on Jan. 30 in an exchange agreement for common shares and debt of Cyprus-based offshore drilling company Songa Offshore SE.

For Songa’s common shares, Transocean offered 0.35724 of a Transocean Ltd. share and $2.99726 principal amount of 0.5% exchangeable senior bonds due 2023 for each share – $561.44 million of the 0.5% notes would be used to settle the offer.

Transocean previously said $292,364,000 of the 0.5% notes would be used to settle the offer made to certain former Songa bondholders and a former Songa loan holder.

Transocean offered to purchase NOK 1,206,000,000 of Songa’s SONG04 bonds from three bondholders at a price of 103.5% per bond plus accrued interest, NOK 587 million of Songa’s SONG05 bonds from two bondholders at a price of 101% per bond plus accrued interest, and a $50 million loan from Perestroika AS to Songa at a price of 100% of the principal amount plus accrued interest.

Transocean announced on Feb. 21 it had received all regulatory approval for the acquisition of Songa shares.

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