New Synaptics surges; Teladoc prices upsized deal; tech, healthcare up as energy tanks

By Rebecca Melvin

New York, June 21 – Synaptics Inc.’s newly priced 0.5% convertibles jumped in active trading on Wednesday after the San Jose, Calif.-based computer hardware company priced an upsized $500 million of the five-year notes within talk.

Out of the chute, the new Synaptics convertibles moved up to 105 bid, 105.5 offered when the underlying shares were around $56.80. Later in the session, the new convertibles were quoted at 105.375 bid, 105.875 offered versus an underlying stock price at $57.62.

Early in the day, the issue was up about 4.5 points on a swap, or dollar-neutral, basis, when the shares were up about 3%. At the close, with shares up 4.5%, it was still “holding in really well,” a syndicate source said.

The new deal was helped by a better overall bid in the technology sector as the energy patch continued to skid. It may also have been helped by investor meetings ahead of the deal launch intended to ensure good pricing, a market source said.

“It was very well priced and well executed,” another market source said.

Also in the primary market, Teladoc Inc. priced an upsized $240 million of five-year convertible notes after the market close to yield 3% with an initial conversion premium of 30%.

The deal was mostly quiet ahead of pricing, but a market was heard in the gray at 101.5 bid, 102 offered, a trader said.

Teladoc, a telephone and videoconferencing health care services company, is new to the convert space and was deemed “a mixed bag,” as investors were divided about whether they liked the name or not.

“There’s not a ton of revenue and they use a lot of acquisitions to grow,” a trader said. But it’s “priced appropriately,” based on talk for a 3% to 3.5% coupon and a 27.5% to 32.5% premium.

Both healthcare and the technology sectors were better bid on Wednesday after some profit taking in technology on Tuesday. While the new Synaptic deal was the dominant focus of the day, there was a pop in Red Hat Inc. on an outright basis after positive earnings and guidance.

Intel Corp.’s sister convertibles were also active, with the technology bellwether’s 3.493% convertibles due 2035 printing little changed at 131.6 and the 3.25% convertibles due 2039 trading down a couple of points at 167.6. Intel shares dropped at the open but recovered some ground by mid-morning, last seen down 60 cents, or 1.7% at $34.25.

Energy continued to weaken, however, as oil prices slipped again after dropping into bear market territory on Tuesday. Pricing that is 20% below the last peak is generally considered a bear market.

“It’s getting hit again today,” a trader said of the convertibles energy space.

A second source said, “It’s nothing more than capitulation related to oil prices.”

Weatherford International Ltd. dropped another couple of points to just below par on Wednesday. Weatherford shares were down another 19 cents, or 4.6%, to $3.91 at the market close.

Ensco plc’s convertibles were also hit hard as the company’s shares fell 31 cents, or 5.7%, to $5.075.

Weatherford and Ensco were down at least 0.25 point to 0.5 point on a dollar-neutral basis on the day, a sellsider said.

Chesapeake Energy Corp.’s 5.5% convertibles due 2026 were also getting hit hard, sources said, and the notes printed at 92.4 during the session against a lower stock price.

Synaptics jumps on debut

The new Synaptics convertibles moved up to 105 bid, 105.5 offered in the secondary market, a syndicate source said.

On a swap, or dollar-neutral, basis, the issue was up about 4.5 points against Synaptics’ common shares, which moved higher from the open, trading around $56.80, which was up $1.73, or 3%, at late morning.

“It’s up, up and away,” a syndicate source said of how the deal performed in the after-market.

The deal was trading on both an outright and swap basis.

One source said the deal was said to be “brought over the wall,” meaning that the underwriters spoke with specific investors prior to the deal pricing and then those investors were restricted in trading any assets in that name.

Synaptics priced an upsized $500 million of five-year convertible notes on an overnight basis.

Pricing came at the midpoint of the 0.25% to 0.75% coupon talk and at the cheap end of the 32.5% to 37.5% premium talk.

Wells Fargo Securities LLC was bookrunner.

Based in San Jose, Calif., Synaptics makes touchpads and other interface parts for computers.

Teladoc on tap

Teladoc’s $200 million of five-year notes were getting a look on Wednesday ahead of the pricing.

There were some market players that were not keen on the deal but others who saw Teladoc as doing a good job rolling up its category in mobile health care services.

The company is noted for doing acquisitions and the proceeds of the convertible deal are earmarked for its previously announced acquisition of Best Doctors Holdings Inc. among other things.

Jefferies & Co. is bookrunner of the Rule 144A deal.

Based in Purchase, N.Y., Teladoc uses telephone and videoconferencing to provide on-demand, remote medical care.

Red Hat jumps with shares.

Red Hat’s 0.25% convertibles jumped more than 9 points outright in tandem with a surge in the underlying shares, after the open-source software products company reported better-than-expected earnings and raised guidance.

The Red Hat convertibles were at 142.9, according to Trace data. Red Hat shares were up $8.47, or 9.4%, at $98.35 at late morning.

Red Hat reported net income of $73.2 million, or 40 cents per share, on revenue of $676.8 million for the first quarter of its 2018 fiscal year. After excluded items, Red Hat earnings came in at 56 cents per share. Analysts had expected 53 cents per share on sales of $648 million, and the company had forecast adjusted profit of 52 cents to 53 cents per share.

Red Hat also raised its full-year guidance, with adjusted earnings now expected to range from $2.66 to $2.70 a share, which is up from its previous range of $2.60 to $2.64 per share. Revenue is expected to be $2.785 billion to $2.825 billion, which was raised from the previous range of $2.72 billion to $2.76 billion.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Ensco plc NYSE: ESV

Intel Corp. Nasdaq: INTC

Red Hat Inc. Nasdaq: RHAT

Synaptics Inc. Nasdaq: SYNA

Teladoc Inc. Nasdaq: TDOC

Weatherford International Ltd. NYSE: WFT

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