Cadence around par on debut; National Financial quiet; Microsoft trades with 99 handle

By Rebecca Melvin

New York, June 10 - Cadence Design Systems Inc.'s newly priced 2.625% convertibles traded flat on their debut in the secondary market Thursday, feeling heavy and pretty inactive, contrary to the expectations of some.

National Financial Partners Corp.'s newly priced 4% convertibles were also quiet, seen offered around 100.5 last, a New York-based trader said.

Meanwhile, Microsoft Corp.'s 0% convertibles due 2013, which debuted in the secondary market on Wednesday, were seen trading late in the session at 99.365 bid, 99.635 offered.

Overall, action in the new convertible paper, which sources said "wasn't priced to move," was a disappointment, but the convertible market overall was "looking a little better than on Wednesday.

Volume was light, however, a New York-based trader said.

Transocean Ltd., which has been a feature of virtually every trading day for the last several weeks, was weak in early going, with plenty of sellers, but seemed to firm up later in the day, which was consistent with the general pattern in that name of late.

Nevertheless, the three Transocean issues, which ended mixed on Thursday, are lower overall, or "walking downward," as one sellsider put it, and that is definitely a drag on the market.

"People are still very edgy. Last month was a bad month, and Transocean is not doing well so far this month, which is a big name for a lot of people," a trader said.

"People have money to put to work, but they are nervous about how convertibles have been acting and they are not sure where to look for the next leg of performance," the trader said.

In the distressed arena, Trico Marine Services Inc. convertibles were much weaker in trade as their underlying shares plunged after the marine services company disclosed in an 8-K filing with the Securities and Exchange Commission that it didn't make an interest payment due May 15 for its 8.125% convertibles and that it's in talks with potential lenders and existing debtholders about possible debtor-in-possession financing.

But Powerwave Technologies Inc., another distressed situation, has seen its bonds hold up pretty well during the overall downturn of the markets, with Powerwave's 3.875% convertibles due 2027 trading pretty steady around 71 to 72.

"Things are somewhat disconnected from fundamentals and the disruption is creating some opportunities," a Connecticut-based sellside analyst, focused on distressed names, said.

Cadence drifts around par

Cadence Design's newly priced 2.625% five-year convertibles traded around par to 100.25 versus a share price of $6.16, its closing price on Wednesday, and the paper didn't move much through the session, sources said.

Shares of San Jose, Calif.-based electronic design technology company opened lower by about 3.4% but were pulled higher by the broader markets, to end lower by just 4 cents, or 0.65%, at $6.12.

"Cadence was pretty heavy and ended up for sale at or marginally above par. It never quite got out of its own way," a New York-based trader said.

At first blush, the paper looked promising given its talked terms, but in the end investors weren't comfortable with the credit, which some put at 700 basis points to 750 bps over swap, the trader said.

Some thought the credit was better and put a spread of 500 bps on the name.

The $300 million Rule 144A deal priced at the midpoint of price talk late Wednesday, which was for a coupon of 2.375% to 2.875% with an initial conversion premium of 20% to 25%.

Cadence Design's existing convertibles were little changed to slightly higher, after rising on Wednesday on news of the buybacks.

Proceeds from the new bonds will be used to buy back some of the company's outstanding 1.375% convertibles due 2011 and to buy back up to $100 million of its outstanding 1.5% convertibles due 2013, as well as to purchase up to $40 million of common stock and fund the cost of convertible note hedge transactions.

Cadence Design's existing 1.5% convertibles due 2013 traded 0.5 point higher to 89.5 on Thursday, after jumping 4 points to 89 on Wednesday.

Cadence Design's 1.375% convertibles due 2011 traded steady at 98.15, where it stood late Wednesday after gaining more than 3.5 points.

J. P. Morgan Securities Inc. and Morgan Stanley & Co. Inc. were the joint bookrunners of the new deal, with co-managers Bank of America Merrill Lynch and Deutsche Bank Securities Inc.

New National paper quiet

National Financial's newly price 4% seven-year convertibles were not seen in trade by market sources queried, but it was offered late at 100.5, one trading source said.

Financial shares lagged the market on Thursday, and at one point shares of the New York-based financial services distribution company were down almost 5%, but they regained strength to settle up by 2 cents, or 0.2%, at $10.53.

The $125 million Rule 144A offering priced at the cheap end of talk, which was for a coupon of 3.5% to 4% and an initial conversion premium of 22.5% to 27.5%.

Goldman Sachs & Co. was the bookrunner for the offering, with Bank of America Merrill Lynch as the co-manager.

Proceeds will be used to refinance debt under the company's existing revolving credit facility and to tender for its 0.75% convertible senior notes due 2012, as well as to fund the cost of the note hedge transactions.

National Financial priced $230 million of the 0.75% convertibles in January 2007.

Transocean weaker

Transocean's 1.5% series C convertibles due 2037, which have lost the most of three sister issues since the Gulf of Mexico deep-water well explosion, were trading at 79.5 early in the session amid what appeared to be European sellers but then recovered ground and later traded at 81ish, a sellsider said.

Last they were 81.75, according to Trace data.

The pattern that has developed is that the Transocean convertibles trade down, and when they reach a certain level, buyers step in.

"But [it] seems like the moves down are much faster than the moves up," a New York-based sellside trader said.

Since the drilling rig explosion April 20, the series C paper has lost about 15 points. On April 22 and April 23, the convertibles were 95 bid, 96 offered.

Transocean's 1.5% series B convertibles due 2037 were last at 86.5, and that paper was 97 bid, 98 offered before the incident.

Transocean's 1.625% series A convertibles due 2037, which are putable at the end of 2010 and the most resilient of the three issues, are trading around 95.875.

Shares of the Vernier, Switzerland-based company ended up $1.69, or nearly 4%, to $44.27 on Thursday.

Late in the session, about $700 million convertibles had changed hands, of which $400 million was accounted for by the three Transocean issues, according to Trace data, a sellsider said.

Trico Marine falls

Trico Marine's 3% convertibles due 2027 traded down to 7.5 in the early going and later bumped up to the 10 mark. Last week, on June 2, the Trico 3s traded at 17.5 bid, 18 offered.

Trico Marine's 8.125% convertibles due 2013 traded at 50, which was down from 55 on Wednesday.

Shares of the Woodlands, Texas-based subsea services provider skidded 54 cents, or 44%, to $0.68 on Thursday.

"There was mention of them taking on a DIP loan in the 8-K this morning, and that pushed things a little," a sellside analyst said.

The Trico 3% paper was the more actively traded," the analyst said, noting that the senior straight debt was actually holding up well and stood around par.

As of Thursday, Trico said its forecasted cash and available credit capacity were not enough to allow it to make the payment before the end of the grace period.

In addition to the financing talks, Trico said it is in discussions with debtholders regarding the possibility of a default waiver and/or forbearance agreement.

The company said it may not be able to secure liquidity, waivers or forbearances before the end of the payment grace period, so it may need to file for bankruptcy at the end of that period.

Mentioned in this article

Cadence Design Systems Inc. Nasdaq: CNDS

Microsoft Corp. Nasdaq: MSFT

National Financial Partners Corp. NYSE: NFP

Powerwave Technologies Inc. Nasdaq: PWAV

Transocean Ltd. NYSE: RIG

Trico Marine Services Inc. Nasdaq: TRMA

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.