RingCentral convertible on tap; DISH dominates; Palo Alto, Ensco active on earnings

By Abigail W. Adams

Portland, Me., Feb. 27 – The downturn in the equity markets after Federal Reserve chairman Jerome Powell failed to quench investors’ concern about more aggressive rate hike increases did not stop the primary market from preparing a new deal.

RingCentral Inc. plans to price $350 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 25% to 30%, according to a market source.

Morgan Stanley & Co. LLC, Goldman Sachs & Co., Deutsche Bank Securities Inc. and BofA Merrill Lynch are joint bookrunners for the Rule 144A deal, which carries a greenshoe of $52.5 million.

The Belmont, Calif.-based provider of SaaS solutions for business communications plans to use proceeds to cover the cost of the call spread and repurchase up to $35 million of the company’s common stock from institutional investors.

The new deals that have priced over the past two weeks have all come from mid-cap software companies.

However, trading activity surrounding the new paper from last week tempered on Tuesday as attention turned toward existing issuances.

DISH Network Corp.’s 3.375% convertible notes due 2026 were in the spotlight on Tuesday, outpacing all other trading activity.

The Englewood, Colo.-based direct-broadcast satellite service provider’s struggling 2.375% notes due 2024 were also active although with little movement in trading price.

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

Ensco Jersey Financial Ltd.’s 3% convertible notes due 2024 were also active after parent company Ensco plc, a London-based provider of offshore drilling services, reported fourth-quarter and year-end reports after the market close on Monday. The busted convertible notes saw little movement in trading prices as the underlying equity saw losses.

Transocean Inc.’s recently issued 0.5% convertible notes due 2023 have expanded 3 points on a dollar-neutral basis since they were issued on Jan. 30, a market source said. The new notes traded up to 116 on an outright basis early in Tuesday’s session as Transocean moves closer to completing its acquisition of Songa Offshore SE.

DISH dominates

DISH Network’s 3.375% convertible notes were in focus on Tuesday. The notes were the most actively traded in the secondary market with $31.45 million in trading volume by dollar amount by mid-afternoon. The 3.375% notes were seen trading at 101.313 versus an equity price of $44.02 mid-afternoon.

DISH Network’s 2.375% convertible notes were also active on Tuesday. The struggling notes were seen trading at 92.4 versus an equity price of $43.89 mid-afternoon. DISH Network’s stock closed Tuesday’s session at $43.75, a decrease of 2.67%.

Palo Alto’s earnings

Palo Alto’s 0% convertible notes due 2019 were actively traded in the convertibles space as its stock also saw high volume trading. The 0% notes were trading in a range of 161 to 164 as stock was up 4.5% early in Tuesday’s session.

Palo Alto stock surpassed its average daily trading volume less than an hour after the opening bell. The 0% notes dropped alongside stock later in the afternoon.

They were seen trading at 159.683 versus an equity price of $175.41 a little more than an hour before the closing bell.

Palo Alto stock closed Tuesday at $173.24, an increase of 2.32%. With a conversion ratio of 9.07, the 0% convertible notes were trading above parity during Tuesday’s session.

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 news release.

Ensco active

Ensco’s 3% convertible notes due 2024 also saw some action during Tuesday’s session after releasing fourth-quarter and year-end financial reports on Monday, although with little movement in trading prices.

The busted convertible notes were trading in a range of 83 to 85 on Tuesday as Ensco’s stock spiraled downwards.

Ensco stock closed Tuesday at $4.89, a decrease of 5.95%.

Ensco reported a net loss of $207.1 million, or 49 cents per share, for the fourth quarter and a net loss of $303.7 million, or 91 cents per share for 2017. Ensco reported an adjusted loss from continuing operations of 23 cents per share for the fourth quarter.

The loss was narrower than the consensus estimate of a loss of 26 cents per share, according to Zacks Equity Research.

Transocean’s new issue

Transocean’s recently issued 0.5% convertible notes due 2023 have expanded 3 points on a dollar-neutral basis since they were issued on Jan. 30, according to a market source. 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%.

The 0.5% notes dropped alongside the stock and closed Tuesday at 114. Transocean stock closed the day at $9.62, a decrease of 0.52%.

The 0.5% convertible notes have expanded since their debut due to the takeout language, a market source said.

The Zug, Switzerland-based offshore drilling contractor issued $853.8 million of the 0.5% convertible notes 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.

Mentioned in this article:

DISH Network Corp. Nasdaq: DISH

Ensco Jersey Financial Ltd. NYSE: ESV

Palo Alto Networks Inc. NYSE: PANW

RingCentral Inc. NYSE: RNG

Transocean Inc. NYSE: RIG

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