Workday trades around par on debut; Cornerstone better with shares; four deals on deck

By Rebecca Melvin

New York, June 12 -Workday Inc.'s newly priced $530 million of convertible bonds were trading around par and slightly higher on their debut in the secondary market on Wednesday after the Pleasanton, Calif., cloud-based human resources, payroll and financial management company priced two tranches at the midpoint and cheap end of talk.

The Workday 0.75% five-year paper and 1.5% seven-year paper were trading within 0.125 point of each other and were pretty flat as the underlying shares bounced around and ended 0.3% higher on the day.

Cornerstone OnDemand Inc.'s newly priced 1.5% of five-year convertibles traded up a couple of points on their debut in the secondary market after the Santa Monica, Calif., cloud-based talent management company priced $220 million of five-year convertibles at the midpoint of talk.

The Cornerstone convertibles weren't as actively traded as the Workday deal, a trader said. But they gained 2 to 3 points in the early going along with the company's underlying shares, which were up 2%. Shares extended gains in afternoon trading, ending 5% higher on the day.

Two more new issues launched ahead of the market open Wednesday. Allscripts Healthcare Solutions Inc., a Chicago-based physicians' software company, planned to price $300 million of seven-year convertible senior notes talked to yield 1% to 1.5% with an initial conversion premium of 27.5% to 32.5%, and Take-Two Interactive Software Inc. launched $250 million of five-year convertible senior notes talked to yield 0.5% to 1% with an initial conversion premium of 40% to 45%.

Two more new issues launched after the market close, including Halcon Resources Corp.'s $300 million of perpetual convertible preferred shares that were talked to yield 4.25% to 5.75% with an initial conversion premium of 20% to 25%, and NorthStar Realty Finance Corp.'s $300 million of 20-year exchangeable senior notes talked to yield 4.875% to 5.375% with an initial conversion premium of 10% to 15%.

The Allscripts deal was seen a little rich at the midpoint of talk, and the Take-Two deal was seen fair value at the midpoint, according to sources.

Neither deal was looking overly attractive, one trader said, "Most new deals are not priced right. People are going to lose a lot of money in these deals at some point as they won't hold up."

Stocks extended losses on Wednesday amid ongoing concerns about tapering of the Federal Reserve's easy money policies. The Dow Jones industrial average fell 126.79 points, or 0.8%, to 14,995.23, on top of a 0.8% drop on Tuesday. The S&P 500 stock index ended down 13.61 points, or 0.8%, to 1,612.52; and the Nasdaq stock market lost 36.52 points, or 1.1%, to 3,400.43.

New Workday trades flat

Workday's newly priced 0.75% convertibles due 2018 traded around 100.125 bid, 100.75 offered with the underlying shares at $62.00.

Workday's 1.5% convertibles due 2020 traded around 100.25 bid, 100.75 offered with the shares at $62.00.

Shares opened lower and shot up into positive territory, stabilizing around $62.00, which was up 0.5% on the day. That meant the new bonds were about flat on a dollar-neutral, or hedged, basis. Shares pared gains to end up 0.3%.

As for allocations, there was "a good mix" of investors in both Workday tranches, a syndicate source said. The 2018 convertibles were upsized to $310 million from an initially talked $220 million and priced at the midpoint of talk.

The 2020 convertibles came at the initially talked $220 million deal size and at the cheap end of talk.

There was more demand for the shorter-dated notes. A syndicate source said a preference for five-year paper is generally true in the tech and health care sectors as it is "easier to make a credit judgment" at that term length.

"The difference in demand wasn't due to the specific deal," the syndicate source said. Weaker demand was also attributed to "a soft day in the market globally" on Tuesday and the fact that there has been "a lot of paper in the same sector hitting the market in recent days, creating a little investor fatigue," the syndicate source said.

Other recent new issues in the software services sector have included salesforce.com Inc.'s $1.15 billion of 0.25% convertibles priced in March, and in May, Shutterfly Inc.'s $300 million of convertibles, Concur Technologies Inc.'s $425 million, and NetSuite Inc.'s $270 million in addition to Cornerstone's $220 million, which came on Wednesday along with Workday.

The upsized $530 million of convertible bonds priced at par. The 0.75% convertibles have an initial conversion premium of 35% and the 1.5% seven-year notes have an initial conversion premium of 32.5%.

The deal included a call spread overlay. The strike on the warrant transactions boosted the effective premium from the issuer's perspective to 75% on both tranches.

The Rule 144A deals were sold via joint bookrunners Morgan Stanley & Co. LLC, Goldman Sachs & Co. and Barclays, with co-managers Allen & Co., J.P. Morgan Securities LLC and JMP Securities.

Both issues are non-callable with no puts. They have contingent conversion at a price hurdle of 130%. They also have dividend protection.

