Morning Commentary: Rexnord preferreds price, trade up; Workday convertibles plummet post-earnings

By Stephanie N. Rotondo

Seattle, Dec. 2 – The convertible primary market saw some action on Friday as Rexnord Corp.’s anticipated $350 million offering of series A mandatory convertible preferreds hit the tape.

The $50-par issue came with a 5.75% coupon and a 20% conversion premium.

Price talk was for a yield of 5.5% to 6% and a premium of 17.5% to 22.5%.

Upon pricing, the issue was “basically trading around $50.75,” according to a trader.

The trader also noted that the new issue was taking up a fair bit of the day’s volume.

Also busy in the convertibles space was Workday Inc. in the wake of the company’s earnings release late Thursday.

The news didn’t do any favors for the convertible bonds, or the equity for that matter.

A trader saw the 0.75% convertible bonds due 2018 at 106.25 bid, 106.5 offered and the 1.5% convertible notes due 2020 at 111.25 bid, 111.75 offered.

He noted that the equity was off $13.00 in early dealings.

“These are small coupons that trade at a high delta,” he added. “Over the course of the day, the prices are a lot wider than that.”

For instance, he said, the 1.5% convertibles had traded between 111 and 113.5 by mid-morning.

Overall, the issues were down 10 to 13 points outright.

The latest quarterly results showed net loss widening 47% to $114.1 million, or 57 cents per share. Revenue improved 34% to $409.6 million, but costs were up 38% at $519.5 million.

On an adjusted basis, the company reported earnings per share of 3 cents. Analysts had expected a loss of 4 cents on revenue of $433.6 million.

The cloud-based human resources software company acknowledged that economic and political uncertainties were weighing on its bottom line, as it was forced to push back several deals.

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