Proceeds will be used for general corporate purposes, with a portion retained to pay the cost of the call spread.

New Cornerstone gains

Cornerstone OnDemand's newly priced 1.5% convertibles due 2018 traded up to 102 bid, 103 offered early Wednesday against a stock price of $40.80, which was up 2%.

Ultimately, the Cornerstone shares closed up $2.00, or 5.1%, at $42.06 in very active trade.

"The stock is up," a syndicate source said, by way of explaining how the bonds did.

The Cornerstone deal was quieter than Workday due likely to its smaller size, the source said.

The company priced $220 million of five-year convertibles to yield 1.5% with an initial conversion premium of 35%.

The Rule 144A deal, with a $33 million greenshoe, was priced via bookrunners Goldman Sachs and Credit Suisse Securities (USA) LLC, with JMP Securities acting as a co-manager.

In connection with the pricing of the notes, Cornerstone entered into a call spread with initial purchasers of the notes or their affiliates. The strike price on the warrant transactions was $80.06, boosting the effective initial conversion premium from the issuer's perspective to 100%.

Proceeds will be used for general corporate purposes, with a portion reserved to pay the cost of the call spread.

The notes have net share settlement. They are non-callable with no puts, and they have standard takeover and dividend protection.

Allscripts to price

A $300 million offering of Allscripts was seen rich at the midpoint of talk. Using a credit spread of 400 basis points over Libor, a 32% vol., and 75 bps of borrow, the seven-year deal modeled 1.8% rich on the midpoint of talk, a Connecticut-based trader said.

The trader said that 400 bps on the credit might have been a little too tight for this company.

A second market source said that with a higher vol., the deal modeled slightly cheap and he thought Allscripts might be the better deal for investors between Allscipts and Take-Two.

The Rule 144A deal has a $45 million greenshoe, and was being marketed by Citigroup Global Markets Inc. and JPMorgan.

The notes are non-callable for life with no puts. There is takeover protection and dividend protection via a standard conversion ratio.

Proceeds will be used to repay debt and also to pay the cost of a call spread, or convertible note hedge and warrant transactions with initial purchasers of the notes or their affiliates.

Take-Two to price

Using a credit spread of 350 basis points over Libor, a 40% vol. and 75 bps of borrow cost, the planned Take-Two convertibles modeled about fair value at the midpoint of talk, a Connecticut-based trader said.

The registered, off-the-shelf deal has an over-allotment option for up to $37.5 million additional notes.

Joint bookrunning managers were JPMorgan, Barclays and Wells Fargo Securities.

The notes may be settled in cash, shares or a combination of cash and shares. They are non-callable and there are no puts except a change-of-control put.

A portion of the proceeds will be used to redeem all of the company's outstanding 4.375% convertibles due 2014, with remaining proceeds earmarked for general corporate purposes, which may include acquisitions and other strategic investment, refinancing of debt and stock repurchases.

New York-based Take-Two is an interactive entertainment software company.

Halcon, NorthStar to price

After the market close, Halcon launched an offering of $300 million of perpetual convertible preferred shares that was expected to price after the market close on Thursday and was talked to yield 4.25% to 5.75% with an initial conversion premium of 20% to 25%, according to market sources.

Houston-based Halcon is an oil and gas exploration and production company.

The registered, off-the-shelf deal has a $45 million greenshoe and was being sold via joint bookrunning managers JPMorgan and Barclays.

The notes are non-callable for five years and then provisionally callable if shares exceed 150% of the conversion price. There are no puts. They have takeover and dividend protection.

The company plans to use proceeds to repay a portion of its outstanding borrowings under its senior secured revolving credit facility.

NorthStar Reality announced that it plans to price $300 million of 20-year exchangeable senior notes after the market close Thursday that were talked to yield 4.875% to 5.375% with an initial conversion premium of 10% to 15%, according to market sources.

NorthStar is a New York-based real estate investment trust. The exchangeables were being marketed by joint bookrunning managers Deutsche Bank, Citigroup, UBS Investment Bank, Barclays and JPMorgan.

They are non-callable for seven years and then provisionally callable for three years. There are holder puts in years 10 and 15.

Proceeds will be used to make investments relating to its business, including the pending acquisition of limited partnership interests in up to 25 real estate private equity funds, to repurchase or pay its liability and for general corporate purposes.

Mentioned in this article:

Allscripts Healthcare Solutions Inc. Nasdaq: MDRX

Cornerstone OnDemand Inc. Nasdaq: CSOD

Halcon Resources Corp. NYSE: HK

NorthStar Realty Finance Corp. NYSE: NRF

Take-Two Interactive Software Inc. Nasdaq: TTWO

Workday Inc. Nasdaq: WDAY

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